Independent trustee
essential for SA trusts

The Master started to adopt this practice following the judgement in the well-known Parker case in 2005. In this case, Appellate Judge Edwin Cameron remarked that in order to avoid the large-scale abuse of trusts experienced in the past, it was recommended that the office of the Master should ensure adequate separation between trustees’ control over trust assets and the beneficiaries’ enjoyment of trust assets.

Twelve years later, in March 2017, the Chief Master issued a directive that adhered to the remarks made in the Parker case, resulting in Master’s offices around South Africa insisting on the appointment of an independent trustee. The directive indicates that the Master will in particular apply the independent trustee requirement to trusts with the following characteristics:

• The trustees have the power to transact with independent third parties, thereby creating trust creditors
• The trustees are all beneficiaries
• The beneficiaries are all related to each other.

What is an independent trustee?

The Master’s directive clearly defines who can act as independent trustees. These persons can’t be related to the other trustees or beneficiaries, by blood or otherwise. They also shouldn’t be beneficiaries of the trust. It’s not essential for them to be a professional person, such as an auditor or attorney, but they do need an understanding of the law of trust and what a trustee should and should not do. Finally, they must be knowledgeable about the business in which the trust operates.

An independent trustee can be known to the family, for example, as the family lawyer or accountant, or even a wealth or portfolio manager, as long as they’re an independent outsider.

Benefits of an independent trustee

In most cases it’s better to have an independent trustee in office – even more so if the independent trustee is a ‘professional trustee’, because such a person would have the necessary expertise and skills, and would be up to date with changes in legislation, court cases and tax matters applicable to trusts. When new legislation is proposed, the professional trustee can help to ensure that the impact on the trust is evaluated and/or the legislation correctly applied.

Having an independent trustee in office who plays an active role in trust management also goes a long way in proving to SARS that the trust is not being controlled by a single trustee or the founder (the so-called ‘alter ego’ argument).

Duties of independent trustees

While all trustees have the same fiduciary duty to look after the trust assets in the beneficiaries’ best interest, independent trustees also have the following responsibilities:

• Protecting the trust or its creditors against illegal or dishonest actions on the part of the trustees
• Ensuring that the trust is being administered as per the terms of the trust deed
• Ensuring that the trust is operated in the interests of the beneficiaries
• Making sure the trust is run in compliance with the law.

It’s important to note that in the case of irregularities, independent trustees can be held liable and sued for damages by the beneficiaries or creditors of the trust, provided there is enough evidence against them.

Professional trustee services

The Fiduciary and Tax team of Sanlam Private Wealth provides professional trustee services to clients. The service offering includes:

• Keeping the trust deed up to date at all times, in line with legislation, regulations, case law and compliance practice
• Drafting documentation placing all trustee participation and decision-making on record
• Facilitating trustee meetings by way of teleconference or video conference
• Ensuring the requirements of the trust deed are met as far as quorums, meetings and decision-making (unanimous or majority votes) are concerned
• Measuring proposed trust transactions against exchange control regulations applicable in South Africa from time to time
• Drafting resolutions and loan agreements for loans to and from the trust
• Compiling agendas and minutes of trustee meetings
• Drafting deeds of donations for all donations to the trust
• Drafting resolutions authorising trustees in office to sign financial statements every year, and to sign confirmation of loan balances and movements in loans on an annual basis
• Actioning agenda items after trustee meetings and ensuring they’re done timeously
• Offering the expertise and skills of the Fiduciary and Tax team at Sanlam Private Wealth to the board of trustees in general.

If you wish to enquire about the independent trustee services that our Fiduciary and Tax team offers, please contact us at fiduciary@privatewealth.sanlam.co.za and one of our team members will gladly assist you.