The importance of managing a trust goes hand-in-hand with the responsibilities of trustees. Without proper management, the trustees can land themselves in hot water with The Master of the High Court, SARS, the beneficiaries, and creditors. Poor administration may also lead to the failure of the trust. To manage a trust efficiently and effectively:
- Trustees are duty-bound to treat beneficiaries impartially
- Trustees are to keep records of the trust affairs and furnish these records to beneficiaries on request
- The trustee must always be actively involved in the administration of the trust – there is no place in our law for a passive trustee
- Trustees must remain impartial and avoid, as far as possible, a position where their private interests conflict with their duties as trustees
- Ensure that tax affairs of trust are up to date and handled correctly – in terms of the Income Tax Act, the trustee is a representative taxpayer and can, in certain circumstances, incur liability
Substandard trust administration by trustees
Independent trust audits conducted on trust administration indicated that:
- A large percentage of trustees are not actively involved in the administration of the trust
- Insufficient audit trails to maximise tax planning resulted in failing trust objectives
- A vast majority of trustees lacked the knowledge and experience required to execute their duties as trustees
- The absences of trustee resolutions and trustee meeting minutes resulted in contracts and trust amendments being declared invalid
- Trust assets are unknowingly exposed to unnecessary risk, resulting in exposing the erring trustees to personal liability (often without their knowledge)
Did you know?
Substandard trust administration could result in the so-called alter ego trust. An alter ego trust, although validly created, is a trust open to trustees-beneficiaries abuse, due to a clear failure to separate control from enjoyment.
Trust Administration
Trust administration refers to the process of managing the trust affairs. This includes both the day-to-day operations and major decisions. As a trustee, you may outsource some of the functions, for example, the bookkeeping and accounting for the trust. As the trustee, however, you remain responsible for many of the trust affairs.
Three main principles governing the administration of a trust are identified by Honeré:
- The trustee should understand the trust deed and give effect to the deed requirements and outlines
- Trustees must perform their duties with care, diligence, and skill
- Trustees should exercise independent discretion
For more assistance with your trust affairs please feel free to reach out to me.
