Phia van der Spuy is a Chartered Accountant with a Masters degree in tax and a registered Fiduciary Practitioner of South Africa®, a Master Tax Practitioner (SA)™, a Trust and Estate Practitioner (TEP) and the founder of Trusteeze®, the provider of a digital trust solution. Photo: File
Phia van der Spuy is a Chartered Accountant with a Masters degree in tax and a registered Fiduciary Practitioner of South Africa®, a Master Tax Practitioner (SA)™, a Trust and Estate Practitioner (TEP) and the founder of Trusteeze®, the provider of a digital trust solution. Photo: File

Trust-to-Trust: Should you accept an appointment as independent trustee?

By Opinion Time of article published Jan 31, 2021

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By Phia van der Spuy

Trustees are the guardians of the trust assets and have a duty to manage these assets in the best interests of the beneficiaries.

SARS and creditors frequently make attempts to attack trusts, but this can be mitigated through the appointment of an independent trustee.

Does a trust need an independent trustee?

Until recently, it was not a requirement to appoint an independent trustee. In 2005, in the landmark Land and Agricultural Bank of South Africa v Parker case, the Court suggested that each family trust should appoint an independent trustee. However, in March 2017, the Chief Master issued a directive which sets the requirement for the appointment of an independent trustee for all trusts which are defined as “family business trusts”. This is typically a trust set up for the protection of family assets, where the trustees are all beneficiaries, and they are all related. These trustees are also empowered in terms of the trust instrument to enter into transactions which create debt in the trust. If no independent trustee is appointed for such a family business trust, the Master of the High Court will refuse the registration of the trust. The Master may, in certain circumstances, dispense with the appointment of an independent trustee.

Do you qualify to act as independent trustee?

An independent trustee must be an independent outsider who accepts office in order to ensure that the trust functions properly and that the provisions of the trust instrument are observed. The independent trustee could be a person or an entity who has no family relation or connection, blood or otherwise, to the trustees, beneficiaries or founder of the trust, and who is also not a beneficiary of the trust. You can, therefore, not appoint your son-in-law as the independent trustee. Take note that the Master also has issue with any connection (family or otherwise) to the trustees, beneficiaries or founder of the trust. It will, therefore, be difficult for a person who is the accountant, attorney, business partner – or even a friend – of the trustee(s), beneficiary(ies) or founder(s) of the trust to accept appointment as an independent trustee and comfortably sign the Sworn Affidavit (see below) that each independent trustee is required to sign upon their appointment with the Master.

It is in the best interests of the trust that the independent trustee has sufficient knowledge of the impact of statutory requirements on the trust, including an understanding around compliance with relevant tax law, and the effect of changes in legislation on the trust. Take note of the declaration (see below) that you are “knowledgeable in the law of trusts”.

Does an independent trustee have a higher responsibility or accountability when compared to other trustees?

The Master requires the independent trustee to sign a Sworn Affidavit upon their appointment. Any person considering an appointment as independent trustee needs to (especially) carefully consider the following points on the Sworn Affidavit before accepting such appointment:

“As independent trustee I declare and undertake the following:…

4. That I have no family relation or connection, blood or other, to any of the existing or proposed Trustees, beneficiaries or founder of the trust.

5. That I am competent to scrutinize and check the conduct of the other appointed trustees who lack a sufficiently independent interest in the observance of substantive and procedural requirements arising from the Trust instrument.

6. I have no reason to conclude or approve transactions that may prove to be invalid, because I am knowledgeable in the law of trusts.”

Are you the minority?

Even if an independent trustee is appointed, there is no assurance that the trustees will act independently to achieve a separation between control and enjoyment of trust assets. Some people prefer having an uneven number of trustees. This presents a risk, as there is a good chance that – in the case of three trustees – two trustees can side against and even outvote the other trustee. In typical family trusts, where the husband and wife are trustees, together with the independent trustee (as required by the Master), it may be easy for the husband and wife team to out-vote the independent trustee if the independent trustee does not agree with the husband and wife team (Merwe NO and Others v Hydraberg Hydraulics CC and Others, van der Merwe NO and Others v Bosman and Others case of 2010). This may create a risk for the independent trustee if two family members do not act for the benefit of all beneficiaries of the trust, but rather for their own. It may also expose the trust if the Court can prove that the independent trustee’s appointment was just “window dressing” and that their vote does not “really” count. The Courts frown upon this practice and expect an independent trustee to be involved in decisions relating to the trust.

Phia van der Spuy is a Chartered Accountant with a Masters degree in tax and a registered Fiduciary Practitioner of South Africa®, a Master Tax Practitioner (SA)™, a Trust and Estate Practitioner (TEP) and the founder of Trusteeze®, the provider of a digital trust solution.

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