Is your Independent Trustee a “Great” Trustee?

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ALL ABOUT TRUSTS

By Phia van der Spuy

It has become mandatory to appoint an independent trustee in certain circumstances. Developing case law, the views and practice of the Master of the High Court, as well as the impact of professional bodies on those considering acting as directors are important considerations when it comes to consider the relevance and importance of an independent director.

All trustees must play an active role

Trusts are often name trusts, with an essential principle of trust law, namely the independence of trustees, neglected (Tijmstra vs. Blunt-Mackenzie case of 2002). It is therefore important to note that all Trustees act in a fiduciary capacity and no one Trustee can hide behind another. A fiduciary duty is an onerous legal duty (a duty of loyalty and diligence) imposed on a person who manages property or money belonging to another person to act in that person’s best interests. All trustees must act with the care, diligence and skill that might reasonably be expected of a person managing the affairs of others (Section 9 (1) of the Trust Property Control Act).

It is a fundamental rule of trust law that in the absence of contrary provisions in the trust deed, the trustees must act jointly if the trust estate is to be bound by their deeds, and a unanimous vote will be required. for substantive issues. The rule stems from the nature of the joint ownership of the trustees of the assets in the property trusts. Since the co-owners must act jointly, the trustees must also act jointly (Coetzee vs. Peet Smith Trust 2003 case and Nieuwoudt vs. Vrystaat Mielies 2004 case). The Co-Trustees are required to act jointly with respect to the administration of the Trust at all times. When dealing with third parties, even though the trust deed provides that a decision can be made by a majority of the trustees, all trustees are required to be involved in the decision and must sign each resolution (South African Land and Agricultural Bank v Parker case of 2005).

Do we expect more from the independent trustee?

Although the chief master’s directive does not require that an independent trustee be a professional person (also suggested in the South African Land and Agricultural Bank v Parker case), it is in the best interest of the trust that the independent trustee has sufficient knowledge of the impact of legal requirements on the trust, including compliance with relevant tax laws, and the effect of changes in legislation. . Note that the independent trustee, upon appointment, must sign an affidavit under oath declaring that he is “knowledgeable in trust law”.

The court held in the South African Land and Agricultural Bank v Parker the case where an independent trustee should be an “independent outsider” who ensures that there is an adequate separation between control and enjoyment of the benefits and has a good fulfillment of the responsibilities of the guardianship. The independent trustee should take an active role in the trust and ensure that the trust is functioning properly and that the provisions of the trust instrument are met (also confirmed in the 2017 Chief Master Directive). The court also ruled that the conduct of trustees who violate the trust deed should be reviewed and verified by the independent trustee. It considered that any breach of these obligations constitutes a breach of trust. This should serve as a warning to so-called “independent trustees” who are looking away from the wrongdoing of their clients.

The chief master’s directive requires independent directors:

  • Be competent to review and control the conduct of other appointed trustees who do not have a sufficiently independent interest in complying with the substantive and procedural requirements arising from the trust deed.
  • Know the law of trusts and not enter into or approve transactions that may prove to be invalid.
  • Have knowledge and business experience of the field of activity in which the trust operates.
  • Realize that failure to meet the obligations of an independent trustee can lead to breach of trust lawsuits.

Trustees can delegate execution

There is a big difference between abdicating responsibility and delegating responsibility to carry out a decision already made. A number of estate planners and trustees get it wrong, especially when the father, mother, children, family, etc.Slip Knot Investments 777 v Du Toit case of 2011). Essentially, they rely on a trustee, often the independent trustee, to shoulder the burden of guardianship on their behalf.

However, after having acted jointly, the trustees can delegate certain functions to one or more of them while retaining the responsibility of the acts carried out on their behalf. The trustee to whom the action has been delegated then becomes the representative of the foundation board.

Have agreements in place

Often times, the estate planner and other family trustees assume that the independent trustee will “carry” the trust. Given the requirement for participation of all Trustees, do not assume that the Independent Trustee will ensure trust compliance on its own. Our law does not require all trustees to be experts in all areas (legal, accounting, tax and the matters in which the trust operates). The board of directors must therefore analyze any unique contribution that each director may make and formally agree with him on any unique role he will play, such as advising and guiding other directors on financial matters. Have a formal agreement in place with the independent trustee, dealing specifically with any special role that they are required to play in the trust, in accordance with our law and the trust instrument.

Phia van der Spuy is a Chartered Accountant with a Masters in Taxation and a Registered Trust Practitioner from South Africa, a Master Tax Practitioner (SA), a Trust and Estate Practitioner and the founder of Trusteeze, the provider of a trusted solution digital.

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