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Trusts: Risky to ignore independent trustee requirements

Aug 02 2018 16:24

The main benefit of setting up a trust is for asset protection, limited liability and the preservation of wealth.

However, many individuals manage their trusts as if the assets were still their own, and not for the benefit of the trust’s beneficiaries.

In March 2017 the Master’s Office issued a directive stating that all new so-called “family business trusts” must appoint an independent trustee.
Since the directive was issued it is reported that many new family business trusts have still not appointed an independent trustee.

Morné Janse van Rensburg, managing director at Bannister Trust warns that the Master has the authority to declare the whole structure to be invalid or void.

"This could have devastating effects not only on personal estate planning and tax structuring, but also for the beneficiaries for whom the trust was originally established. If declared invalid or void, the assets of the trust can be deemed to form part of the founder’s estate,” says Janse van Rensburg.

He explains that a "family business trust" would have the following characteristics:

  • The trustees have the power to contract with independent third parties, thereby creating trust creditors; and
  • The trustees are all beneficiaries; and
  • The beneficiaries are all related to one another.

“The role of the independent trustee is to ensure that the individual who places the assets in the trust is not using it as if it is his or her own”, explains Janse van Rensburg.

“Furthermore, the independent trustee’s role is to ensure that the provisions of the trust deed are complied with and upheld at all times, the trustees perform their fiduciary duties, and that the trust’s statutory requirements are met.”

What makes a trustee independent?

In the past, it was acceptable to have family members as co-trustees. However, the directive now clearly stipulates that the independent trustee may not have a family relation or connection - blood or other - to any of the other trustees, beneficiaries or the founder of the trust.

What characteristics should your independent trustee have?

Additional to your independent trustee not being a family relation, it is advised that they also have the following characteristics:

  • A proper understanding of the responsibilities of trusteeship, and accepting office in order to ensure that the trust functions properly;
  • Knowledge of the laws governing trusts and their inner workings;
  • May be a professional accountant, admitted attorney, advocate or individual who is affiliated to a relevant professional body or association, trust company, board of executors or fiduciary practitioner;
  • Would not have any interest in the trust property as a beneficiary;
  • Has knowledge and experience of the business field in which the trust operates;
  • Must be competent to scrutinise and check the conduct of the other appointed trustees.

Under certain circumstances, the Master may repeal the requirement for an independent trustee if the founder can show good cause why it is not necessary to appoint one, or if the Master requests that the annual financial statements be audited, says Janse van Rensburg.

The independent trustee must also ensure that the trust is tax compliant.

The cost associated with the appointment of an independent trustee is relative to each trust and depends on the complexity of the trust, the risks involved, and the nature of the assets that are being managed.

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trusts  |  wills  |  money


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