You often accept appointment as trustee on trusts set up for the benefit of your family members or friends.
As trustee, you can be held liable for not fulfilling your duties and responsibilities.
To assist you to comply with your duties and responsibilities, we have compiled a summary of important points that you should keep in mind or things that you can do when you act as trustee of a South African trust:
- You may not act as trustee until you have been formally appointed by the Master of the High Court. Any action taken by you as trustee prior to your appointment can be void. A completed appointment is only achieved when your name appears on the Letters of Authority with the trust name and IT number (registration number) and the official date stamp and signature of the Master of the High Court thereon.
- You must, in the performance of your duties and exercise of your powers as trustee, at all times act with the care, diligence and skill which can reasonably be expected of a person who manages the affairs of another. The duty is in some respects similar to that of a director of a company. You cannot, in your defence, rely on your lack of skill or lack of proficiency in a particular subject matter or good intent to pass this test.
- You must act in the best interests of the trust beneficiaries and in doing so, must exercise this obligation independent of the views of the person/s (for example the founder) who appointed you.
- You must be well acquainted with and observe the terms of the trust deed. The trust deed is the constitution or charter of a trust. When trustees act contrary to the provisions of the trust deed, their acts can be invalid and in addition, can result in liability for them. It is therefore imperative that you are fully aware of and understand the contents of the trust deed. Ignorance of the contents of the trust deed will not be a valid defence. The general rule is that if a trust deed does not contain an express or implicit power which allows the trustees to pursue a certain activity or transaction, the trustees have no entitlement in law to proceed with such an activity.
- The trustees must keep a separate record of trust assets. Suggested ways in which to do so, are to make sure that:
- Annual financial statements are prepared for the trust;
- Bank statements are kept on record in the name of the trust;
- Investment statements are kept in the name of the trust;
- Title deeds show the registration of properties in the name of the trustees for the trust;
- The share register or share certificates (where applicable) shows shares held in the name of the trustees for the trust.
- The trustees must take possession of the trust assets so that it comes under their control. It is highly recommended that a full inventory be made of trust assets so that you know which assets are held in trust. In practice you can study the financial statements when you are being appointed as trustee and ask the co-trustees for statements or supporting documentation for each item on the financial statements.
- Trustees have to keep the trust property separate from their own. Trustees are required to deposit any money received in their capacity as trustee in a trust bank account at a banking institution. In practice it could be perceived that, while there is no cash received in the trust, no payments and no distributions are made, or while the trust is dormant, that there is no need for a bank account. However, the R100 donation by way of which the trust was established by the founder has to be deposited somewhere, and not in your personal bank account. After your appointment as trustee, obtain proof of the trust bank account from the co-trustees by asking for the bank statement showing the account holder as being the trust.
- Trustees must ensure that the trust is registered for income tax and that all tax submissions are done timeously and accurately. Trustees generally may outsource the tax compliance function to a suitably skilled professional, like an accountant. Please note that trustees may delegate powers to another, but may not abdicate their powers. All trusts have to be registered for tax. Even if the trust is dormant, the trustees have to see to it that a nil tax return is lodged timeously every year. To fulfil your obligation as trustee, it is better to appoint an accountant to the trust to do the tax submissions. You, as trustee, should review the financial statements and tax return and sign them off before the accountant submits them to SARS. Bear in mind that there is no statutory audit requirement for a trust. As such, the financial records do not have to be audited, unless so required by the trust deed.
- Trustees have to provide trust beneficiaries with details of financial matters pertaining to the Trust, such as the financial statements of the Trust.
- Any decision relating to the trust and the administration thereof should be recorded by means of resolutions, agendas and minutes of trustee meetings. The best way to keep such records is either to keep a minute book and stick the signed minutes in it in date sequence, or to save scanned copies of the signed minutes marked in date sequence into a named folder onto a hard drive with external back-ups or backed up in the Cloud. Trustees have to make sure that they pass resolutions in line with the prescribed requirements in the trust deed, and then also keep record of the resolutions as prescribed by the trust deed. The trust will only be bound by decisions of the trustees taken in terms of the trust deed. Decisions by trustees have to be taken by the board of trustees acting together, as one body.
- Trustees should take reasonable steps to protect trust assets for the benefit of trust beneficiaries. This includes, as an example, seeing to it that trust assets are properly insured.
- All trustees should attend trustee meetings and take part in discussions and debates at such meetings. When requested to sign any resolution or document in capacity as trustee, you should scrutinise all supporting documentation to firstly make sure that the proposed transaction is allowed in terms of the trust deed, and secondly that the transaction would be to the benefit of the trust beneficiaries. You should ask to see draft financial statements of the trust before signing off and should go through them in detail and ask for journal entries supporting them if any entry is unclear.
WHAT IT MEANS FOR YOU AS TRUSTEE TO EXERCISE YOUR DISCRETION
Trust deeds often state that trustees have certain powers and may make decisions in their utmost discretion. What does it actually mean to exercise your discretion as trustee?:
To adequately exercise your discretion as trustee, you should:
- be involved in all trustee decisions;
- attend all trustee meetings and review minutes of meetings for correctness;
- when approached by any co-trustee to sign approval for a transaction you should scrutinise the trust deed to ensure that the transaction may in fact be entered into by the trustees, thereafter consider the question whether the transaction would be to the advantage of the trust beneficiaries, and then review the documentation for correctness;
- be able to provide proof in writing that you have applied your mind by way of for example, a record of questions asked by you on email or on minutes of meetings;
- say ‘no’ when you are of the opinion that a transaction should not be entered into, even if you are the only trustee not agreeing, or even if you not agreeing would mean that the transaction would not be allowed because of a unanimous decision needed or a majority vote then not being attained.
We offer training to family members who are appointed as trustees on a family trust or investment trust, which training includes explaining the basic mechanism and taxation of trusts, and which covers in detail the duties and responsibilities of you as trustee in a practical manner by discussing real life examples. Please contact marteen@fidelisvox.co.za to book an online or socially distanced around the table training session for you and your family members, or for your children who will next be appointed as trustees.
The above discussion does not constitute advice, is not comprehensive and does not serve as a guarantee that you will not attract liability as trustee if you comply therewith, but just serves as a general guideline to you to assist you in your duties as trustee.
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)