Independent trustee increasingly

essential for SA trusts

By: Stanley Broun and Carien Strauss

WHY IS AN INDEPENDENT TRUSTEE REQUIRED?

The Master started to adopt this practice following the judgement in the well-known Parker case. In this case, Appellate Judge Edwin Cameron remarked that in order to avoid the large-scale abuse of trusts experienced in the past, the Master should ensure that there is adequate separation between control over trust assets by the trustees and the enjoyment of trust assets by the beneficiaries. The judge therefore recommended that the Master insist on the appointment of an independent trustee for family trusts.

It appears we’re moving towards adopting a practice that already exists for offshore trusts. For offshore trusts, it’s common practice to have only one trustee in office – the independent offshore trust company. The beneficiaries and settlor of the trust are typically not appointed as trustees on the trust and the settlor can communicate his or her wishes by means of a Letter of Wishes addressed to the trustees.

STEPPING UP A GEAR

For those who had hoped that this issue would fade away, we unfortunately have bad news. To show the seriousness of the matter, the Chief Master has now issued a directive to formally implement the decision taken in the Parker case in Master’s offices around South Africa.

The directive indicates that the Master will in particular apply the independent trustee requirement to trusts in which:

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

WHAT IS AN INDEPENDENT TRUSTEE?

Until recently it was widely understood that an independent trustee was a person who wasn’t a beneficiary of the trust, or wasn’t related to the beneficiaries or trustees. This person didn’t have to be a professional – a family friend could therefore have qualified as an independent trustee.

However, the Master has now for the first time defined what it perceives to be an independent trustee. The Master’s directive states that an independent trustee may be a professional chartered accountant, admitted attorney or an advocate:

• who is affiliated to the relevant professional body or association;
• who has no relation or connection, blood or other, to the founder or any of the trustees or beneficiaries;
• who is knowledgeable about the law of trusts and will therefore not conclude or approve transactions that may prove to be invalid;
• who is not a beneficiary of the trust; and
• who is not disqualified by the Trust Property Control Act of 1988 from acting as trustee.

THE 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’, as 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, such as the draft legislation relating to interest-free or ‘low’ interest loans to trusts, 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 the 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).

SANLAM PRIVATE WEALTH AS INDEPENDENT TRUSTEE

The Tax & Fiduciary team of Sanlam Private Wealth also provides professional trustee services to our clients. To ensure that your trust remains up to date with the latest legislative and compliance requirements, our 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 that 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 seeing to it that they are 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 the Sanlam Private Wealth Fiduciary and Tax team offers, please contact us at fiduciary@privatewealth.sanlam.co.za and one of our team members will gladly assist you.