SummaryThe newly introduced requirement for all family business trusts to appoint at least one independent trustee, will go a long way to counter the abuse and misuse of trusts, to protect trust beneficiaries, as well as provide much needed comfort to third parties and creditors that transact with trusts.
Trusts - particularly family trusts - have been used and abused by unscrupulous individuals for the purpose of hiding assets from a spouse or creditors and a range of other unsavoury activities. These abuses occur despite stringent requirements contained in our laws for trustees to act with the care, diligence and skill, which is to be expected of a person who manages the affairs of another.
In 2004, when a couple of family members who were the trustees of the Jacky Parker Trust tried to renege on a deal gone wrong with the Land and Agricultural Bank of South Africa, the bank took them to court. The judges in that case were so infuriated by the actions of the trustees that they ordered the various Masters of the High Court – who have statutory and common law jurisdiction over trusts – to ensure that family trusts are not controlled solely by family members who are beneficiaries.
In 2017, the Chief Master obliged the request and issued a directive that made it a requirement for all family business trusts to appoint at least one independent trustee. The directive sets out an onerous list of requirements for the independent trustee and advocates, but does not require, that such a person should be a professional person affiliated with a professional body, such as: an accountant, advocate or attorney. A key requirement is that such a person has no family relation or connection, blood or otherwise, to any of the existing or proposed trustees, beneficiaries or founder of the trust. The independent trustee must sign a sworn affidavit to that effect.
The appointment of an independent trustee can also ensure that trustees do not treat trust assets as their own, which could cause the trust to become an Alter Ego or Sham Trust. In these instances, our courts will look through the trust and hold the trustees personally liable. There have been many divorce cases where a spouse has attacked Alter Ego or Sham Trusts to have the trust assets included in the hands of the other spouse for purposes of determining redistribution amounts that would be considered fair.
An independent trustee is entitled to a fee similar to any other trustee. The fee is regulated by the trust deed and where no such provision is made in the trust deed, the fee should be reasonable, which in the event of a dispute, shall be determined by the Master.
The introduction of the requirement to have an independent trustee for family business trusts will ensure that an adequate separation of control from enjoyment is maintained. The newly introduced measure will go a long way to counter the abuse and misuse of trusts, to protect trust beneficiaries, as well as provide much needed comfort to third parties and creditors that transact with trusts..
Mosaic Family Office is the leading provider of multi-family office services in South Africa.