Trust-to- trust: Minimum and maximum number of trustees
By Phia van der Spuy
JOHANNESBURG - The Trust Property Control Act does not prescribe a minimum or a maximum number of trustees, and a trust may be properly established with only a single trustee.
The founder will be required to decide how many trustees he or she wants to appoint, given his or her specific circumstances. The Master of the High Court prefers trust instruments to stipulate a minimum and maximum number of trustees.
Trustees are bound by the provisions of a trust instrument, including having a minimum number and not having more than the maximum number of trustees in office. The Master will not appoint an additional trustee if such appointment pushes the number of trustees over the maximum number allowed in the trust instrument. One would have to amend the trust instrument first and increase the maximum number of trustees allowed, before such appointment would be made by the Master. In the event that the number of trustees fall below the minimum number of trustees stipulated in the trust instrument, no acts of the trustees will be valid, and the trustees will not be able to act until such time as the minimum number of trustees have actually been appointed by the Master of the High Court and a new Letters of Authority has been issued. One cannot even rely on the majority decision rule (which most trust instruments have), whereby the majority of trustees can bind a trust, to get around the minimum number of appointed trustees to participate in trustee decisions - the minimum number of trustees have to be in office (appointed by the Master of the High Court and indicated as such on the Letters of Authority).
The Court has made it clear in the Land and Agricultural Bank of South Africa v Parker case of 2005 that in the event that the number of trustees drop below the minimum number required in terms of the trust instrument, any action taken on behalf of the trust will be invalid due to this incapacity (disqualification). It is a fundamental principle of our law that anything done in contravention with our law is of no force and effect. The Court held in the Meijer v Firstrand Bank Limited case of 2013 that the indication of a minimum number of trustees in the trust instrument is a capacity-defining condition which sets a prerequisite that must be fulfilled before any valid decisions can be made which affects the trust’s assets. The particular trustee in the Meijer case, on her own, was in law not in a position to bind the trust when she concluded a loan agreement with the bank and caused the trust property to be mortgaged.
A decision taken by less than the required minimum number of trustees being in office will also not be capable of ratification (to sign a document to make it official) when the required number of trustees are appointed at a later stage. The Court in the Meijer case held that the trust lacked contractual capacity to conclude the bank transactions at the time and that they are therefore null and void and cannot be approved at a later stage.
It is critical that estate planners consider their own circumstances when drafting a trust instrument and make provision for the scenario when the number of trustees drop below the minimum number specified in the trust instrument. Although it will be important to prevent a small number of trustees or maybe a sole trustee to abuse trust assets during this time, it is also important to at least maintain the trust assets during such time. The more important aspect will be to make provision in the trust instrument for the speedy nomination of a further trustee or trustees by the person/s indicated by the estate planner in the trust instrument and for the trustees to appoint a replacement trustee together with removing a resigning trustee with the Master of the High Court in order to prevent the trustee number to drop below the required minimum, which will cause the trust to come to a standstill (Steyn v Blockpave case of 2011).
It is practical and advisable to appoint at least two trustees to a trust to ensure continuity and to prevent decisions from being made by only one person. The minimum required number of trustees should be defined in the trust instrument to avoid the abuse of trust assets. Bear in mind that the appointment of too many trustees can create administrative difficulties, including meeting attendance, the making of decisions, the signing of documents, and attending to the various duties of trusteeship. The decision of the estate planner regarding the minimum and maximum number of trustees should be made based on his or her personal circumstances.
Phia van der Spuy is a registered Fiduciary Practitioner of South Africa®, a Master Tax Practitioner (SA)™, a Trust and Estate Practitioner (TEP) and the founder of Trusteeze®, a professional trust practitioner.