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A trust is defined as a structure into which cash or assets (“trust property”) are transferred by the founder of the trust and which trust property is administered by the Trustees on behalf of one or more beneficiaries in accordance with the trust deed.
In accordance with Section 1 of the Trust Property Control Act, 57 of 1988 (“the Act”), a trust is an arrangement through which the ownership in property of one person is by virtue of a trust instrument made over or bequeathed to another person, the Trustee, in whole or in part, to be administered or disposed of according to the provision of the trust instrument for the benefit of the person or class of persons designated in the trust instrument or for the achievement of the object stated in the trust instrument.
The main purpose of a trust is to be a vehicle for the efficient management of assets that have been set aside for the benefit of the beneficiaries. The Trustees must always act to the advantage of the beneficiaries, including decisions regarding investing in specific assets or products, managing the income stream from the trust, as well as the timing and way assets are distributed and payments to the beneficiaries are made.
The powers of a Trustee
The Trust Deed customarily determines the powers of a Trustee. The Deed commonly grants Trustees with wide powers to allow the proper administration of the trust. Whilst these powers vary, the most common powers include buying and selling trust property, determining distributions to beneficiaries, the contracting of professionals, tradesmen and contractors as well as the opening and operating bank or building society accounts.
The duties of a Trustee
The Trustees have certain obligations regarding the trust, which include but are not limited to:
- Lodge the Trust Deed with Master of the High Court:In accordance with Section 4 of the Act, Trustees (before he or she assumes control of the trust property) to lodge the initial trust deed with the Master; pay the Master’s fees; be familiar with the trust instructions including the nature and extent of their powers and duties and to lodge amendments to the deed with the Master.
- Acting only when authorized to do so:According to Section 6 of the Act, any person who is appointed as a Trustee in terms of a trust instrument, Section 7 of the Act or a court order which came into force after the commencement of the Act, shall act in that capacity only if authorized thereto by the Master.
- Notice of address:In terms of Section 5 of the Act, a Trustee is obliged to initially inform the Master of his or her postal and physical address. Thereafter, the Master must be notified of any change of address by registered mail within 14 days of the change.
- Duty of care and negligence:According to Section 9 of the Act, a Trustee must act with “the care, diligence and skill which can reasonably be expected of a person who manages the affairs of another”.This essentially means that Trustees, who are the administrators of a trust, are obliged to act in a fiduciary capacity. To fulfill this obligation, co-trustees are expected to work together and to act in the best interest of the trust beneficiaries.
Apart from the above, Trustees must execute their duties as required by the Act and the Master of the High Court.
Any provision in a trust deed that exempts a Trustee from liability for negligence is void. A Trustee may be held liable for any losses suffered by beneficiaries if it is found that the Trustee did not act with the required degree of care and skill in the administration of the trust assets.
- Exercising discretion:A Trustee must personally and independently make decisions and exercise discretionary powers to the advantage of the beneficiaries. The Trustee may also be held responsible to the beneficiaries for any appointed agent’s actions or misconduct. Apart from the above, a Trustee may delegate tasks that are to be performed to further the interest of the trust.
- Avoid a conflict of interests:A Trustee may not gain personally from the trust fund, apart from the reasonable remuneration that he or she is lawfully entitled to. In addition to this, a Trustee must act in good faith and must, always, avoid any conflict of interests between personal interests and official and fiduciary duties to the trust and to the beneficiaries.
- Declare a personal interest:A Trustee must immediately declare the nature and extent of this interest in writing to other Trustees should that Trustee acquire an interest in an agreement or proposed agreement which has been or is to be entered with the trust.
- Accountability:A Trustee is accountable always to the Master and to the beneficiaries. The Trustee may be requested, in writing, to an account of administration and disposal of trust property, provide any relevant book, record, account or document and honestly and truthfully answer any relevant questions by the Master. If a Trustee becomes aware of any acts or occurrences that may be prejudicial to the rights of the beneficiaries, action must be taken.
- Record keeping:A Trustee has a duty to store the accounting records of the trust at its office. These records should fairly represent the trust’s state of affairs to allow the trustee to explain the trust’s transactions and its financial positions. Any Trustee or beneficiary is entitled to inspect these records.
Once a Trustee has accepted the position and is authorized to act, the Trustee must always act in the best interest of the trust’s beneficiaries and fulfill all duties in terms of the trust deed and the law. The Trustees to a trust should appreciate the responsibilities of the position he or she holds as well as the consequences of the performance or non-performance of his or her duties.
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