A trust is a common vehicle often employed in wealth and estate planning, which enables an individual to transfer ownership out of their personal estate to be governed and managed by trustees.
All trusts created in South Africa are governed by the Trust Property Control Act No. 57 of 1988 (“the Act”). In terms of section 6(1) of the Act, any person who is appointed as a trustee in terms of a trust instrument, which can either be a testament, trust deed, or court order, may only act as a trustee upon receiving a Letter of Authority from the Master of the High Court of South Africa.
Once a trustee is in possession of a Letter of Authority, a fiduciary relationship comes into existence between the trustee and the beneficiaries of the trust. A trustee is, therefore, required to act with the utmost level of good faith and integrity when dealing with trust property. A trustee has a duty to conserve the trust property for the benefit of the beneficiaries. This does not mean that the trust property must be eternally retained in the state that it was received. Depending on the trust instrument, it merely means that when assets are sold or exchanged, it needs to be done in a way that is to the benefit of the beneficiaries.
A trustee should further ensure that there is a clear distinction between property held in his/her personal name and property held in the capacity as trustee. The trustee, therefore, needs to ensure that trust property is held in such a manner that it is always identifiable as trust property. The separation of trust property in relation to personal property further facilitates the proper administration and bookkeeping of the trust.
It is important that a trustee obtain a copy of the trust instrument since this will govern how the trust should be managed as well as the procedure that should be adopted for any decisions taken by trustees in relation to distributions, amendments of the trust deed and appointment of trustees.
It is further important that a trustee remain impartial and independent when decisions regarding the distribution of income and capital are made. The Master of the High Court is further entitled to request the appointment of an independent trustee to serve on a family trust. This is to bring stability to the administration of trusts.
The duties of the trustees can be summarised in that a trustee always needs to act in the best interest of the beneficiaries. A person will be expected to act with reasonable care when acting in the position of trustee. The conduct of a trustee will be measured against that of a bonus paterfamilias, meaning that it will be measured against that of a reasonable person with the same knowledge and skills as the trustee.