Why appoint a Professional Trustee
- Separation of Enjoyment from Ownership
- Land and Agricultural Bank of South Africa v Parker 2005 (2) SA 77 (SCA)
- Section 3(3)(d) of the Estate Duty Act 45 of 1955
- Jordaan v Jordaan2001 (3) SA 288 (C)
- Badenhorst v Badenhorst 2006 (2) SA 255 (SCA)
- Existing Professional Advisers as Trustees
- The Alter Ego
- Trust Minute Book
- Trust Accounting Records And Asset Register
- The Expertise of an Independent Professional Trustee
Ten Reasons Why You Should Appoint A Professional Trustee
These principles will highlight why it is important to have an Independent Professional Trustee to guide you through the process.
It is clear from our law that one of the essentials of a Trust is that there must be a separation of enjoyment of Trust assets from the control of those assets. The golden rule of a Trust is that the Trustees are required to administer the assets under their control to the benefit of the beneficiaries. In other words, the persons who control the Trust should be substantially different from and be independent of those that benefit from the Trust.
2. Land and Agricultural Bank of South Africa v Parker 2005 (2) SA 77 (SCA)
In the abovementioned case the court indicated that there is nothing wrong with using a flexible instrument such as a Trust for business purposes but that separation between enjoyment and control is essential. The court made it clear that the use of Trusts “invite abuses” and they will not tolerate the abuse of any legal form or entity. The court indicated that where the Trust is seemingly used as a “cover” the assets will be treated as if they belonged to the people who exercised control over those assets instead of those assets vesting in the Trustees under the protection of the Trust.
3. Section 3(3)(d) of the Estate Duty Act 45 of 1955
Included in the deceased estate is property that the deceased was, immediately prior to his or her death, competent to dispose of for his or her own benefit or for the benefit of the estate.
“Competent to dispose of” includes the power to revoke or vary the provisions of a Trust. It is clear that where a founder or Trustee in terms of a Trust deed hold too much power that enables one person to dispose of assets as he or she sees fit could cause the assets of the Trust to fall in the deceased estate.
This is a result that each Founder would want to avoid when planning for his or her estate.
4. Jordaan v Jordaan2001 (3) SA 288 (C)
A wife claimed a share of Trust assets as part of a divorce settlement. The court found that the manner in which the husband administered his various Trusts was a relevant factor in arriving at its decision and granted the wife’s application. It appeared from the various Trust’s financial statements that money flowed freely between all Trusts without any formal decision making and was all done upon the husband’s instruction. Due to a lack of independence the Trust’s integrity had been compromised.
5. Badenhorst v Badenhorst 2006 (2) SA 255 (SCA)
The court stated that while the legal control of a Trust is in the hands of Trustees, very often the founder in family Trusts appoints close relatives or friends who are either supine or do the bidding of their appointer. De Facto the founder controls the Trust. In these circumstances the Trust could be seen as the alter ego of the founder and the assets could be regarded as those of the founder.
6. Existing Professional Advisers as Trustees
It often happens in practice that a Founder appoints existing professional advisers as Trustees. For example, a Founder may be a shareholder of a company through which he conducts his business. The Founder then appoints the auditor of his company as his Trustee. In reality these persons may not be regarded as ‘independent’ in the sense required, because they are likely to accede to the wishes and demands of the Founder without objectively taking into account all the relevant factors before arriving at a decision. The risk of losing a lucrative audit and consulting fees could be too great if these Trustees oppose the views of the Founder.
7. The Alter Ego
The Founder, Trustees, beneficiaries and/or any other person may not treat the assets of the Trust as their own, and may not control, enjoy or spend or in any way dispose of the assets in the same way as they did prior to these assets being made over or bequeathed to the Trustees.
8. Trust Minute Book
A Trust minute book should be opened to record all meetings of Trustees. Ideally the minute book should contain a copy of the Trust deed. The importance of keeping reliable minutes cannot be over emphasised. These minutes will not only enable the Trustees to account to the Master as and when required but will also prove the existence of a Trust in the sense that the Founder and some other person where not just ‘carrying on as before’. It will prove that there was indeed a separation of control from the beneficial use of the assets.
9. Trust Accounting Records And Asset Register
According to the Trust Property Control Act, Trust property must be clearly defined as such. It is therefore strongly suggested that an asset register should be kept for each Trust.
Reliable accounting records should also be kept to ensure that all transactions are available to supply upon demand of the Master or any other institution for that matter.
10. The Expertise of an Independent Professional Trustee
There is room in our South African law for the appointment of an independent professional Trustee who would bring real expertise, impartiality and independence to the board of Trustees. The appointment of such a Trustee would satisfy the requirements for independence.
Apart from just satisfying requirements, a professional Trustee must also be used to ensure that asset registers are held and updated, minute books are opened and maintained, resolutions are drafted and recorded and that financial records are kept. This will ensure that the independence and integrity of your Trust is maintained.