What is the role and responsibly of a trustee?
I am often asked to explain the role and related responsibilities of a trustee to people who are considering accepting an appointment as a trustee for the first time. An appointment as a trustee is a position that comes with a substantial amount of responsibility and, therefore, it is an appointment not to be taken lightly. Gone are the days of family trusts being managed by related people. These days the Master of the High Court generally insists on the inclusion of an independent trustee to the trust. More often than not an independent trustee will be a person with a legal or accounting background, who will advise the other trustees with regard to the administration of the trust. It is, therefore, important that anyone accepting an appointment as a trustee understands the fiduciary duties associated with such an appointment and the responsibility they will be assuming in this regard.
Role of trustee
The initial trustees are appointed by the donor on the formation of a trust and, thereafter, when an existing trustee resigns or is replaced, in accordance with the provisions of the relevant trust deed. The main role of a trustee is to administer the trust assets in the best interest of all the beneficiaries, whilst having the utmost regard for the provisions of the trust deed. It is most important for a trustee to understand the underlying reason for the trust’s establishment in the first place. Trustees should fully review and understand the trust deed, as this document usually contains specific instructions on how the donor would like the trust assets to be managed. All decisions and actions taken by the trustees must be made with reference to the trust deed and Trust Property Control Act 57 of 1988. Trustees should also understand what assets, bank accounts, insurance policies etc. exist in the name of the trust. A trustee should also familiarise him / herself with the location and current value of the trust assets as important investment decisions will need to be made based on this information.
It is important to remember that the trust assets belong to the trust and not the trustees. Trustees are prohibited from using the trust assets for their own benefit, unless the trust deed specifically authorises such action. An example of this would be where the trust owns residential property. Assume that three trustees are appointed, two of them a married couple and the other their attorney. The trust deed allows for the couple to live in the house but the trust deed could specify that a market related rental is to be charged so that income accrues for the benefit of all beneficiaries which includes the children of the married couple.
Trustees are also responsible for the maintenance of accurate accounting records in respect of the trust. They will need to report in this regard on a consistent and on-going basis. The trustees will also need to ensure that all statutory filing requirements are attended to, such as the filing of tax returns, submission of VAT or PAYE returns, etc. In short, a trustee should ensure that the trust is fully compliant with all pertinent statutory regulations.
Most trust deeds allow the trustees to consult professionals such as attorneys or accountants. As such, it is important to remember that you are not alone when appointed as trustee of a trust and should attend to consult with professional advisors before making an important decision, such as selling a property or investments. Attorneys can assist with drawing up agreements and conveyancing documents etc. as required, and tax practitioners can advise regarding the tax consequences relating to the sale or acquisition of assets.
In essence, when accepting an appointment as a trustee, you assume the responsibility of ensuring the proper management and administration of the trust on behalf of the beneficiaries, which also includes compliance with all legal and statutory requirements. It might seem like an awesome responsibility but professional advice is available to “ease the burden”.
Company Secretarial Officer, Cape Town