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Categories: Risk Management

Trustees: Your Risks, Roles, and Responsibilities

Article © CA(SA)DotNews by DotNews

Over the past generation, greater onus has been placed on people in authority such as directors and trustees.  Much attention has been placed on directors following the new Companies Act which became effective in 2011.  It is a good time to relook at trustees who are governed by the Trust Property Control Act. Choosing the right trustees

A trustee must “in the performance of his duties and the exercise of his powers act with the care, diligence and skill which can reasonably be expected of a person who manages the affairs of another”.

What does this mean?  This places a heavy burden on trustees. They are being benchmarked against someone who is a rational, competent trustee who would show the required –

  • Care. They must put in the necessary hard work to reach reasonable decisions.
  • Diligence. They must give the necessary attention to matters at hand. This requires that they have the facts and time needed to inform themselves, so they can make a rational decision.
  • Skill. Trustees must have the experience and qualifications to be able to make a decision in the best interests of the trust. They need to understand the terms and intention of the trust deed, the interests of the beneficiaries, the roles and powers of the Master of the High Court and relevant legislation such as the Income Tax Act.  It is vital for trustees to understand this requirement – it means that lack of skill is no excuse.

Thus, it is vital to select trustees who fit the above criteria.

The Law – a trustee checklist

A trustee can only act as such “if authorised thereto by the Master”.  Thus any action taken by a trustee is void (and our courts have held that such actions cannot subsequently be ratified) if he has not first obtained a “Letter of Authority” from the Master of the High Court.

The trustee is to take control of the assets and keep a separate and identifiable record of them. Assets need to be protected – for example, property needs to be insured where necessary. Annual financial statements are to be produced to accompany the income tax return.

Trustees are to respond to any queries or concerns the Master may have.

All necessary laws need to be complied with.

If and when the trust is wound up, the trustee must be very careful to do this correctly.

Investing the Assets 

Once familiarised with the provisions of the trust deed (in particular powers of investment) and taking into account the interests of the beneficiaries, the trustee(s) must invest the assets. As this is often the cause of dispute between trustees and beneficiaries, it is important that trustees keep a record to demonstrate they have acted with “care, diligence and skill” in executing their duties.

Risk and Liability

If trustees fail in their duties and responsibilities, they risk personal liability for the losses suffered. They also risk personal liability to SARS for any failure to pay taxes due by the trust.  That it is why it is important for trustees to be able to show that they acted with the required “care, diligence and skill” and in good faith in performing their duties.

Being a trustee is not something for the faint-hearted. There is much to consider as trustees are held to a high standard, there are many grey areas and many potential pitfalls. It is worth seeking professional help.

 

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