Is an Independent Trustee Required as a Matter of Law? | Legal Articles

 

Legal Articles

Is an Independent Trustee Required as a Matter of Law?

To set the tempo right at the onset, the Trust Property Control Act 57 of 1988 does not require that a Trustee be independent i.e not related to the Trust Founder, other Trustees or the Beneficiaries.

However, since the landmark case of Land and Agricultural Bank of South Africa v Parker And Others 2005 (2) SA 77 (SCA), the practice is that most Masters of the High Court require that one of the Trustees be independent where the Trustees and Beneficiaries are one and related to each other (family business Trusts).

A necessary question would then be, to what end?

when do you need an independent trustee

When do you Need an Independent Trustee?

Firstly, seeing that a Trust has been abused in some quarters to achieve favourable outcomes in matters of tax, the legitimacy of the Trust will be questioned where the Trust Founder is also the only Trustee and the only Beneficiary. The Trust would be seen as an extension of the Trust Founder and will be of no effect since a Trust is a contract, and one cannot enter into an agreement with oneself. 

Secondly the confidence of creditors and SARS is inspired where there is some inclination of independence within the composition of the Trustees. Such would inculcate and increase the prospects of honest transacting and the Trust being run properly as per the law and provisions of the Trust Deed.

Thirdly and important, Trustees who are familiarly related within the Trust arrangement may not possess the necessary skills and experience to make decisions that will maximise the profits of the Trust assets. Too often they are appointed by virtue of family relations while not being up to the task of acting in the best interest of the Trust by making the interest shares of the beneficiaries appreciate in worth. An independent Trustee therefore is brought in to fill this gap and tap into such independent Trustee’s experience and capabilities.

Since it is a matter of practice and not one premised on the provisions of the law, the requirement to appoint an independent Trustee may be dispensed with in the event that good cause is shown that the interests of creditors will not be compromised.

In such case the Master may request undertakings that financial results be audited each year or that security be furnished by other Trustees.

Van Deventer & Van Deventer Incorporated – Notary Attorneys South Africa

Contact us to assist in the formulation and compilation of Trust Deeds that have adequate provisions to cater for various situations. A Trust Founder, Trustee, Beneficiary or a Third Party with an interest in the property of a Trust are also welcome to receive assistance with regards to enforcing their rights.

 

The information contained in this site is provided for informational purposes only, and should not be construed as legal advice on any subject matter. One should not act or refrain from acting on the basis of any content included in this site without seeking legal or other professional advice. The contents of this site contain general information and may not reflect current legal developments or address one’s peculiar situation. We disclaim all liability for actions one may take or fail to take based on any content on this site.

Comments are closed for this post, but if you have spotted an error or have additional info that you think should be in this post, feel free to contact us.


Subscription

Get the latest updates in your email box automatically.

Search

Archive

CloseCOVID-19 Corona Virus South African Resource Portal