Does a trust's books have to be audited?

It is not a legal requirement that a trust’s books are audited, and it may add an unnecessary cost in the administration of a trust. However, a trust deed may specifically require the books of a trust to be audited. A number of the older trust deeds stipulate that the trusts’ books have to be audited. If the trustees do not meet this requirement, they will be in breach of their obligations as set out in the trust deed. It is therefore important to understand the requirements of the trust deed.

When it comes to the administration of a trust, the onus is on the trustees to clearly identify and record trust property (in terms of Section 11 of the Trust Property Control Act (“the Act”)) and to deliver to the Master of the High Court any trust documents and records when requested to do so (in terms of Section 16 of the Act). It is not a legal requirement that a trust’s books are audited, and it may add an unnecessary cost in the administration of a trust. However, a trust deed may specifically require the books of a trust to be audited. A number of the older trust deeds stipulate that the trusts’ books have to be audited. If the trustees do not meet this requirement, they will be in breach of their obligations as set out in the trust deed. It is therefore important to understand the requirements of the trust deed. When it comes to the administration of a trust, the onus is on the trustees to clearly identify and record trust property (in terms of Section 11 of the Trust Property Control Act (“the Act”)) and to deliver to the Master of the High Court any trust documents and records when requested to do so (in terms of Section 16 of the Act).

Trustees’ obligations

Trustees are required to clearly indicate the trust property held by them, in their capacities as trustees, in the bookkeeping records. Registered trust property should be clearly indicated as such. Any account or investment at any financial institution should be identifiable as a trust account or investment. An asset register should be maintained by the trustees that clearly describe the assets, including their purchase dates, values and locations. This will prevent exposing the trust assets to risk in the event of a trustee being sequestrated or liquidated. Although Section 12 of the Act provides a statutory safeguard by stipulating that trust property will not form part of the personal estate of a trustee (except in so far as the trustee, as a trust beneficiary, is entitled to trust property), it will only be effective if the requirements of Section 11 are met, by clearly identifying and recording trust property.

The Master

It is important to note that the Master of the High Court has a statutory right (in terms of Section 16 of the Act) to request information and to appoint an auditor for the trust. The Master can remove such non-complying trustee, without applying to Court, if he/she does not comply with the Act, or fails to respond to the Master upon a lawful request to do so (in terms of Section 20(2) of the Act).

Beneficiaries

Beneficiaries have a common law right to request the appointment of an auditor for the trust. In the Doyle v Board of Executors case of 1999 it was held that beneficiaries are entitled to information concerning the management and administration of trust assets. The beneficiaries would therefore be entitled to some assurance that the information provided would be reliable, as confirmed by an audit opinion. So even if the trust deed stipulates that an auditor does not have to be appointed for the trust, it would be subject to all laws, both statute and common law and the beneficiaries are entitled to demand an audit of the trust’s books.

Auditor obligations

If the trust’s books are audited, Section 15 of the Act requires from the auditor to firstly report any material irregularity to the board of trustees, and if the irregularity is not rectified to the satisfaction of the auditor within one month, then the auditor should report it in writing to the Master of the High Court.

Recommendation

It is recommended that the trust deed be clear about the need for the appointment of an auditor or an independent accountant. The trust deed should not remain silent on this issue.