Do trustees have rights to remuneration?
September 6th, 2019 07:35
Trustees are the guardians of the trust assets and have a duty to manage these assets in the best interests of the beneficiaries, as outlined in the trust instrument. The trustees have a fiduciary duty to the beneficiaries of the trust. They may not act in a way that violates this duty or is outside the parameters of the trust instrument. Trustees could find themselves personally liable for losses suffered by the trust if it can be proved that they did not act with the necessary care, diligence and skill that can reasonably be expected of a person who manages the affairs of another. With this role comes certain rights, including the right to remuneration. Very few people know that trustees have a right to remuneration. The question remains – how much are trustees allowed to charge for their services that are commensurate with the risk undertaken by them for acting as trustees of a trust.
Section 22 of Trust Property Control Act permits a trustee to receive reasonable remuneration. The Trust Property Control Act does not, however, contain any further provisions on trustee remuneration. The lack of guidance in the Act in terms of what exactly constitutes “reasonable remuneration” sometimes leads to the abuse of persons acting as trustees, especially where independent, non-family trustees are appointed and seek remuneration that is commensurate with the risk undertaken by them as trustees. Issues typically arise when the founder is not a trustee, or has died, and may even get worse if family members are not (or no longer) acting as trustees.
In order to alleviate this risk, it is recommended that the trust instrument sets out remuneration payable to trustees in very clear, well thought through, terms. It is also recommended that trustees are not allowed to charge whichever fees they want to – in many of the (especially older) trust deeds trustees are allowed to charge whatever professional fees they ‘normally’ charge, which may lead to abuse. Dealing with sufficient detail in the trust deed with how much trustees can charge for their services may limit disputes between trustees and may assist in protecting trust assets. It is good practice to require all trustees to unanimously agree to remuneration payable for their services in advance of such costs being incurred by the trust.
If the trust instrument does not deal with remuneration, all disputes are ultimately settled by the Master of the High Court. The Master of the High Court will determine the amount of the “reasonable remuneration” in such circumstances. This may expose the trust to claims by the trustees, and may cause issues in the event that the trust does not have the liquidity to pay for such costs. In this event trust assets may have to be liquidated/sold just to pay such costs. If the estate planner has not considered such a potential “creditor” of the trust, it may lead to unintended consequences and may prevent the estate planner from achieving his or her financial planning goals. It may also prejudice the benefits the beneficiaries may receive. I recently dealt with a case where the so-called independent trustee charges trustee remuneration as a percentage of trust assets under management (in terms of the provisions of the trust deed stating that trustees can charge what they normally charge), and even though they are empowered to make investments for the trust and made bad investment decisions, they pay themselves first, regardless of whether there is any money left thereafter for beneficiaries who are dependent on trust distributions.
Plan ahead and do not underestimate this right of trustees!
~ Written by Phia van der Spuy ~