What are trustees’ obligations?
February 28th, 2018 08:40
Trustees of a trust are akin to the managers of a company. They are the guardians of the trust assets and have a duty to manage these assets in the best interests of the beneficiaries, as provided for in the trust deed. They also have a fiduciary duty to beneficiaries in terms of the Trust Property Control Act.
All trustees – whether independent or not - are charged with the responsibility of ensuring that the trust functions properly, to the greatest benefit of the beneficiaries. Specific obligations are discussed below.
Obligations in relation to the trust deed
- Lodge the initial trust deed and amendments with the Master of the High Court.
- Be familiar with the trust instructions, including the nature and extent of their powers and duties. As a trustee, you should not accept any appointment until you are comfortable with the information contained within the trust deed.
Obligations in relation to the trustees
- Authority to act: No trustee has any power to act on behalf of the trust in any way until he/she has been formally appointed by the Master; that is, when the Master has issued a Letters of Authority. Any action by a trustee prior to his/her appointment is void and cannot be validated by subsequent ratification.
- Notice of address: A trustee is required to inform the Master of his/her postal and physical address or any change thereof by registered mail, within 14 days of such change.
- Exercising discretion: A trustee may delegate tasks, but is required to make decisions and exercise discretionary powers personally and independently, without the influence of any other person. Where a trustee relies upon a dominant co-trustee and approves of his/her wrongful conduct, he/she may be removed from office by the Court.
- Avoid a conflict of interest: A trustee must act in good faith, and at all times avoid conflict of interest between personal interests and official and fiduciary duties to the trust, and to the beneficiaries. A trustee may not gain personally from the trust fund (other than reasonable remuneration), in his/her capacity as trustee.
- Declare a personal interest: A trustee who in any way acquires an interest in an agreement or proposed agreement, which has been or is to be entered into with the trust, must immediately declare the nature and extent of this interest in writing to the other trustees.
- Duty of care, diligence and skill: 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. It is important to note that “skill” encompasses more than simply acting in good faith. Trustees may be proved negligent, not only if they invested in risky investments, but also if they invested capital too conservatively, resulting in the capital not growing sufficiently.
- Accountability: A trustee is accountable at all times to both the Master, and to the beneficiaries.
Obligations in relation to the trust property
- Taking control of the trust assets: Part of the process of taking control of the trust assets is to ensure that money in the trust is properly invested, after considering beneficiaries’ needs.
- Registration and identification of trust property: Trust property must be kept separate from any personal property. Property, including immovable property and any account or investment at a financial institution, should be registered in the name of the trust.
- Treatment of trust property: The Courts have, in various cases, established the “Joint Action” rule, whereby trustees are required to act jointly in dealing with trust property. When trustees are dealing with third parties, even if it is permissible that a decision is made by the majority of trustees (as per the trust deed) all trustees must be involved in the decision, and all trustees should be notified that a decision needs to be made.
- Collect debts due to the trust: Trustees are required to collect debts owed in respect of trust property.
- Distributions: Trustees are responsible for distributions to the beneficiaries.
Obligations in relation to administration and finances of the trust
- Trust bank account: The Trust Property Control Act (and often the trust deed) requires trustees to deposit trust money into a separate bank account in the name of the trust.
- Administration and investment: The trustees are required to administer the trust in terms of the law and the provisions of the trust deed, and act with the highest degree of diligence and caution.
- Reasonable return on trust capital: Trustees can be held liable should monies not be invested prudently, but also when they play an inactive role in the administration of the trust.
- Keeping books and records: Trustees are obliged to keep records of all trustee decisions, as well as copies of all vouchers, and should at all times be in a position to produce a documented record of how a decision was reached. Trustees are obliged to prepare annual financial statements, and to submit it, together with the trust's Income Tax return. It is important to note that it is not a requirement that trusts are audited. The Trust Property Control Act requires trustees to keep documents for at least 5 years from the date of the trust’s termination.
- Reporting to beneficiaries: Many people believe that trustees are under no obligation to account to beneficiaries. In 1999 the Court held that the trustees have a duty to provide full trust administration reports and accounting records, dating back to the time a discretionary trust had been established, to trust beneficiaries (even if they only have a contingent right), and even to contingent beneficiaries born later.
- Income tax: Trustees are representative taxpayers on behalf of the trust and, as such, SARS will look to them to pay the taxes of the trust.
- Compliance with legislation: Trustees should ensure that the trust complies with the Trust Property Control Act and all other applicable legislation, such as: The Income Tax Act, The Tax Administration Act, The Banks Act, The Value-Added Tax Act, The Financial Institutions Act, The Prevention & Combating of Corruption Act, The Financial Intelligence Centre Act, and The National Credit Act.
~ Written by Phia van der Spuy ~