Many family trusts are formed without the appointment of an independent trustee which can prove disastrous in instances where a dispute arises, and the validity of the trust is questioned legally.
In South Africa there have been many cases which allowed for the veneer of the trust to be pierced and the trust been deemed to be nothing more than the “alter-ego” of the person controlling such trust and the assets of the trust being deemed to belong to that person.
An independent trustee is effectively a person with the required level of knowledge, integrity and professional skills necessary to discharge certain duties of trusteeship. The main characteristics of an independent trustee is detailed as follows:
- A person not related to the trustees, beneficiaries and/or founder
- A person who accepts and understands the responsibilities of trusteeship, to ensure that the trust assets are properly managed in accordance with the trust deed.
- It is recommended that the person selected be either a professional accountant, admitted attorney or advocate who is affiliated to the relevant professional body.
- That person is not a beneficiary of such trust (i.e. does not have interest in the trust property/assets)
Due to recent changes, the Master now has the authority to appoint an independent trustee where a trust is registered for the first time, and all the following criteria are met:
- The trust deed allows the trustees the power to contract with independent third parties (i.e., the creation of trust creditors);
- The trustees are all beneficiaries; and
- The beneficiaries are all related to one another
Where the Master decides that an independent trustee is required, the Master must request nominations for such appointment from the founder, the existing trustees and the beneficiaries who have a vested right to the assets of the trust. However, the Master is not bound to make the appointment from the nominations provided and can choose another suitable person but only in exceptional circumstances.
In instances where the Master does not appoint an independent trustee, the Master can still request that security be provided by the trustees and/or the financial statements of the trust be audited.
We highly recommend that the trust deed make provision for the appointment and replacement of independent trustees and that such trustee/s be appointed at the inception of the trust to avoid the Master either:
- appointing his/her own independent trustee. Although nominations are allowed it is not guaranteed that the Master will accept such nominations, which can lead to unnecessary complications later;
- Requesting security from the trustees; or
- Insisting on an audit of the financial statements which can prove rather costly.
We further recommend that the founder of the trust at least appoint 2 independent trustees and himself to comprise the board of trustees as this would put to rest the issue of the trust being regarded as the “alter-ego” of any person.
A4 renders professional services to trusts across the country whereby we offer independent trustee services including the drafting of minutes and trustee resolutions.
Feel free to reach out to our team if you have any questions regarding our potential appointment as independent trustees and its application in your trust, and we will gladly arrange for a consultation to advise you accordingly.
Disclaimer: Nothing in this blog post should be construed as constituting legal advice or legal opinion. A consultation is always recommended to review the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the post, Accounting 4 does not accept any responsibility for consequences of decisions taken based on this blog post. Your legal matters remain your responsibility, and it remains your own responsibility to consult the relevant primary resources when taking a decision.