Trustees are the guardians of the trust's assets and have a duty to manage these assets in the best interest of the beneficiaries. They are akin to the managers of a company. They manage the trust according to the purpose and the objectives set out in the trust deed. They have a fiduciary duty to the beneficiaries of the trust, and may not act in a way that violates this duty or is outside the parameters of the trust deed.

The Trust Property Control Act is quite specific as to what is expected of trustees. They must “act with the care, diligence and skill which can reasonably be expected of a person who manages the affairs of another.” This is a far reaching, onerous provision and the onus will be on the trustee to prove that he or she acted as such, in the event that he or she is accused of maladministration. No trust instrument can exempt a trustee from this liability.

What powers do trustees have?

Trustees are required to exercise their powers independently and objectively. Trustees hold a fiduciary position and therefore must always exercise their powers to the advantage of the beneficiaries, and act within these powers. When trustees act contrary to the provisions of the trust deed, their acts are ultra vires (beyond the powers) and therefore invalid. It is therefore critical for the estate planner to ensure that the trustees have sufficient powers to execute the intentions of the trust, without giving them powers that may conflict with such intentions.

South African law distinguishes between a general and specific power of appointment afforded to a trustee. Only a specific power of appointment is accepted or permitted in terms of South African trust law. This is also known as special power of appointment, and refers to the power of choosing, or a “right of disposal” by the trustee. Any attempt to empower trustees with a broader general power of appointment would lead to the trust being declared invalid.

The trust deed must be clear and specific in terms of what trustees are empowered to do. It is important to remember that a trust is a contract, and that the trustees must be guided by the trust deed when performing their duties.

Who gets sued?

A trust itself cannot be sued, because it is not recognised as a legal person. The trustees, can, however, be sued. An indemnity clause in a trust deed exempting trustees from liability for breach of trust, does not exempt the trustees from ordinary or gross negligence, or intentional wrongdoing. A criminal case may be brought against a trustee who commits a crime during the course of the trust’s administration - for example, through theft or fraud.

Trustees are jointly and severally liable for damages. Beneficiaries, or third parties, such as creditors, who have suffered a loss as a result of a breach of trust, are entitled to bring a damages claim against the trustees. Trustees can be sued for damages by beneficiaries, if such trustees are deemed to have acted negligently, either when acting in good faith or when intentionally acting wrongfully.

A trustee not involved in such a breach of trust may still be liable for the wrongful action of another trustee in a situation where the “innocent” trustee’s ignorance or inactivity is causally connected to the damage. This may, for example, be where the “innocent” trustee is aware of a breach of trust by co-trustees, but does not report it; or where he or she improperly allows trust funds to remain in the sole control of the co-trustees.

Can trustees be held personally liable?

Trustees could find themselves personally liable for losses suffered by the trust if it can be proved that they did not act with the necessary care, diligence and skill that can reasonably be expected of a person who manages the affairs of another. “Skill” encompasses more than simply acting in good faith. Trustees may be negligent not only if they invest in risky investments, but also if they invest too conservatively, resulting in the capital not growing sufficiently.

Trustees must be aware that they can be held personally liable even if only one trustee has signing power on behalf of the trust and that person makes a poor decision that finds all the trustees liable for his or her negligence.

In a dispute, the court will enquire as to what any other person who takes care of people's affairs would have done under similar circumstances. A court will ignore the fact that the trustee, for example, was a family member, and was therefore deemed to be acting in the family’s best interests.

Can a trustee be exempt from liability?

Any provision in a trust deed that exempts a trustee from liability for negligence is void. If the trust deed contains such a clause, it may invalidate the entire trust instrument and cause the trust to cease to exist. A trust deed should always have a severability clause excluding such illegal provisions.

Can a trustee be removed?

In the Tijmstra v Blunt-Mackenzie case of 2002 it was held that a trustee may be removed from office, even if he or she acted in good faith. It was argued that a trustee’s office should be terminated by the court if he or she allowed maladministration of the trust by the other trustees, without acting on it. It further argued that acting in bad faith or even misconduct are not necessary requirements for the removal of a trustee. This is a strong warning to trustees, who should be aware of the possible consequences for turning a blind eye.

By choosing your trustees wisely, you can ensure professional asset and investment management and that your assets are taken care of when you are not around or able to look after them yourself.

Phia van der Spuy is a registered Fiduciary Practitioner of South Africa and the founder of Trusteeze, which specialises in trust administration.