Their role is to ensure trust is not “alter ego” of founder
THE OBLIGATION to appoint an independent trustee for all new trusts has been in place for more than a year following the directive from the Chief Master’s Office.
However, it appears that the role of the independent trustee is still being underplayed, and many merely act as signatories for annual financial statements rather than taking on the full responsibility for the active management of the trust.
Koos Rossouw, partner at Stonehage Fleming, says the increased focus on trusts by the National Treasury and the South African Revenue Service (Sars), is likely to gain momentum in the years to come.
He says that although the directive is currently only applicable to trusts registered for the first time, trustees of existing trusts may well consider becoming compliant with the directive.
The directive states that the Master must consider appointing an independent trustee where the trust is registered for the first time and it emerges that it is a family business trust.
The primary role of the independent trustee is to exercise his or her responsibilities in accordance with the terms of the relevant trust deed. Rossouw says the independent trustee needs to have a knowledge and understanding of investments and other assets, to know when
email@example.com specialist advice is necessary.
He says the independent trustee should be able to call for a major review of the trust’s activities or investments, which might be highly unpopular with family leaders and beneficiaries of the trust.
“Independent trustees should have no family relation or connection to the other trustees, beneficiaries or founder of the trust. They must wholly accept the responsibility to ensure that the provisions of the trust deed are observed and that the trust functions properly as it was intended.”
A case that addressed the use and abuse of a trust in business dealings – between the Land Bank and the Parker family trust – came before the Supreme Court of Appeal in the early 2000s. In its judgment about the appointment of trustees and the role of a trust, the court said “the core idea of the trust is the separation of ownership (or control) from enjoyment”.
The court went on to say that although a trustee can also be a beneficiary, the central notion is that the person entrusted with control exercises it on behalf of and in the interests of another.
Trusts were designed essentially to protect the weak and to safeguard the interests of those who are absent or dead.
Cheryl Howard, managing director of Talaria Wealth, says that when a trust does not have an independent trustee, the Master’s Office can declare the whole structure to be invalid or void.
The role of the independent trustee is to ensure that the founder or the person who puts the assets in the trust is not using it as if it is his own, she says.
Rossouw says the rising legal attacks against “alter ego” trusts – where the founder deals with the trust assets as if they were his own – serves to highlight how critical it is for independent trustees to be able to demonstrate their fulfilment of the role. Where a trustee is seen to have acted as a puppet for the founder or has not administered the trust properly, the trust could be disregarded in court and assets treated as though they belonged to the founder. This may have a devastating effect in divorce cases and insolvency proceedings, as well as in the calculation of estate duty payable by a deceased founder.
“Trustees are jointly and severally liable and can be held accountable for acting negligently or intentionally wrongfully,” says Elana Nel, tax director at Stonehage Fleming Financial Services.
Cost associated with the appointment of an independent trustee vary, although the fee of an independent trustee may be anything from R20 000 a year upwards.