Author: Philene Spargo

the-beacon-19-11-independant-trustees

An Independent Trustee: why does my trust need one?

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The ‘Independent Trustee’ has become a requirement for certain types of trusts in South Africa. Philene Spargo discusses important aspects of independent trustees that those involved in a trust should know.

In a trust, the trustees contractually agree to administer the trust assets for the benefit of the trust beneficiaries. Historically in South Africa, many beneficiaries and trustees have treated trust assets as their personal assets. This is undesirable as, once a trust acquires assets, those assets can no longer be used at the whim of the former owner without adverse legal consequences.

The role of trustee

A trustee, when appointed, accepts a legal duty of good faith to administer trust assets for the benefit of the trust beneficiaries. This means that trustees must exercise care, prudence, objectivity and sound reason in their administration of trust assets. However, this does not always happen.

The need for an independent trustee

The requirement for an independent trustee to be appointed to certain trusts in South Africa arose from the 2005 decision of the Supreme Court of Appeal in Land and Agricultural Bank of South Africa v Parker and Others. The court ruled that there was no proper separation of control and enjoyment of the trust assets. Simply put, the trustees had improperly administered the trust.

When is an independent trustee required?

Because of the Parker case, the Master of the High Court issued a Directive in March 2017: all South African trusts that meet certain criteria require the appointment of an independent trustee alongside the other (interrelated and potentially conflicted) trustees. The criteria are:

  • The trustees have the power to contract with independent third parties
  • The trustees are all beneficiaries, and
  • The beneficiaries are all related to one another.

So, most trusts in South Africa require an independent trustee to be appointed to act independently of the other trustees to reassure the Master that the trust is being administered legally.

Characteristics of an independent trustee

While the independent trustee does not have to be a professional person, he/she must:

  • be completely independent of the normal contracting parties of the trust, and not a family relation of an existing trustee, proposed trustee, beneficiary or founder in a wide sense
  • not be a beneficiary of the trust
  • ensure the trust functions properly and that the provisions of the trust deed are observed
  • exercise objectivity and be competent to scrutinise the conduct of the other trustees who are not independent
  • be knowledgeable about the law applicable to trusts
  • not be disqualified to act as trustee by the Trust Property Control Act
  • have knowledge and experience of the business field in which the trust operates
  • be aware that failure to observe his/her duties may risk legal action
  • understand the legal duties attached to being an independent trustee, and
  • always maintain his/her independence by not allowing the other parties to exercise undue influence over trustee decisions.

Looking forward

While there will be additional costs by having a professional, independent trustee involved in administration of the trust, the benefits of objectivity and compliance are significant.

Ideally, an independent trustee – either a natural person or a corporate – should specialise in fiduciary law. If you would like assistance with the independent trustee role for a trust with which you are involved, or have questions regarding trusts, the Chartered Legacy and Trust team can help you to navigate the difficult landscape of trust law and journey alongside you as you protect and preserve your family’s legacy.

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Changing circumstances? Change Your Will

Like most things in life, sometimes your Will needs to change.

Your Will details how you would like your assets to be distributed after you pass away. In part, it embodies how you would like to be remembered by those you love when you are gone.

Most of life’s significant “changes” may trigger a Will revision: birth of a child, death of a family member, divorce, marriage, re-marriage and relocation of you or your beneficiaries (within South Africa or abroad).
The executor nominated in your Will may also need to change – for example, if the nominated person moves offshore – or you may have a change of heart about your nominated beneficiaries. Any changes to your asset structures (for instance, as a result of retirement) can mean a review of your Will to ensure that it still fulfils your wishes. Here are details on some aspects:

Children

When a person under the age of 18 stands to inherit, we generally recommend that a trust be used to safeguard the inheritance for the child and prevent it from being administered by the Guardian’s Fund. When a child is to inherit, your Will may need to include provisions to create a trust through your Will if a registered family trust does not already exist. Parents should nominate guardians for their children in their Wills. When your children reach age 18, guardianship falls away and you can remove this provision from your Will.

Divorce

After a divorce, the law gives a “grace period” within which to update your Will. If you pass away within three months of the divorce, the law assumes that you were still going to change your Will and will treat your ex-spouse as though they passed away before you. However, if you have not updated your Will in the three months following your divorce, this protection lapses as the law assumes that you did not want to change your Will. As a result, your ex-spouse may inherit from you according to the provisions of your latest Will.

Offshore assets

Another reason to revise your Will may be if you acquire offshore assets. Most movable assets – cash, investments, vehicles, personal and household effects – situated in a foreign country can be governed by your South African Will, but exercise caution with immovable property and larger investments.

Depending on the jurisdiction, you may wish to draft an offshore Will and take specialist legal tax advice for those assets, since not all countries have the freedom of testation that South Africa does and various countries have different legal rules about how to deal with your assets on death. There are also special tax concessions regarding an offshore inheritance that is never repatriated to South Africa – if you have inherited an offshore asset, ask your financial planner for details!

How to change your Will

Most frequently, the best way to update your will is to make a new one to replace the old. You can also draw a codicil to update your Will, but the original Will and original codicil must be kept together and must “talk” to each other by cross-referencing the codicil to the Will provisions. The simplest option, though, is to draw a new Will reflecting your current wishes – any outdated portions of your old Will can then also be revised.
It is never advisable to write on your Will to try to change the provisions. Handwritten wills, and handwriting on an original Will, will create problems for your beneficiaries and lead to delays in the winding up of your estate or your Will being declared invalid!

If you want to change your Will, or if you have any questions about changing your Will, the team at Chartered Legacy & Trust can guide you through the process and help you to navigate the legal labyrinth to leave a lasting legacy for your loved ones.

Johannesburg Office
Tel: +27 11 502 2800
Eastern Cape Office
Tel: +27 41 001 1026
Western Cape Office
Tel: +27 21 001 0048
Connect with Chartered

Chartered Wealth Solutions is an authorised financial services provider
(FSP no. 13909)

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