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SA trusts: the role of independent trustees
Should South African trusts have independent trustees? What are their roles and responsibilities – do they differ from those of other trustees? Who qualifies as an independent trustee? Can a wealth or portfolio manager be appointed to this role? What about the trust accountant or auditor? Can independent trustees be held liable when things go wrong?
These were some of the questions raised during a lively FM Private Lounge discussion hosted by Marteen Michau, Head of Fiduciary and Tax at Sanlam Private Wealth, in Johannesburg recently. Marteen was interviewing Advocate André Gautschi SC, an acting judge in several court cases relating to trusts and the role of independent trustees.
Marteen pointed out that although not yet a legal requirement, it’s become common practice for many of the offices of the Master of the High Court to require that an independent trustee be appointed on South African-registered trusts.
‘The Master started to adopt this practice following the judgement in the well-known Parker case in 2005, in which 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,’ she said.
Twelve years later, in March last year, 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 in which the:
André said the appointment of an independent trustee provides a safeguard for both the trust and the courts against illegal actions and non-compliance. ‘It should be noted, however, that it is just that – a safeguard, not a guarantee against dishonest behaviour.’
The Chief Master’s directive clearly defines who can act as independent trustees, he added. 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 need to be knowledgeable about the business in which the trust operates.
André added that 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. ‘Bear in mind that in most cases, these individuals will be answerable to other authorities and professional bodies, and will be duty-bound to report any irregularities, even though this may be against the interests of their clients.’
Replying to a question from Marteen about the responsibilities of independent trustees, André explained that ultimately, all trustees have the same fiduciary duty to look after the trust assets in the beneficiaries’ best interest, in a legal manner.
‘An independent trustee would have a particular duty, however, to protect the trust or its creditors from dishonest activities. They must see to it that the trust is being administered as per the terms of the trust deed. Are the meetings being properly convened and held? Is voting being done in a proper manner?’
Independent trustees should have a finger on the pulse of all activities of the trust, since ultimately, they’re there to ensure the trust operates in the interests of the beneficiaries on the one hand, and in compliance with the law on the other.
André said independent trustees can exercise their veto right. ‘They can use their powers of persuasion to talk the trustees out of illegal or dishonest actions.’
He added that while independent trustees can resign from their position within a trust, which will protect them from future irregularities, they remain responsible for actions that took place while they were involved with the trust. To this end, independent trustees can in fact be held liable and sued for damages by the beneficiaries or creditors of the trust, provided there is enough evidence against them.
The Fiduciary and Tax team of Sanlam Private Wealth provides professional trustee services to clients. The service offering includes:
If you wish to enquire about the independent trustee services that the SPW Fiduciary and Tax team offers, please contact us at fiduciary@privatewealth.sanlam.co.za and one of our team members will gladly assist you.
The formation and registration of trusts, and the provision of independent trusteeships – both local and offshore.
The creation of BEE, charitable, special and Shariah trusts compliant with regulatory and legislative requirements.
The administration of deceased estates in South Africa and abroad.
Advice on complex structures, asset restructuring and bequests in foreign jurisdictions.
Advice on emigration and immigration, foreign earnings and the application of any double taxation agreements.
Updating trust deeds to ensure they’re in line with the latest changes in the trust environment.
Updating and/or drafting of wills dealing with South African and/or foreign assets.
Advice on the establishment and management of charitable organisations, their tax status and tax deductible donations.
Advice on the potential tax consequences and reporting obligations if you hold a US passport or green card, or if you have children living in the US.
Guidance on the financial implications of life-changing events, such as getting married, divorce or the birth of a child.
Expert advice is crucial in dealing with cross-border estate and tax planning.
Stanley Broun has spent 13 years in Fiduciary And Tax.
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