As a result of the various benefits for estate planning purposes, the formation of trusts has become increasingly popular in South Africa.
It is common that one spouse appoints the other spouse to act as a trustee of a trust, without understanding their responsibilities, duties and obligations arising therefrom.
A trust may be structured in a variety of ways, but most commonly refers to the arrangement through which the ownership in property of one person is, by virtue of a trust instrument (usually the trust deed), made over or bequeathed to the beneficiaries. The property is placed under the control of another person, namely the trustee, to be administered or disposed of according to the provisions of the trust instrument and for the benefit of the person or class of persons designated in the trust instrument.
Every trust must have at least one trustee, who shall be appointed in terms of the trust instrument and who shall act in that capacity – only if authorised to do so in writing by the Master of the High Court.
The Trust Property Control Act 57 of 1998 (“the Trust Act”), regulates the further control of trust property and creates a framework for the obligations and requirements arising from the administration and formation of a trust.
Trustees must act with the utmost of good faith and give effect to the provisions set out in the trust instrument. Trustees are further responsible for the opening of a separate trust bank account and are obliged to keep records indicating all of the property held by the trustees in the trust.
Trustees may further not expose a trust to undue risk and must act in the best interests of the trust and its beneficiaries at all times. Therefore, it is imperative that a trustee properly understands his/her obligations and lawful requirements when executing their duties as trustee.
It is not uncommon for the beneficiaries of the trust to be trapped with trustees who are failing and/or refusing to perform their obligations in terms of the trust instrument and the Trust Act.
Remedial action is available to the affected parties that may be suffering at the hands of the trustees, who are offered protection in terms of the Trust Act. More particularly, Section 20 of the Trust Act provides that a trustee may, on application of the Master or any other person having an interest in the trust property, at any time be removed from his/her office by the Court, if the Court is satisfied that such removal will be in the interest of the trust and its beneficiaries.
More importantly, it is a common misconception that trustees are offered personal protection whilst acting in their representative capacity as trustees of the trust. On the contrary, a trust may not indemnify a trustee against personal liability and any such attempt to exempt the trustee from such liability resulting, will be void. The beneficiaries will accordingly be entitled to hold the trustee personally liable to the trust for any loss which may be suffered as a result of the trustee’s negligent actions.
It is of vital importance that trustees pay careful attention to their obligations in terms of the Trust Act, as well as those arising from the trust instrument.
Should there be any uncertainty with regards to your obligations as trustee, or alternatively, should you wish to take action against a trustee who is failing to fulfil his/her duties, it is advisable that you obtain further legal advice in respect thereof.
Written by James Gallow
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE).