Trusts are invaluable instruments for securing your legacy and planning for a prosperous future. At the core of every successful trust lies the trustee – an individual entrusted with the profound responsibility of managing assets for the benefit of others.
Being a trustee is far more than a mere administrative task; it is a position encumbered with significant legal and ethical obligations. To overlook these obligations can lead to personal liability, making a thorough grasp of a trustee’s function paramount.
At Abrahams & Gross Attorneys, we possess an intimate understanding of the intricate landscape of trust law and the weighty responsibilities that accompany trusteeship. Our expertise ensures that your trust will be managed with efficacy, safeguarding both the beneficiaries and the trustee from unforeseen complications.
The foundation of a trustee’s obligations
The foundation of a trustee’s obligations in South Africa is formed by the Trust Property Control Act 57 of 1988 (TPCA). Central to this framework is the fiduciary relationship – one built on absolute trust and unwavering good faith. This dictates that a trustee must consistently act in the best interests of the trust and its beneficiaries, even when such actions might conflict with their own personal inclinations. As affirmed in the case of Doyle v Board of Executors 1999 (2) SA 805 (C), this duty is intrinsically woven into the very fabric of the trustee’s appointment.
Due diligence
Before even contemplating the acceptance of trusteeship, a prospective trustee must engage in diligent preparation. This includes ensuring there is no conflict of interest between their personal circumstances and those of the beneficiaries, thoroughly reading and understanding the trust deed, comprehending the nature of the beneficiaries’ interests, and familiarising themselves with the beneficiaries’ personal circumstances to effectively administer the trust. Furthermore, they must satisfy themselves that no outstanding breaches of trust exist on the part of any current trustees.
Legal authority and statutory compliance
Trustees acquire legal authority to act only upon formal appointment by the Master of the High Court. They are then bound to maintain the trust’s financial records, ensure that trust assets are distinctly separated from personal or business assets, and consistently disclose their trustee capacity when engaging with third parties.
Furthermore, they must report to the Master when requested. The Master assumes a supervisory role, guaranteeing strict adherence to the TPCA and overseeing that trustees discharge their duties in accordance with the trust deed. A failure to comply with these statutory requirements can lead to repercussions, including removal from their position, significant penalties, and even personal liability for any losses incurred by the trust.
Standards of care and asset management
What does this high standard truly entail? Trustees are expected to act with the care, diligence, and skill reasonably expected of someone managing another’s affairs. There is also an added expectation that the trustee possesses the knowledge and skills relevant to their specific role.
For instance, when it comes to investment decisions, professional advice is important to obtain to protect the trust capital against inflation while avoiding unnecessary financial risks. Ultimately, the trust deed is the best guide; every action taken by a trustee must align precisely with its provisions. Disregarding or altering provisions without due legal process can render actions invalid and expose the trustee to risk.
Upon appointment, trustees must assume full control of trust assets, ensuring proper registration and safeguarding, alongside a comprehensive inventory of assets and liabilities. Importantly, trust assets must remain entirely separate from a trustee’s personal possessions. Sections 10 and 11 of the TPCA states that all trust funds must go into a dedicated bank account, and that all trust property must be clearly identified as belonging to the trust. This distinction is essential for transparency.
Prohibitions and accountability
Conflicts of interest are strictly prohibited. Trustees must avoid situations where their personal interests could clash with those of the trust or its beneficiaries. No secret profits or undisclosed commissions are allowed. This principle, clearly articulated in case the case of Phillips v Fieldstone Africa (Pty) Ltd [2004] 1 All SA 150 (SCA), directly applies to trustees: they are always expected to act in good faith.
Where multiple trustees are appointed, they generally must act jointly on decisions, encouraging shared responsibility and accountability. Should a trustee fail in their obligations, they could be held personally responsible for any losses incurred by the trust or its beneficiaries, including substantial monetary damages and legal costs. The Master of the High Court also has the power to remove a trustee for failing to perform their duties.
Ongoing administrative duties
Trustees are also responsible for keeping the trust deed always updated, ensuring that any amendments to the trust deed, trustee appointments, or beneficiary details are done in accordance with the trust deed and applicable legislation, and are duly lodged with the Master of the High Court for approval.
Example; changes in the address of the trust must also be lodged with the Master within 14 days of any such change per Section 5 of the TPCA. Furthermore, trustees must maintain records of all accountable institutions the trust transacts with and update this register as soon as anything changes to ensure ongoing compliance.
The importance of professional guidance
Being a trustee in South Africa is, undeniably, a position of profound trust and significant legal obligation. Whether you are contemplating taking on the role of a trustee or are currently serving and seeking to ensure full compliance, understanding these responsibilities is important.
Seeking professional legal guidance is useful in ensuring that your trust is administered correctly, to mitigate risks, and to protect trustees from personal exposure. At Abrahams & Gross Attorneys we offer comprehensive legal advice and support for all aspects of trust administration. The weight of a trust is substantial, but with our sound advice and expert guidance, it can be managed effectively, ensuring its intended goals are achieved and that your legacy is securely preserved.
For legal advice pertaining to Trusts
Basilio de Sousa basil@abgross.co.za
Disclaimer
The articles on these web pages are provided for general information purposes only. Whilst care has been taken to ensure accuracy, the content provided is not intended to stand alone as legal advice. Always consult a suitably qualified attorney on any specific legal problem or matter.