Have a handle on the trust bank account and trustee signatories

People are often of the view that trusts do not require their own bank accounts. Trustees (and even service providers) will use any excuse to justify why separate trust bank accounts are not maintained – from being convenient to saving costs to the trust being ‘dormant’, to name but a few. Little do they realise that it is in fact, a legal requirement for each trust to have a separate bank account. The main rationale for this is to prevent any mingling of trust funds with non-trust funds, which may place the trust at financial risk.
 
Separate identification of trust property
 
Section 11 of the Trust Property Control Act specifically requires the separate identification of trust assets. Any bank account or investment at any financial institution should be identifiable as a trust bank account or investment. This will prevent exposing the trust assets to risk in the event of a trustee, or any other person in whose name the bank account is operated, being sequestrated or liquidated.
 
In the Mofokeng v Master of the North Gauteng High Court case of 2013, the Court held that a trustee has as a minimum a duty to keep the trust assets administered separate from personal assets and to avoid a conflict of interest with the beneficiaries or the trust object.
 
Each trust should have its own bank account
 
Our law stipulates that each trust should have its own bank account and that trustees should deposit all receipts into such bank account. Section 10 of the Trust Property Control Act specifically provides that “whenever a person receives money in his capacity as trustee, he shall deposit such money in a separate trust account at a banking institution…”. This section, therefore, has two requirements:
1.     Each trust should have its own bank account; and
2.     Trustees are not allowed to hold trust cash in their hands.

Because opening a bank account in the trust’s name is a legal requirement, trustees have no discretion in terms of whether they want to open a bank account or, for example, use one or more of their personal accounts, or even for service providers to operate a single, combined bank account for all their clients’ trusts. It must be a separate bank account in the trust’s name.
 
Trust instrument requirements
 
Trust instruments (in most cases) also require the trustees to open a trust bank account. For the trustees to adhere to the requirements of the trust instrument, a bank account should be opened as soon as the trust is registered with the Master of the High Court and they are authorised by the Master of the High Court to act.
 
Account signatories
 
Often not a lot of thought is put into deciding which trustees are required to authorise bank transactions. Once the board of trustees authorise one or more trustees to authorise banking transactions, the banks will rely on the resolution and the other trustees cannot hold the banks liable for fraudulent transfers made by these ‘authorised’ trustees. The Court in the Tshaka v Standard Bank of South Africa Limited case of 2020 referred to the Luppachini v Minister of Safety and Security case of 2010 and the Land and Agricultural Bank of South Africa v Parker case of 2005 where the nature of the trust form and the role of trustees as the only persons through which a trust can act were discussed. The Court held that the bank employee was fully justified in requiring a written request signed by all trustees before he was willing to ignore instructions received from the trustees ‘authorised’ to deal with the bank account.
 
When there is conflict between trustees, such a unanimous resolution may be problematic to obtain. Alternative provisions have to be considered to include in the trust instrument to indicate who can change signatories, such as the majority of trustees, rather than such a decision requiring a unanimous decision and resolution of trustees.
 
Conclusion
 
Although a trust bank account is not an essential requirement for the formation of a valid trust, the absence of a trust bank account could serve as evidence of a lack of the requisite intention to create a trust in the first place.
 
In practice, more and more conflict is evident between trustees, especially when the next generation of family trustees serve as trustees, after the demise of the founder - who often was the dominant, controlling trustee. Pro-actively anticipate potential conflicts and do not be caught with a similar situation to the Tshaka case where trustees simply cannot stop their co-trustees from fraudulently transferring money out of the trust’s bank account in terms of their written ‘authority’ on which the banks will rely until otherwise informed, in accordance with the trust’s specific requirement.