Trustees must identify and record trust assets

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Estate planners often set up trusts without understanding the requirement that trust assets ought to be treated separately from the estate planner’s own assets. Further, many estate planners are often reluctant to give up control over personal assets moved into a trust, as well as new assets acquired by the trust. The result is that often trust assets, including investment and bank accounts, are opened and/or registered in the name of the estate planner, rather than in the name of the trust. Failure to open and/or register trust assets as trust property may cause such assets to be regarded as assets owned by the trustees in their personal capacities, which will expose the trust assets to unnecessary risk, especially in the event of the insolvency, sequestration or liquidation of a trustee. The trust may also be labelled the ‘alter ego’ (an extension of himself or herself) of the estate planner or person controlling the trust assets. If the trust is labelled an ‘alter ego’ trust, despite the fact that the trust does in fact exist, the Courts will disregard the trust and treat the assets as if they belong to such controlling person. Therefore there should be a clear separation of control from enjoyment of trust assets. All trustees - and not just one of them - should control the trust assets for the enjoyment of the beneficiaries.

Bequeathing your assets to an existing trust upon your death

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It may make sense in many instances to utilise your existing trust/s as part of your legacy plan. Your assets can be bequeathed to an existing trust, if that trust instrument allows for that - the trustees of that trust have to be specifically empowered in terms of the trust instrument to accept such a bequest. Review the trustee power clause to ensure that the trustees can in fact accept further donations/bequests.

The role and responsibilities of the trust auditor/accountant

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Often estate planners and trustees are of the views that trust information is to be kept secret and that they are under no obligation to account to beneficiaries and others. Many trustees are not aware of their fiduciary duties and responsibilities and often “silent” trustees do not participate in the administration of trusts. A combination of these factors result in inadequate record keeping for trusts.

Trustees are subject to the Master of the High Court's voice

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The Master of the High Court can play a role in ensuring that the trustees of a trust conduct themselves in a proper way in accordance with both the law and the trust instrument. In certain instances the Master may even remove a trustee from office.
The Master of the High Court does not have the power in terms of Section 19 of the Trust Property Control Act to remove a trustee if such trustee fails to comply with a request by the Master of the High Court to account to the Master of the High Court in terms of Section 16, but can apply to the Court for an order directing the trustees to comply with such request.

Trustees as shareholders or directors in a company

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Trusts are used to hold shares in businesses for asset protection and to ensure the continuity of ownership of assets. The trustees owe, both at common law and in terms of statute, a fiduciary duty (a legal obligation of one party to act in the best interests of another) to the trust’s beneficiaries. The trustees are required to administer the trust, including any shares held by the trust in a company, solely for the benefit of the trust’s beneficiaries. Often estate planners and trustees are uncertain about the role trustees have to play in such companies, especially when the trust is not the only shareholder and not all directors are trustees of the trust.

Things to consider when you sell your assets to a trust

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When assets are sold to the trust, the trust does not usually pay for the assets due to a lack of liquidity in the trust; instead, the trust creates a loan account and owes the seller the money. Many people are of the view that by selling an asset to a trust, they remove it from their personal estates, but they forget that this loan account will be seen as an asset in the transferor’s personal estate in the event of an insolvency and for Estate Duty purposes. In the event of an insolvency, all the assets held in trust may be subject to the claims of the estate planner’s creditors, if the loan account is called up and the trust is unable to repay the loan amount (Magnum Financial Holdings (Pty) Ltd (in liquidation) v Summerly case of 1984).

Trustees of a trust have a fiduciary duty

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The duties of trustees arise through the provisions of the Trust Property Control Act, the common law and the trust deed. 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. These responsibilities include, but are not limited to:
• Ensuring compliance with the provisions of the trust instrument
• Ensuring compliance with all statutory requirements
• Conducting of proper trustee meetings
• Recording of proper minutes of all meetings and decisions by the trustees. The focus should not be on the keeping of minutes, but on the decisions reached. A trust operates on the resolutions of its trustees and it is important that these should be recorded.
• Proper maintenance and safekeeping of minute books

Beneficiaries can’t hire and fire trustees as they please

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Most family trusts are created with good intentions and whilst the family lives in harmony. Very seldom the creator or founder of the trust considers and anticipates the possibility that two or more of the family members may have disagreements, which may even result in major hostility. One potential aggravating factor is when there is a divorce in the family, when relationships break down. Emotions run high and family members side with one another. Then questions get asked – Why am I not a trustee? Why am I not a beneficiary? How can I remove a trustee? How can I remove a beneficiary? Can I sue a trustee? When these questions get asked, it is often too late to rectify any ‘flaws’ in the manner the trust has been set up, and to add and remove trustees and beneficiaries.