Their role is to en­sure trust is not “al­ter ego” of founder

Saturday Star - - P E R S O N A L - AMANDA VISSER

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

aman­ 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.

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