A trust remains a widely used estate and generational planning mechanism to safeguard assets against various risks and to ensure efficient tax planning across generations. A trust is established by a founder, whose intentions and wishes are recorded in the trust deed. The trust deed governs how the trust must be administered and identifies the beneficiaries who may benefit from it.

Since the founder typically provides the trust with assets it is of utmost importance that the trust takes ownership of these assets and that the assets are managed to the benefit of the beneficiaries. The founder should not retain sole control over the management or administration of the trust assets as they may then be deemed to form part of the founder’s estate, potentially leading to adverse tax consequences.

The solution to bridging the fiduciary gap between a founder and a beneficiary? The trustee.

Trustees are appointed upon the establishment of the trust. The initial trustees are recorded in the trust deed and may be amended over the lifetime of the trust within the parameters provided by the trust deed. The role of trustee is a crucial fiduciary position carrying significant legal and ethical responsibilities. Serving as a trustee is not merely a formality or favour to a friend.

The following are (some of) the key fiduciary responsibilities of a trustee:

• Acting in good faith
  Trustees are required to always act in the best interests of the trust beneficiaries. Decisions and considerations must place the needs and well-being of the beneficiaries above all else.
• Exercise independent judgment
  Trustees must apply their own independent judgement when making decisions and must be able to substantiate those decisions with sound reasoning. This is particularly important in circumstances where differing views exist, and external pressure may be applied to influence the trustee’s decision.
• Avoiding conflicts of interest
  Trustees must, as far as reasonably possible, avoid situations where personal interests could conflict with their fiduciary duties. Where such conflicts arise, it must be disclosed to fellow trustees, and the conflicted trustee should not participate in the relevant decision-making process.

The following are key administrative responsibilities of a trustee:

• Adherence to the trust deed
  The trust deed forms the foundation of the trust’s governance framework.  Trustees are legally obliged to administer the trust strictly in accordance with its provisions. Failure to do so may expose trustees to personal liability.
• Management of trust assets
  Trustees are entrusted with the management of the trust’s assets.  This includes ensuring that a separate bank account is opened in the name of the trust and that assets are accumulated, preserved and invested responsibly to support the long-term sustainability of the trust.
• Maintaining accurate and up-to-date records
  Trustees must ensure that accurate accounting records are maintained, annual financial statements are compiled, and all tax compliance requirements of the South African Revenue Service are met. The compliance landscape has evolved significantly in recent years, increasing the accountability and reporting responsibilities of trustees.
• Accountability for actions and decisions
  Trustees must be able to account for all actions and decisions relating to trust assets and distributions to beneficiaries. Decisions, and reasoning behind said decisions, must be properly documented and recorded in trust resolutions. These resolutions must subsequently be signed by the trustees, and any opposition to decisions noted where applicable.

The role of a trustee is more important than ever and must be taken seriously. It is no longer a mere title on paper but an active position requiring ongoing diligence, sound judgement and strict adherence to fiduciary principles.

Any questions about the role and responsibilities of a trustee? Reach out to Jacques Potgieter at JacquesP@asl.co.za.