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.