ALL ABOUT TRUSTS

Often, a spouse, child, family member or family friend accepts trusteeship, without realising the burden that comes with it. 

Many people accept trusteeship but claim ignorance when things go wrong. You will, unfortunately, not be able to get away with that. All trustees are expected to actively participate in trust matters. One is not allowed to leave the business of the trust in the hands of others. Therefore, if you use the services of a trust administrator, don’t think that means you don’t have to be actively involved in the management of the trust.

A “silent”, “sleeping”, “absent” or “puppet” trustee will not be tolerated. Trustees should take guidance from the Slip Knot v du Toit case of 2011. Mr Du Toit agreed to be a trustee on his brother’s trust, along with his brother’s son - a common occurrence. He claimed to be a trustee “only in name”, as his brother was managing the trust. He was asked to sign a pack of documents to effect funding to the trust. He was not involved in the negotiations with the funder. He was put under pressure to sign the documents urgently, without the opportunity to read through it. He was not told by anyone that he was signing a personal suretyship as part of the pack of documents. He was prepared to sign the documents without reading them, because he thought that he was not personally affected and he relied on the fact that the two other trustees had already signed. He assumed that his brother and nephew had agreed to the terms on which the funder would advance monies to the trust and that his signature was required as a trustee only. The trust could not repay the loan and then the creditor came after him. He did not get away with the fact that he was not aware of what he was signing, or that he was never told what he was signing. Even though the trustee was a farmer and not a businessman with business savvy, the court did not excuse him, and it held that this could not relieve him of his obligations and duties as trustee. He had to pay the funder in excess of R8million.

This case serves as a warning to family and friends who blindly sign documents presented to them as trustees. The court held that he must have known what a trust was and what the duties and responsibilities of a trustee were, even though he was just a farmer. A person must be active, alert and diligent when acting as a trustee in respect of trust affairs. An excuse such as that you are not a business person or unaware of what you have signed, will not excuse you. 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/her negligence.

Section 9(1) of the Trust Property Control Act requires a trustee to perform his or her duties and exercise his or her powers in such a way to demonstrate that he or she acts with the care, diligence and skill which can reasonably be expected of a person who manages the affairs of another person. It is important to note that “skill” encompasses more than simply acting in good faith.

Some people interpret this section to prohibit the appointment of a “puppet” trustee such as a friend or relative of the estate planner, who will merely follow the estate planner’s instructions blindly without applying his or her mind and acting independently. Such person’s appointment could be challenged later if they do not comply with the onerous requirements of this section, and his or her appointment could even be declared null and void, being in contravention of the Trust Property Control Act. These requirements were confirmed in the Land and Agricultural Bank of South Africa v Parker case of 2005, so think twice before you accept the appointment as trustee of a trust.

All trustees - whether independent or not - are charged with the responsibility of ensuring that the trust functions properly to the greatest benefit of the beneficiaries. 

These responsibilities include, but are not limited to:

  • Ensuring compliance with the provisions of the trust instrument;
  • Ensuring compliance with all statutory requirements;
  • Conducting of proper trustee meetings;
  • Recording of proper minutes of all meetings and decisions by the trustees; and
  • Proper maintenance and safekeeping of minute books.

Any provision in a trust instrument that exempts a trustee from liability for negligence is void (section 9(2) of the Trust Property Control Act), and a trustee may be held liable for any losses suffered by beneficiaries, if it is found that the trustee did not act with the required degree of care and skill in the administration of the trust assets.

A trustee must be someone with a proper realisation of the responsibilities of trusteeship. Trustees have to be able to do the following, otherwise one should not accept trusteeship, as you may be held personally liable.

First, they need to ensure that the trust functions properly. This means that they have to understand how trusts are governed. Second, they need to ensure that the provisions of the trust deed are observed. This will require all trustees to read, understand and follow the “rules” established in the trust deed, which will be specific to each trust. Third, they have to scrutinise and check the conduct of trustees who lack independence, especially in their adherence to the substantive and procedural requirements of the trust instrument. Any trustee who is connected in any way to the trust has to be scrutinised by the others and they should not allow such a person to dominate the other trustees.

Phia van der Spuy is a registered Fiduciary Practitioner of South Africa, a Master Tax Practitioner (SA), a Trust and Estate Practitioner) and the founder of Trusteeze, a professional trust practitioner.

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