The role and responsibilities of the trust auditor/accountant

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Often estate planners and trustees are of the views that trust information is to be kept secret and that they are under no obligation to account to beneficiaries and others. Many trustees are not aware of their fiduciary duties and responsibilities and often “silent” trustees do not participate in the administration of trusts. A combination of these factors result in inadequate record keeping for trusts.

Trustees are subject to the Master of the High Court's voice

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The Master of the High Court can play a role in ensuring that the trustees of a trust conduct themselves in a proper way in accordance with both the law and the trust instrument. In certain instances the Master may even remove a trustee from office.
The Master of the High Court does not have the power in terms of Section 19 of the Trust Property Control Act to remove a trustee if such trustee fails to comply with a request by the Master of the High Court to account to the Master of the High Court in terms of Section 16, but can apply to the Court for an order directing the trustees to comply with such request.

Trustees as shareholders or directors in a company

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Trusts are used to hold shares in businesses for asset protection and to ensure the continuity of ownership of assets. The trustees owe, both at common law and in terms of statute, a fiduciary duty (a legal obligation of one party to act in the best interests of another) to the trust’s beneficiaries. The trustees are required to administer the trust, including any shares held by the trust in a company, solely for the benefit of the trust’s beneficiaries. Often estate planners and trustees are uncertain about the role trustees have to play in such companies, especially when the trust is not the only shareholder and not all directors are trustees of the trust.

Things to consider when you sell your assets to a trust

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When assets are sold to the trust, the trust does not usually pay for the assets due to a lack of liquidity in the trust; instead, the trust creates a loan account and owes the seller the money. Many people are of the view that by selling an asset to a trust, they remove it from their personal estates, but they forget that this loan account will be seen as an asset in the transferor’s personal estate in the event of an insolvency and for Estate Duty purposes. In the event of an insolvency, all the assets held in trust may be subject to the claims of the estate planner’s creditors, if the loan account is called up and the trust is unable to repay the loan amount (Magnum Financial Holdings (Pty) Ltd (in liquidation) v Summerly case of 1984).

Trustees of a trust have a fiduciary duty

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The duties of trustees arise through the provisions of the Trust Property Control Act, the common law and the trust deed. 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. The focus should not be on the keeping of minutes, but on the decisions reached. A trust operates on the resolutions of its trustees and it is important that these should be recorded.
• Proper maintenance and safekeeping of minute books

Beneficiaries can’t hire and fire trustees as they please

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Most family trusts are created with good intentions and whilst the family lives in harmony. Very seldom the creator or founder of the trust considers and anticipates the possibility that two or more of the family members may have disagreements, which may even result in major hostility. One potential aggravating factor is when there is a divorce in the family, when relationships break down. Emotions run high and family members side with one another. Then questions get asked – Why am I not a trustee? Why am I not a beneficiary? How can I remove a trustee? How can I remove a beneficiary? Can I sue a trustee? When these questions get asked, it is often too late to rectify any ‘flaws’ in the manner the trust has been set up, and to add and remove trustees and beneficiaries.

Are your and your family’s wealth protected in a trust?

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A real life example illustrates the risk of being compromised as a beneficiary of a trust. A businessman was asked by his friend to sign as surety for his debt as a developer. The businessman was happy to do that, as all his assets were transferred to a trust, which protected the assets from any creditors. Unfortunately the friend experienced financial difficulty and the bank approached the businessman who signed surety for his friend’s debt to recover its loan. When the businessman informed the bank that he did not hold any material assets in his personal name, the bank decided to sequestrate the businessman. The effect of this was catastrophic – this action caused the businessman to be removed as trustee and beneficiary of the trust. How could that happen?

The framework within which trustees have to act

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A trust instrument should clearly set out the purpose of the trust and trustees’ powers should be stipulated in the trust instrument to support and achieve such purpose. Trustees should continuously be guided by the purpose of the trust in exercising their duties. 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.