The Chief Master recently issued Directive 2 of 2017, to take effect from 6 March 2017. The directive is titled “Trusts – Dealing with Various Trust Matters”, and was issued to ensure uniformity in all Master’s offices in South Africa with regards to the administration of trusts.
The directive deals specifically with the requirements for independent trustees in paragraph 3.8.
The appointment of an independent trustee will be required for all “family business trusts”. This type of trust is defined in the directive as:
- “A trust where the trustees have the power to contract with independent third parties, thereby creating trust creditors; and
- The trustees are all beneficiaries, and
- The beneficiaries are all related to one another.”
The qualifying criteria to be eligible to be appointed as an independent trustee are also set out in the directive:
- The person must be an independent outsider who fully understands the fiduciary duties to be taken on, who will ensure that the trust functions properly and who will ensure that the provisions of the trust deed are observed.
- The person must be aware that any failure to observe his or her duties as an independent trustee may result in action for breach of trust.
- The person may be a professional accountant, admitted attorney, a trust company, etc., but does not necessarily have to be such a professional person.
- The person may have no family relation or connection to any of the existing or proposed trustees, beneficiaries or founder of the trust.
- The person must be competent to observe the actions of other trustees and to guide and advise them to ensure that their conduct is in observance of the provisions of the trust deed as well as applicable legislation.
- The person must have knowledge and experience of the business environment in which the trust will operate.
- The person is expected to be knowledgeable about the legislation applicable to trusts and would therefore be expected not to conclude or approve transactions that may be invalid.
- The person will not have any interest in the trust as a beneficiary.
- The person is not disqualified to act as a trustee in terms of the Trust Property Control Act, 1988.
The independent trustee can and should be nominated specifically when the trust is registered with the Master. If the trust deed does not make provision for the appointment of an independent trustee, the Master will consult with the founder, the existing trustees and any beneficiaries with a vested right in the trust to nominate an independent trustee. However, the Master is not bound by that nomination and may instead appoint a person that he considers suitable.
The independent trustee is entitled to a remuneration along with any other trustees in the trust. Due to the criteria set out in the directive as well as the significant risk and the extent of work and administration involved for the independent trustee, it is expected that the fees paid to such trustees will increase. However, the benefit of having a competent independent trustee applying his or her expertise and knowledge to ensure that the interests of the beneficiaries are looked after is worth its weight in gold.
As a result of this directive, two new forms updated with requirements contained in the directive were issued by the Master for the appointment of independent trustees, namely the J417 Acceptance of Trusteeship as well as the prescribed Sworn Affidavit by Independent Trustee.
The directive can be read at http://www.justice.gov.za/master/directives.html .