ALL ABOUT TRUSTS:
It often happens that trustees do not actively participate in trust matters on an on-going basis – such as when soon-to-be-ex-spouses do not want to face one another in trustee meetings, or when people simply rely on an (invalid) clause in a trust instrument to abdicate their responsibility as trustee. Here’s a closer look at what our law allows.
Alternate trustee
A trust instrument may allow the use of an alternate trustee in the event that an appointed trustee cannot attend a meeting or is temporarily absent and cannot participate in the trust’s affairs. Even if the trust instrument allows for the use of a temporary alternate trustee, the actions by the alternate trustee may be null and void for the following reasons:
- Section 6 of the Trust Property Control Act requires a person to be duly authorised by the Master of the High Court before they can act as a trustee of the trust. The Act does not make provision for the appointment of an alternate trustee.
- Our common law requires all trust decisions to be made by duly appointed trustees of the trust, and no one else.
- There is no room in our law for a “silent” or “sleeping” trustee who appoints someone else to act on his or her behalf.
[blob] A trustee cannot empower an alternate trustee to act on his or her behalf to exercise a general discretion and decision-making which vests in the trustee. Alternate trustees can, therefore, not make decisions as they wish. A stipulation in the trust instrument allowing a proxy (see below) or alternate trustee to vote as they “may deem fit”, results in an abdication of a trustee’s powers, which is not allowed. If an alternate trustee is allowed to exercise their independent judgement and form a personal view at a trustees meeting, he or she would be allowed to act like an appointed trustee, without being duly authorised, as required under Section 6 of the Act (Hoosen v Deedat case of 1999).
A proxy
A possible solution for a trustee who cannot attend a meeting is the use of a proxy. A proxy is a written authorisation from an absent trustee that grants a limited power of attorney to another person (the proxy) to vote on behalf of and in accordance with the directions of the trustee.
A proxy allows a duly authorised person to represent a trustee at a meeting if it is specifically allowed in the trust instrument. The court held in the Malatji v Ledwaba case of 2021 that there is no common-law principle allowing representation by proxy. If the trust instrument does not specifically allow for the use of a proxy, the parties have to be present in person at the meeting to be entitled to vote. The court held further that a proxy is a form of a mandate, and requires a mandate to be extended by the principal to an agent to exercise the vote to which the principal was entitled at the meeting. The votes “by proxy” on behalf of the deceased and absent beneficiaries were therefore not allowed in terms of our common law and in conflict with the provisions of the trust instrument.
Such a proxy can merely act as the messenger of the trustee they represent and convey the thoughts and/or votes of the trustee who granted the proxy. A stipulation in the trust instrument allowing a proxy to vote as they “may deem fit”, results in an abdication of a trustee’s powers, which is not allowed. If a proxy is allowed to exercise his or her independent judgement and forms a personal view at a trustees meeting, the proxy would be acting a trustee of the trust, without being duly appointed as trustee, as required in terms of the Act.
Even if another trustee of the trust acts as a proxy for a trustee, allowing such a person to act and decide as they wish is not allowed, as it would result in an abdication of power to the proxy.
Although the Steyn v Blockpave case of 2011 accepts that a trustee who cannot personally attend a meeting can make use of a proxy, it must not be broadly interpreted. Only the use of a proxy as described above will result in valid decisions taken by the board of trustees.
No delegation of authority
Trustees may delegate tasks (in other words, they may execute decisions already taken by the board of trustees), but they are still required to make decisions and exercise discretionary powers personally and independently, without the influence of any other person. In the Hoosen v Deedat case, the court held that a trustee who is chosen because of a certain special quality or ability may not delegate their powers, authority, or duties to anyone else. The court emphasised that a trustee cannot abdicate his or her powers and, in so doing, be released from the responsibility as a trustee. No act of a person, while acting as a trustee, will indemnify them against the liability for breach of trust where they fail to show the degree of care, diligence and skill required in terms of Section 9(1) of the Act.
It is clear that the fact that trust instruments, in many cases, contain a general stipulation that the trustees shall have unlimited or unfettered discretion, does not allow them to do as they please. They have to be able to prove that they remain involved in all trust matters, that they have applied their minds, and that they always act in the best interests of the beneficiaries.
Phia van der Spuy is a Chartered Accountant with a Masters degree in tax and is a registered Fiduciary Practitioner of South Africa, a Master Tax Practitioner (SA), a Trust and Estate Practitioner and the founder of Trusteeze, the provider of a digital trust solution.
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