Is your independent trustee a ‘super’ trustee?

IT HAS become a requirement to appoint an independent trustee in certain circumstances. Developments in legal precedent, the Master of the High Court’s views and practice, as well as the impact of professional bodies on people considering to act as trustees are important considerations when it comes to the consideration of the relevance and importance of an independent trustee.

All trustees must play an active roll

Trusts are often trusts in name only, with an essential principle of trust law, namely the independence of trustees, neglected (Tijmstra v Blunt-Mackenzie case of 2002). It is, therefore, important to note that all trustees act in a fiduciary capacity, and no one trustee can hide behind another. A fiduciary duty is an onerous, legal obligation (a duty of loyalty and care) on someone managing property or money belonging to another person to act in the best interests of that person.

All trustees must act with the care, diligence and skill, which can reasonably be expected of a person who manages the affairs of others (Section 9(1) of the Trust Property Control Act).

It is a fundamental rule of trust law that, in the absence of contrary provisions in the trust instrument, the trustees must act jointly if the trust’s estate is to be bound by their acts, and a unanimous vote will be required in matters of substance. The rule derives from the nature of the trustees’ joint ownership of the assets in ownership trusts. Since co-owners must act jointly, trustees must also act jointly (Coetzee v Peet Smith Trust case of 2003 and Nieuwoudt v Vrystaat Mielies case of 2004). Co-trustees are required to act jointly concerning trust administration at all times.

When dealing with third parties, even if the trust instrument stipulates that a decision can be made by the majority of trustees, all trustees are required to be involved in the decision and must sign each resolution (Land and Agricultural Bank of South Africa v Parker case of 2005).

Is more expected of the independent trustee?

Even though the Chief Master’s Directive does not require an independent trustee to be a professional person (also suggested in the Land and Agricultural Bank of South Africa v Parker case), it is in the best interests of the trust that the independent trustee has sufficient knowledge of the impact of statutory requirements on the trust, including compliance with relevant tax laws, and the effect of changes in legislation. Note that the independent trustee, upon his or her appointment, must sign a sworn affidavit declaring that they are “knowledgeable in the law of trusts”.

The court held in the Land and Agricultural Bank of South Africa v Parker case that an independent trustee should be an “independent outsider” who ensures that there is adequate separation between control and the enjoyment of benefits and a proper realisation of the responsibilities of trusteeship.

The independent trustee should play an active role in the trust and ensure that the trust functions properly and that the provisions of the trust instrument are observed (also confirmed in the Chief Master’s Directive of 2017).

The court also held that the conduct of trustees who do not observe the trust instrument should be scrutinised and checked by the independent trustee. It held that any failure to observe these duties constitutes a breach of trust. That should serve as a warning to so-called “independent trustees” who look the other way in their client’s wrongdoing. The Chief Master’s Directive requires independent trustees:

● To be competent to scrutinise and check the conduct of the other appointed trustees who lack a sufficiently independent interest in the observance of substantive and procedural requirements arising from the trust instrument.

● To be knowledgeable about the law of trusts and not conclude or approve transactions that may prove invalid.

● To have business knowledge and experience of the business field in which the trust operates.

● To realise that failure to observe the duties of an independent trustee may risk action for breach of trust.

Trustees can delegate execution

There is a big difference between abdicating responsibility and the delegation of the responsibility to execute a decision already taken.

A number of estate planners and trustees get it wrong, especially when father, mother, children, family, etc are acting as trustees, and often as “silent” or “puppet” trustees, which is not tolerated (Slip Knot Investments 777 v Du Toit case of 2011). They basically rely on one trustee, often the independent trustee, to carry the burden of trusteeship on their behalf.

However, after acting jointly, the trustees may delegate certain functions to one or more of them while retaining responsibility for the actions taken on their behalf. The trustee to whom the action has been delegated then becomes the agent of the board of trustees.

Have agreements in place

Often the estate planner and other family trustees assume the independent trustee will “carry” the trust. Considering the requirement for all trustees to participate, do not assume the independent trustee will ensure the compliance of the trust on their own.

Our law does not expect all trustees to be experts in all fields (legal, accounting, taxation, and the business in which the trust operates).

The board of trustees should, therefore, analyse any unique contribution each trustee can make, and formally agree with them for any unique role they will play, such as giving advice to and guiding the other trustees on financial matters.

Have a formal agreement in place with the independent trustee, specifically dealing with any special role they are required to play in the trust, in line with our law and the trust instrument.

Van der Spuy is a Chartered Accountant with a Masters degree in tax and a registered Fiduciary Practitioner of South Africa, a Master Tax Practitioner (SA), a Trust and Estate Practitioner and the founder of Trusteeze, the provider of a digital trust solution.