By Remay Olivier, Trust Product Manager
Talking trusts, some misconceptions still exist which cause confusion, when the essence of a trust is not understood. This typically includes that trusts are expensive and that the main purpose is to keep assets safely from SARS, creditors and (soon-to-be divorced) spouses.
The moment legislation dictates stringent rules relating to certain trust activities or related parties, trusts are disregarded as a "useless" vehicle by those who misunderstand it. Unfortunately, trusts are still being used as an extension of the founder, resulting in no clear separation of ownership and control to the trust. To avoid confusion, understanding what a trust is, is key.
A trust is a contract, created by the founder, where assets are transferred (via sale, donation, or inheritance) to trustees to be administered for the benefit of the beneficiaries (who are identified or identifiable).
The terms are clear: assets are transferred to the trust, which means that the ownership thereof now resides within the trust or the "warm bodies" managing the trust - the trustees. Who the trustees are is important, as they need to ensure proper administration of the assets (which belongs to the trust) for the benefit of the beneficiaries. Trustees are an integral part of the trust as they need to ensure that all the stipulations of the deed are adhered to and balanced against the purpose of the trust. The Trust Property Control Act (the Act) defines a trustee as a person authorised to act (per the Letters of Authority), with the necessary care, diligence and skill, which should reasonably be expected from someone looking after the affairs of another.
If we refer to the "proper administration" of the trust, this involves various activities that are mandatory in complying with the term. This includes, amongst others, ensuring the stipulations in the deed are adhered to, attending to an annual trust meeting, ensuring records are kept of all assets and liabilities, keeping record of all decisions made, executing the decisions per the scope of the deed, submitting tax returns, ensuring all parties are KYC'd and external reporting obligations in terms of Tax Administration Act /CRS and/or FATCA and the Master are adhered to. This is the responsibility of all the trustees and not merely of the independent trustee. If the same degree of care, diligence and skill is attributed to all the trustees, then the question probably is: why should an independent trustee be appointed?
The matter was first highlighted in 2003 in the case of Landbank v Parker, where the court directed as follows:
"...enjoyment and control should be functionally separate. The duties imposed on trustees, and the standard of care exacted of them, derive from this principle. And it is separation that serves to secure diligence on the part of the trustee... The same separation tends to ensure independence of judgment on the part of the trustee - an indispensable requisite of office ...".
The court further directed that the independence can only be achieved via "insisting on the appointment of an independent outsider as trustee... where all the trustees are beneficiaries or where all the beneficiaries are related to one another."
Following the Parker case, industry relied on these directions and appointed an independent trustee in most trusts - however, not all trusts followed the principle. The Master formally confirmed the importance of appointing an independent trustee by publishing the Masters' Directive 2 of 2017. In summary, an independent trustee is no longer merely an afterthought, but an important element in ensuring that the independence in the trust is maintained.
Key take-away
The Master of the High Court requires independent trustees to sign an affidavit declaring:
