Trustees: Nine important must do’s

Trustees are often appointed without the persons being appointed having any knowledge of how to manage a trust. There are at least nine things trustees must do with care to make sure that a trust is managed well.

1. Keep documents safe

The first of the nine things Trustees must do, is to the Trust Deed and the Letter of Authority (the originals) safe. It will serve the Trustees well also to make a few extra copies of the documents, have them certified and give each Trustee a set.  Records of meetings and resolutions signed as a result of the meetings must also be kept in a safe place. The reasons for this are important:  the main reason is that the Master can ask for copies of any documents at any time. Furthermore, if there is a change needed in the Trust Deed, there is no scrambling for original documents or having to apply for copies. Also, if there is a dispute between trustees, it is easy to refer back to records.

2. Record everything in writing

It is best to record meetings and decisions in writing.  After every decision that the trustees make, there must be a signed resolution. For example, if the trust wants to buy a property, there cannot just be a sale agreement, there must be a resolution signed by all the trustees that confirms that the property will be purchased. This ensures that the acts of the trustees are taken correctly and in the interest of the trust. The courts have found that, where no property records were kept, that the trust is a sham and that the trustees are hiding behind the “veil of the trust”, declaring that the assets of the trust in fact belonged to the trustees and not to the trust. Proper records also protect against arguments in a divorce whether the assets of the trust in fact belong to a person or the trust. If there are proper records, it is easy to prove that the assets belong to the trust and not to the person, which will protect the assets from the divorce.

3. Ensure that Trustees are fit for office

The Trust Deed will usually describe what circumstances disqualify a Trustee from his/her position, like if the person is sequestrated, or reaches a certain age, or leaves the country or whatever the prescription in the Trust Deed is.  Do In terms of Section 20 of the Trust Property Control Act, a person cannot be a Trustee if his/her estate is sequestrated.  The Trustee must then resign and be replaced by another Trustee.  See below in this regard.

4. Follow proper steps to replace trustees

If Trustees must be replaced, there are certain steps to follow to accomplish this. It is important that this is done correctly.  Follow the proper steps and more importantly, do everything in writing and keep proper records of it.  The Trust Deed usually explains what steps must be followed to replace Trustees and who can and who can’t be trustees.  Also, read the Trust Deed to determine what the minimum number of Trustees are. Sometimes if one Trustee dies or resigns, a new Trustee must be appointed immediately to ensure that the Trust Deed is followed.

5. Trustees’ meetings

The fifth of the nine things Trustees must do, is to have regular meetings to discuss the affairs of the Trust and make decisions.  The Trust Deed is the bible of the Trust and will prescribe how and when meetings must be held and how often.  Keep records of these meetings.

6. Yearly financial statements and tax returns

Trustees only need to get yearly financial statements if the Trust is trading. If the Trust is merely holding assets, it is not, in my opinion, necessary to obtain yearly financial statements. It is however necessary to hand in an income tax return yearly and if it is a trading trust, tax returns must be handed in in the same manner as a company.

7. Do not incur debt

The purpose of a Trust is usually to protect assets (if it is not a business Trust).  The Trust should therefore never incur debt or sign surety for any entity or person, otherwise the Trust is in a same position as an individual who has incurred debt or signed surety.  The Trust assets are only protected as long as the Trust does not incur debt. As soon as a Trust incurs debt and gets to a position where it cannot pay its debt, the Trust assets can be attached by the creditors of the Trust.

8. Determine if the Trust needs an independent Trustee

Although legislation does not require that an independent Trustee is appointed, it is fast becoming practice that the Master requires that an independent Trustee is appointed.  An independent Trustee means a person who is not a Beneficiary of the Trust, or a direct member of a Beneficiary of the Trust.  The Master does not always request this, but as I mention, it seems to become the norm that such a request comes from the Master.  In one instance an independent Trustee must be appointed in any case, and that is when a husband and wife are appointed as Trustees of a Trust.  There must be an independent Trustee appointed. The courts prefer that the independent Trustee be a professional person like an attorney/accountant/auditor, but it is not an absolute requirement. The independent Trustee can be any person over 18 that is not related to the Beneficiaries.

9. Manage the Trust assets well

The last of the nine things Trustees must do, is to manage the Trust well on behalf of the Beneficiaries of the Trust.  The Trust Property Control Act 57 of 1988 places an onus on the Trustees of a Trust to exercise a higher standard of care than normal, because the assets of the Trust are managed to the benefit of the Beneficiaries of the Trust. Any decisions the Trustees make must be to the benefit of the Beneficiaries. This means decisions with regards to purchasing assets or making investments must be taken very carefully.  Even the payments to Beneficiaries must be managed carefully so that the interests of the Beneficiaries (read returns on investments; periods of investments; timing of selling and buying assets; timing of paying our income; tax implications) are managed financially well.