Should I resign as trustee given the new onerous measures? - 19 July 2023

Given the recent introduction of rather onerous measures applicable to trustees, many are desirous to immediately resign in an attempt to avoid any liability, especially given fines introduced for the first time in the Trust Property Control Act (the Act) of up to R 10 million and/or 5 years imprisonment. Two important aspects have to be addressed when you consider resigning as a trustee – one, what does one have to do to resign and two, at what date will the resignation be effective?

Background

Historically, in terms of our common law, in the absence of a provision in the trust instrument, a trustee was not entitled to resign except if they gave good reason and obtained the consent of a court (as confirmed in the Meijer v Firstrand Bank Limited case of 2012). However, with the promulgation of the Act in June 1988, Section 21 was introduced to allow a trustee to resign, subject to the following formalities being met – they may “resign by notice in writing to the Master and the ascertained beneficiaries who have legal capacity”, at any time and regardless of whether the trust instrument allows for it. “Ascertained beneficiaries” generally refer to beneficiaries with vested rights who are over the age of eighteen years and free of mental illness and who are known to the trustee. A beneficiary obtains a ‘vested right’ in an asset and/or income and/or capital gains in a trust, either in terms of the provisions of the trust instrument (called a ‘vesting trust’) or through the trustees exercising their discretion. Therefore, since 1988, neither the founder nor the other trustees can refuse a trustee’s resignation. Also, neither the Court nor the Master of the High Court (the Master) can refuse the resignation of a trustee either (Meijer v Firstrand Bank Limited case of 2012). The principle the Act embraces is to not force a trustee to remain in office against their free will. It appears if Section 21, however, only deals with the fact that a trustee may resign, stipulating certain formalities that have to be complied with. It does not stipulate the event at which the trustee will no longer be regarded as a trustee of the trust.

Consult the trust instrument

Where the trust instrument fails to make provision for the resignation of a trustee, only the provisions of Section 21 of the Act will apply. Section 21 of the Act, however, does not override the provisions of a trust instrument, which does allow a trustee to resign. Therefore, if the trust instrument contains any additional procedures for trustee resignation, they should also be complied with. Additional requirements of the trust instrument are, for example, a required notice period and requiring the exiting trustee to write to their co-trustee/s (Moore v du Toit case of 2009 and Sidwell v Buisson case of 2015). Regardless of whether the requirements of the trust instrument were adhered to, any additional requirements in terms of Section 21, which are not specifically stated in the trust instrument, should also be met (Sidwell v Buisson case of 2015). In the Muller v Muller case of 2013, the Court held that the requirements of Section 21 of the Act must be complied with. The trust instrument and Section 21 should, therefore, always be read together and their collective requirements be met.

Effective date of removal

The Act is silent on when a trustee’s resignation becomes effective. In the Soekoe v le Roux case of 2007, the Court held that the resignation only became effective when the trustee who resigned was replaced by their successor, even though he was not the only trustee. However, due to delays at the Master’s office to effect trustee changes, the Court in the Meijer v Firstrand Bank Limited case of 2012 held that this approach could lead to “hardship”, especially considering potential long delays at the Master’s office. Therefore, the Court proposed that “the resignation should take effect not only upon it being shown that the written notice was sent to the Master and the ascertained beneficiaries, but upon acknowledgement by the Master of the receipt thereof”. This last requirement was confirmed in the Sidwell v Buisson case of 2015. However, if the trust instrument contains any further requirements over and above these, the trustee’s resignation will only be effective once all these requirements have been satisfied (Moore v du Toit case of 2009 and van der Merwe v Hydraberg Haudralics CC case of 2010).

Can the Master refuse your resignation?

Even though our law does not allow the Master to refuse your resignation, in practice, some Master’s Offices require the appointment of a replacement trustee and leave your resignation ‘hanging’, pending such appointment. This is clearly not allowed and would not affect the effective date of removal as trustee of the trust, as long as the requirements discussed above are met. One should just remind the Master in writing that you have met all requirements for your resignation and that they should proceed to remove you from the Letters of Authority. After all, it is not only the Letters of Authority that confirm current trustees. The Letters of Authority should be read with effective resignations not yet reflected on such Letters of Authority.

Beneficial Ownership Register

Only when you have met all the requirements to effectively resign as a trustee, can you be removed from the new “Beneficial Ownership” register and be absolved from your duties and liabilities as trustee of the trust. Given the fact that trustees have to submit “Beneficial Ownership” information to the South African Revenue Service and the Master, it is recommended that a proper reconciliation is done and paperwork be kept of the exact dates trustees were effectively appointed and resigned as trustees of the trust, to avoid unnecessary queries from the authorities and even risk a fine of up to R 10 million and/or 5 years imprisonment.

Conclusion

A trustee who plans to resign should take cognisance of Section 21, the trust instrument, and the common law requirement to have the documents stamped by the Master and make sure that all i’s are dotted and t’s are crossed, as they may be regarded as a trustee until all these requirements are met. Do not just write a letter to your co-trustees that you resign or tell your co-trustees you are resigning – get all the paperwork in order, communicate to the required people, and insist on proof of the stamp of the Master on your resignation submitted (even better hand in your resignation personally at the relevant Master’s office and get the stamp as proof).