- In considering the above question, the following is pertinent:
- Trusts (inter vivos and mortis causa) and the conduct of trustees and related trusts requirements are regulated in terms of the Trust Property Control Act 57 of 1988 (“the Act”). The Act provides, inter alia, that any person whose appointment as a trustee in terms of a trust instrument, section 7 of the aforesaid act, or a court order comes into force, may only act in that capacity if authorised thereto in writing by the Master. The Master has wide discretionary powers regarding the appointment of trustees and should the Master consider it desirable, may, notwithstanding the provisions of any trust instrument, appoint as a co-trustee of any serving trustee any person whom he deems fit.
- The Chief Master has the necessary authority to issue directives to direct all Masters in their performance of their functions regarding trusts and such directives are issued in terms of:
- Section 3 of the Judicial Matters Amendment Act 2005 which requires the Chief Master to “exercise control, direction and supervision over all the Masters”.
- Section 2(1) of the Administration of Estates Act 66 of 1965.
- The concept of an independent trustee is not defined in terms of any legislation.
Land and Agricultural Bank of South Africa v Parker & Others 2005 (2)(SA 77)(SCA).
- The concept of an “independent trustee” arose in the decision in Land and Agricultural Bank of South Africa v Parker & Others 2005 (2)(SA 77)(SCA). The aforesaid case (in short) revolved around the subminimum of trustees that cannot bind a trust and, even where the majority of trustees have the power to bind a trust, the power of trustees must be properly exercised. It also highlighted the abuse of the trust form and the court’s duty to develop trust law in accordance with business efficacy, commercial accountability and the reasonable expectation of outsiders.The court touched on the Master’s power to appoint trustees and co-trustees and to authorise trustees and to ensure all trusts in which all trustees are beneficiaries and all beneficiaries are related to each other have an independent outsider as a trustee. In the judgment (at paragraph 34 thereof) the court stipulates that the situation (of abuse where there is no separation between enjoyment and control and potential conflict of interest) may in due course require legislative attention. It goes on to stipulate that it does not mean that the Master and the Courts are powerless to restrict or prevent abuses. The statutory system of trust supervision vests extensive powers with the Master. These include the power to appoint trustees in the absence of provision in the trust instrument, and to appoint any person as co-trustee of a serving trustee where he considers it “desirable” and notwithstanding the provisions of the trust instrument.At paragraph 35 it is stated that the debasement of the trust Form evidenced in this and other cases, and the consequent breaches of trust this entails, suggests that the Master should in carrying out his statutory functions ensure that an adequate separation of control from enjoyment is maintained in every trust.This can be achieved by insisting on the appointment of an independent outsider as a trustee in every trust which (a) the trustees are all beneficiaries and (b) the beneficiaries are all related to one another. At paragraph 36 it is stated that the independent outsider does not have to be a professional person, such as an attorney or an accountant; but someone who with a proper realisation of the responsibilities of trusteeship accepts office in order to ensure that the trust functions properly, that the provisions of the trust deed are observed, and that the conduct of trustees who lack a sufficiently independent interest in the observance of substantive and procedural requirements arising from the trust deed can be scrutinised and checked. Such an outsider will not accept office without being aware that failure to observe these duties may risk action for breach of trust.
Directive number 2 of 2017
- In consequence of the aforesaid Parker case, the Chief Master issued a Directive number 2 of 2017 dealing with various trust matters.
- At paragraph 3.8 of the aforesaid Master’s directive, the Master gives pertinent directions to all the Masters in South Africa regarding the implementation of the decision in Land and Agricultural Bank of South Africa v Parker & Others 2005 (2)(SA 77)(SCA). An independent trustee is described as:
- Must be an independent outsider with proper realisation of the responsibilities of trusteeship, and who accepts office in order to ensure that the trust functions properly and that the provisions of the trust deed are observed. Such independent outsider does not have to be a professional person such as an attorney or an accountant;
- May be a professional accountant, admitted attorney, an advocate who is affiliated to the relevant professional body or association, trust companies, boards of executors or fiduciary practitioners who are members of FISA and may even be chosen from the ranks of business associates;
- Has no family relation or connection, blood or other, to any of the existing or proposed trustees, beneficiaries or founder of the trust;
- Must be competent to scrutinise and check the conduct of the other appointed trustees who lack a sufficiently independent interest in the observance of substantive and procedural requirements arising from the trust instrument;
- Has no reason for concluding or approving transactions that may prove to be invalid, because he or she would be knowledgeable about the law of trusts.
- Would not have any interest in the trust property as beneficiary;
- Is not disqualified by the Trust Property Control Act, 1988 from acting as a trustee; and
- Has knowledge and experience of the business field in which the trust operates;
- Should be a person who will not accept office without being aware that failure to observe the duties of independent trustee may risk action for breach of trust.
- The Master may in certain circumstances dispense with the appointment of an independent trustee and make use of one of the following alternatives:
- Decide to forego the appointment of the independent trustee after receiving representations from the founder showing good cause to dispense with the appointment of an independent trustee;
- Request security; or
- Request that financial statements be audited annually and that the auditor be instructed to inform the Master when potential harm to creditors is likely.
- The aforesaid Chief Master’s Regulation provides that should the trust instrument not make provision for the appointment of an “independent trustee” and the Master deems it necessary to appoint such a trustee in terms of section 7(2) of the Trust Property Control Act, the following persons must be consulted to obtain nominations for an independent trustee:
- The founder;
- The existing trustees;
- Beneficiaries with a vested right in the trust assets.The Master is not bound by the nomination and may appoint a suitable person other than those nominated. This should however be done only in exceptional circumstances.
- Therefore, unless exceptional circumstances exist as described above, the Master should insist that at least one of the trustees must be an “independent trustee”. In practice the Master does not call for the appointment of an independent trustee in existing trusts established prior to the aforesaid Master’s Directive. However, whenever new/additional trustees are appointed or when a new trust is registered, the Master must be advised who the independent trustee(s) is/are.