By Sisteen Geyser

A practical approach to trusteeship

In light of the recent Davis Tax Committee’s first interim report on estate duty and the Draft Taxation Laws Amendment Bill 2015, the proposed amendments to the taxation of trusts seem inevitable. This article discusses some of the ways in which one can ensure that the administrative affairs of a trust are always in order, ensuring proper compliance with both trust – and tax laws.

1 Beneficiaries first

Section 9 of the Trust Property Control Act 57 of 1988 (the Act) establishes a highertandardf care than normal for the trustees, because they deal with trust funds.

The main purpose of a trust is to be a vehicle for the efficient management of assets that have been set aside for the benefit of the beneficiaries. The trustees must always act to the advantage of the beneficiaries, including decisions regarding investing in specific assets or products, managing the income stream from the trust, as well as the timing and manner in which assets are distributed and payments to the beneficiaries are made.

2 Trustees properly appointed

A trustee cannot act unless he or she has been duly appointed by the Master of the High Court in terms of s 6 of the Act, as set out in Lupacchini NO and Another v Minister of Safety and Security 2010 (6) SA 457 (SCA). Trustees will also, for Financial Intelligence Centre Act 38 of 2001 (FICA) purposes, need to supply financial institutions with the letters of authority or master’s certificate.

In certain circumstances, an appointed trustee can no longer act as such in terms of s 20 of the Act, for example his or her estate is sequestrated, either provisionally or finally. The terms of the trust deed may also disqualify him or her for some reason. If the circumstances of a trustee change, it would accordingly be a good idea to check the terms of the trust deed, in order to confirm that he or she is still authorised/competent to act as trustee.

Where there are any questions regarding the appointment of a specific trustee, or to confirm who the current trustees are, a certified copy of the letters of authority should be obtained from the relevant master of the High Court. The master may request a copy of a resolution by the (other) trustees authorising an agent to apply for the copies, together with the application forms (www.justice.gov.za).

3 Independent trustee

Although neither the Act, nor the trust deed may specifically require or prescribe that an independent trustee be appointed, the master now routinely requests that an independent trustee, who is neither a beneficiary, nor a direct family member of the trustees or the beneficiaries, be appointed. (One of the requirements on the master’s JM21, is that the relationship between the trustee to be appointed and the beneficiaries, is to be declared.) The courts have found that there should be a functional separation of ownership and enjoyment (Land and Agricultural Bank of South Africa v Parker and Others 2005 (2) SA 77 (SCA)).

In practice, an independent trustee need not be a professional person. Should you, as an attorney, however, be appointed as an independent trustee, it is advisable that you are astute in ensuring that all decisions by the trustees are taken, and all acts done, with your knowledge (Steyn and Others NNO v Blockpave (Pty) Ltd 2011 (3) SA 528 (FB)).

4 Changes in trustees need to be recorded promptly

The trust deed normally sets out the procedure to be followed in the event of the resignation or the death of a trustee. The remaining trustees must always ensure that they determine the correct procedure to be followed in such a situation. Sometimes the trust deed provides that when the remaining number of trustees falls below a prescribed minimum, they may only exercise administrative actions pending the appointment of a new trustee (as per Lupacchini).

Once the trustees have ascertained what they are authorised to do until a replacement trustee has been appointed, the master’s new set of prescribed forms should be completed and appointment procedures followed, to elect the replacement trustee and have updated letters of authority issued (www.justice.gov.za).

5 Trustee meetings

Trustees should meet as regularly as is necessary to fulfil their duties to the beneficiaries. The trust deed may prescribe when and how trustee meetings are held. The trustees should at the very least meet once a year to discuss the trust matters, and finalise the financial statements of the trust.

The trust deed usually provides for the manner in which meetings are to be held; what constitutes a quorum, and what happens in case of a deadlock in decisions. Recently registered trusts may even provide for electronic meetings to be held, in which case one should keep the requirements of the Electronic Communications and Transactions Act 25 of 2002 in mind.

6 Yearly financial statements

One of the most important duties of trustees is to ensure that proper records of the trust’s financial affairs are kept (s 16 of the Act). Depending on the trust deed, this may mean audited financial statements, or statements by an accountant. Whatever the case, once a year these statements should be compiled and signed off by the trustees, and it is a good idea to diarise this accordingly.

7 Record keeping

The master can at any time ask for any information regarding the administration of trust assets and distributions thereof, and is also empowered to investigate and impose costs, should the trustees not be able to comply with such a request (s 16 of the Act).

Without proper records, the courts have in a number of cases found that a specific trustee was using a trust as his ‘alter ego’. See First Rand Limited trading, inter alia, as First National Bank v Britz and Others (GP) (unreported case no 54742/09, 20-7-2011) (Mabuse J), where there were no proper records or proof of the separation of the trust assets.

With the proper records, however, the courts have ruled that the assets of a trust could not be taken into account on divorce, because all trustee decisions and records where shown to be ‘above board’ (M v M [2006] JOL 16569 (T)).

Practically, trustees should keep the following in a safe place for a period of five years after date of the termination of a trust (s 17 of the Act) –

• trust deed, letter of authority, and master’s certificates;
• minutes of all trustee meetings;
• FICA Act details of the trustees;
• records of investments and properties, namely title deeds;
• tax records;
• financial statements; and
• bank account statements.

Sisteen Geyser BCom LLB (Stell) LLM (Unisa) is an attorney at Cluver Markotter Inc in Stellenbosch.

This article was first published in De Rebus in 2015 (Dec) DR 28.