Be careful of your automatic removal as trustee

Often estate planners sign trust deeds without reading it first. This creates a huge risk, as many trust deeds are ‘copied and pasted’ and do not reflect the wishes and personal circumstances of estate planners and their families. One particular aspect the estate planner has to pay attention to is the appointment and removal of trustees in terms of the trust deed. Unintended consequences may arise if the trust deed automatically removes a trustee on the happening of an event specified in the trust deed. This may have dire consequences, as the estate planner, who may have been appointed as a trustee, may be automatically removed and then loose the ability to participate in trust decisions.

The Trust Property Control Act (Section 20(2)) also contains provisions empowering the Master of the High Court to remove a trustee. A trustee can be removed by the Master:

• if he/she has been convicted in the Republic, or elsewhere, of any offence, of which dishonesty is an element, or of any other offence for which he/she has been sentenced to imprisonment, without the option of a fine; or

• if he/she fails to give security or additional security, as the case may be, to the satisfaction of the Master within two months after having been requested thereto or within such further period as is allowed by the Master; or

• if his/her estate is sequestrated or liquidated or placed under business rescue; or

• if he/she has been declared by a competent court to be mentally ill or incapable of managing his/her own affairs or if he/she is, by virtue of the Mental Health Act, 1973 (Act No. 18 of 1973), detained as a patient in an institution or as a President's patient; or

• if he/she fails to perform satisfactorily any duty imposed upon him/her, by or under this Act, or

• if he/she fails to comply with any lawful request of the Master

Although many trust deeds state these as automatic disqualifications for trustees, the Trust Property Control Act is clear that the Master may remove a trustee if any of these requirements are met. So even though the Master has discretion to retain or remove the trustee, the inclusion of these requirements in the trust deed will lead to the automatic disqualification of trustees, should they meet any of these requirements. Dire consequences will result if an entrepreneur, for example, sets up a trust to protect his assets from creditors, and is then automatically removed as trustee upon his sequestration, and totally loses the ability to participate in trust decisions. Even though one does not have full control over assets placed in trust, as trustee, one retains influence over the treatment of these assets with the other trustees.

An example of an automatic disqualification in terms of an express provision in terms of the trust deed, was the Land and Agricultural Bank of South Africa v Parker case of 2005, when the person kept acting as trustee, even though the trust deed determined that the position of trustee would be automatically regarded as being vacated if a trustee’s personal estate was sequestrated. The Court held that his actions were invalid and that he had no authority to act on behalf of the trust.

It is critical for the founder to consider his/her own circumstances and pre-empt possible outcomes that may impact the effective running of the trust as a result of unintentionally disqualifying trustees in the trust deed.

~ Written by ~