Is your adviser not taking your trust seriously?

TO MY horror I was part of a discussion where a colleague in the fiduciary industry who works at a prominent wealth manager spoke to me about their clients and their service offering. When I asked who takes care of their clients’ trust needs, the reply was: “We have cracked the code: as long as you have the client’s balance sheet, that is where you make money. We realised trust services do not make us money, so we stay clear from that, as it is just too risky.”

I was horrified and replied: “So are you telling me you do not care about your clients’ needs? Who then takes care of that, as you know as well as I do, clients, especially now, need help and they may rely on you as their primary financial relationship? Do you not even refer them to a reputable trust service provider?” The person was speechless.

I then realised the false sense of security that many clients experience with their financial services providers – such as their financial advisers, accountants, attorneys and banks – as this seems to be a general issue. SARS and the courts are introducing all sorts of changes regarding trusts.

I believe it is the ethical duty and responsibility of professionals to assist their clients, whether they provide trust services themselves or whether they form part of a network of professionals to take care of their clients’ financial needs. It should not only be about their profits.

Are you such a client?

Estate planning and financial services are often provided in silos by different service providers, often with the objective only to maximise their income as alerted to above. This often leads to heartache at a later stage – such as when one divorces, is sequestrated or dies.

The Wikipedia definition of estate planning is deceptively simple: “The process of disposing of your estate.”

This definition implies that you can arrange your financial affairs while you are alive for your own and others’ benefit, as well as for the benefit of those you favour after your death (your legacy), obviously subject to legislation such as the Maintenance of Surviving Spouses Act.

Proper estate planning is otherwise widely defined as the arrangement, securement, management and disposition of your estate so that you, your family and other beneficiaries may enjoy, and continue to enjoy, the maximum benefits from your estate and your assets during your lifetime and after your death, no matter when death may occur. Your financial plan and financial products, will, letters of wishes and trust/s all form part of your estate plan and have to be maintained and updated on an ongoing basis.

Often trusts are the “orphans” of one’s estate plan, resulting in their neglect. In South Africa, in most instances, the estate planner and his or her family members serve as trustees. When trust service providers register trusts for their clients, very seldom do they educate their clients about their roles and responsibilities as trustees. They are left on their own. Most trustees have never even read the trust deeds – the constitutive charters of trusts, which set out the frameworks within which a trust must operate, including its powers and limitations.

Many people accept trusteeship but claim ignorance when things go wrong. A “silent”, “sleeping”, “absent”, or “puppet” trustee will not be tolerated

(Slip Knot Investments 777 (Pty) Ltd v du Toit case of 2011).

A person must, therefore, be active, alert and diligent when acting as a trustee in respect of trust affairs. If a trustee’s actions (alone or with other trustees) contravene either the provisions of the Trust Property Control Act or the trust deed, they could find themselves personally liable for losses suffered by the trust and will be open to attack by creditors and beneficiaries of the trust.

Often there is a misconception that financial statements confirm the legal compliance of a trust. Generally, accountants provide accounting and taxation services to trusts, but do not provide compliance and administration services.

Conclusion

Trustees are the guardians of trust assets and have a duty to manage these assets in the best interests of the beneficiaries, as outlined in the trust deed. The Trust Property Control Act clearly stipulates the duties of trustees. Section 9(1) of the Trust Property Control Act states that a trustee shall, in the performance of their duties and exercise of their powers, act with the “care, diligence and skill” which can reasonably be expected of a person who manages the affairs of another person.

Often financial service providers look the other way when things go wrong. The estate planner and the board of trustees need a proper understanding of what is required to properly administer a trust.

They should then check with their various financial service providers exactly what their services entail. There are currently a lot of changes being introduced in the trust arena, and trustees and estate planners should stay informed. The trustees will ultimately be held accountable, not the service providers. A false sense of security may get the estate planner and trustees into trouble.

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