By Aaron Roup and David Knott, Fiduciary Institute of South Africa
Over the past number of years, the fiduciary industry in South Africa has undergone serious change. Legislation has been passed to regulate the financial services industry, such as FICA and FAIS. What ten years ago seemed to be a straightforward industry in which to practise has now become highly specialised, with experts required in specific fiduciary areas to give clients what they have a right to expect, which is sound advice based on best practice.
One of the financial planning tools used over the years has been the intervivos trust, a trust created during the lifetime of the founder. In the initial stages of using such trusts, it was common practice to appoint the founder and his or her spouse as the trustees of the trust. However, over time, cases have been brought before the courts dealing specifically with the issue of trustees in trust (Landbank v Parker), which has resulted in the Master of the High Court, the custodian of all trust matters in the Republic of South Africa, determining that where trusts have only husband and wife as trustee, a further appointment of a third, independent trustee is called for. This independent trustee could be an attorney, accountant, auditor, or a professional trustee such as a corporate member of the Fiduciary Institute of South Africa (FISA).
If you are appointed as a trustee, you need to be fully conversant with the role, duties and obligations of the position. Following below is an overview of the role and duties of a trustee, together with some court cases involving trusts and trustees.
The starting point is the duty of trustees to exercise their powers, in the best interests of the present and future beneficiaries of the trust, holding the scales impartially between different classes of beneficiaries. This duty of the trustees towards their beneficiaries is paramount. “They must of course obey the law but, subject to that, they must put the interests of their beneficiaries first.” – Sir Robert Megarry in Cowan v Scargill ( 2 All ER (Ch. D)
The duties of a trustee include the following
- Know and understand the contents of the trust instrument appointing him or her
- Have in-depth knowledge of all relevant fundamental law governing trustees, which includes but is not limited to the Trust Property Act 57 of 1988, the Immovable Property Act 94 of 1965, the Income Tax Act 58 of 1962, the Estate Duty Act 45 of 1955, the Matrimonial Property Act 66 of 1984, the Marriage Act 25 of 1961, the Civil Union Act 17 of 2006, the Customary Marriages Act 120 of 1998 and the Divorce Act 70 of 1979;
- Have a working knowledge of the law of contract, property and domicile
- Be familiar with prudent investment vehicles, both onshore and offshore
- Have knowledge of foreign exchange control regulations
- Have knowledge of the Financial Services Board (FSB) and its reporting requirements
- Be aware of the Domestic Partnerships Bill, gazetted on 14 January 2008
- Keep accurate and detailed minutes of trustee meetings, proper resolutions and comprehensive records
- Act with due care and utmost diligence
- Act only in the best interests of the trust
- Act impartially and independently.
A trustee may not
- Act contrary to the contents of the trust deed
- Act without his or her appointment being accepted by the relevant office of the Master of the High Court
- Act strictly in anything but the best interests of the trust
- Disregard the rights of any beneficiary
- Fail to ascertain the rights and obligations that his or her office entails
- Endanger or expose to risk, any or all of the trust assets
- Intermingle any of the trust assets with assets belonging to the personal estate of the trustee(s)
- Treat any trust property as that of his or her own
- Fail to maintain comprehensive records of all matters relevant to the smooth running of the trust
- Withhold decisions taken from the other trustees and beneficiaries
- Rely on, or be subservient to, any dominant co-trustee
- Receive any secret benefit from the trust
- Observe anything other than utmost good faith and integrity
- Act without the necessary agreement of his or her co-trustees.
With due regard to the points raised above, it is interesting to note that the courts have, in many instances, been asked to rule on matters involving trusts, the assets within the trust and, finally, the actions or perceived actions of the trustees.
Some of the court cases involving the above are referred to below and each case makes for interesting reading in itself.
When is a trustee authorized to act?
Simplex (Pty) Ltd v van der Merwe and Others 1996 (1) SA 111 (W)
A trust was prepared to facilitate a specific transaction.
Documentation was signed in haste before the trust was registered.
s 6(1) of the Trust Property Control Act 57 of 1988
…any person whose appointment as trustee in terms of a trust instrument . . . shall act in that capacity only if authorised thereto in writing by the Master’. The words ‘shall . . . only’ are clearly of a peremptory nature, indicating an unambiguous prohibition on acting as trustee until authorised thereto in writing by the Master
The Court cannot validate acts which are expressly prohibited by statute: to do so would be to arrogate to the Court the power to override valid legislative Acts. The Court accordingly does not have the power to validate a contract concluded by a trustee in conflict with s 6(1) of the Act.
It follows that a trustee may only act once he or she is in possession of Letters of Authority.
The need to keep accurate records and act in good faith
Doyle v Board of Executors 1999 (2) SA 809 (C).
A trust was created in 1949 with Mrs D as the income beneficiary.
Her son was to become the capital beneficiary on her death.
Mrs D died in 1994 whereupon the son demanded a full and complete accounting from the date that BoE was appointed as trustee, which was in 1951.
BoE argued that it was only the income beneficiary, Mrs D, who had been entitled to this accounting, the son only becoming entitled to the accounting as at the date of Mrs D’s death.
The Court disagreed and found that the son was entitled to have knowledge every step of the way as to how the trust capital had been invested and re-invested.
The trustee was required in good faith to account fully to the capital beneficiary, with supporting vouchers, for all transactions of the trust, going back to 1951.
It follows that accurate accounting records, minutes of meetings and resolutions of decisions are vital.
It follows further that a trustee must be fully transparent at all times.
In summary, the role of a professional trustee is not to be undertaken lightly. If you are invited to fulfill such a role, make sure you understand the implications. If you are needing to appoint a professional trustee yourself, a good starting point is to seek a FISA – registered practitioner, who is required to adhere to minimum fiduciary industry standards.