Fair remuneration as a trustee?

A TRUSTEE must act in good faith, and at all times avoid conflict of interest between personal interests and official and fiduciary duties to the trust and to the beneficiaries. A trustee may not gain personally from the trust fund (other than reasonable remuneration) in his or her capacity as trustee. However, trustees may be rewarded for the execution of their official duties.

Section 22 of the Trust Property Control Act permits a trustee to receive remuneration as provided for in the trust deed, or, where no such provision is made, a reasonable remuneration, which shall in the event of dispute be fixed by the Master of the High Court.

The Act does not contain any further provisions on trustee remuneration.

TRUST DEED

It is recommended that the trust deed sets out the remuneration payable to trustees. This may limit disputes between trustees and protect beneficiaries.

When the founder sets up a trust, he or she has an opportunity to set trustee remuneration in the trust deed, because he or she will no longer have a say if he or she is not a trustee, or has died.

The trust deed can prescribe trustee remuneration expressly or by implication. The trust deed can provide for remuneration by appointing a professional trustee such as an attorney, trust company or bank, who can charge for the administration of trusts customary in that profession. If there are both professional trustees and non-professional trustees, such an implication may apply only to the professional trustees.

Where trustee remuneration is expressly dealt with in the trust deed, it may deal with fees for professional trustees and non-professional trustees. Professional trustees determine their fees according to two factors: risk and time. The greater the risk attached to the administration of assets owned by the trust, or the more time the professional trustee spends on the trust, the higher the fee, as long as it is within the range professionals charge for a similar service.

Some professional trustees charge a fixed annual fee. However, most of the larger trust companies charge a percentage-based fee.

Also be mindful of the variable costs added to the base fee, such as a cost charged per resolution signed. The danger with a percentage-based fee is that it can result in fees being levied that are not commensurate with the risk and time spent by the professional trustee.

Non-professional trustees can charge whichever fees agreed to in the trust deed. No implied fees would, however, apply to non-professional trustees.

No trustee should be allowed in the trust deed to charge fees not stipulated in the trust deed, or to recover costs incurred as trustee, without the written approval of the other trustees. The trust deed should specifically state this, or it will be open to abuse by trustees.

The remuneration agreed to in the trust deed between the founder and the first trustees need not be reasonable. Even if, objectively, the fees payable per the trust deed are exorbitant, the law does not give the High Court or the master the power to adjust them to a reasonable level, nor has the master any power to disallow or reduce remuneration on the ground of a trustee’s failure to discharge his or her duties, or because his or her performance is unsatisfactory.

However, if the trustees charge fees to the extent that the achievement of the objects (the benefit created for beneficiaries) of the founder were hampered, the court would have the power to amend the trust deed by adjusting the remuneration to a reasonable remuneration.

THE MASTER OF THE COURT

If the trust deed does not deal with this, the trustees will be entitled to reasonable remuneration.

It could be argued that trustee remuneration should be regarded as unreasonable if there is not sufficient income to provide for it and if remuneration was consequently paid from the capital of the trust. Depleting capital in such a way would be contrary to the duty of trustees to preserve and productively invest trust assets, and may be open to dispute. If the trustees have a dispute regarding such remuneration, they may refer the matter to the Master of the High Court for a determination. The master will determine the amount of the remuneration in such circumstances.

In the case of Van der Bijl v Barclays Bank (1953), it was decided that the master’s powers to fix remuneration of trustees arises only if there is a dispute. During the founder’s lifetime and if the beneficiaries are mature, the trustees can engage in an arm’s length discussion about remuneration with the founder and beneficiaries. Only if these parties do not reach an agreement about the trustee remuneration will the master entertain a complaint by any interested party to the trust. It is mainly beneficiaries of the trust, who may be financially impacted through excessive fees, who turn to the master.

Although many family trusts are abused by trustees, the sad fact is that most of the trusts that are subjected to excessive fees are testamentary trusts. These are trusts formed in terms of a person’s will to “protect” assets for certain beneficiaries. With testamentary trusts and certain family trusts, the estate planner is no longer alive to oversee matters and the beneficiaries are usually minor children or people who are not financially astute. In essence, the value of their inheritance is being eroded through fees.

Remuneration payable to trustees should ideally be prescribed in the trust deed in the form of a remuneration policy. The basis of the payment should be clear. It should stipulate whether remuneration should be payable annually, either a fixed fee, or a fee based on a percentage of assets or whether fees are payable on a variable basis, such as number of meetings attended and resolutions signed.

Before you sign the trust deed, make an effort to stipulate trustee remuneration you believe will be reasonable, given your personal circumstances, your family’s needs, the level of effort required from trustees, as well as the value of the assets to be held in the trust. Be mindful to allow any variable fees, because it will almost be impossible to challenge excessive fees charged as agreed to in the trust deed, particularly when you are no longer around.

Phia van der Spuy is a registered Fiduciary Practitioner of South Africa and the founder of Trusteeze, which specialises in trust administration.