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Estates and Wills
Friday, August 1, 2014
Close call

Who should act as trustee for a family trust? A family member, a professional independent trustee, or both? This is one of the biggest decisions to be made in estate planning – and it’s a decision which can have massive consequences for the heirs and the estate if not carefully thought through.

Marteen Michau, head of fiduciary and tax at Sanlam Private Wealth, says the most important function of a board of trustees is to take control of a trust’s assets and take all reasonable steps to protect these assets for the benefit of the beneficiaries. “When deciding on trust investments for example, they should take the beneficiaries’ needs into consideration and ensure a reasonable return where necessary without speculating. Trustees are also responsible for day-to-day administration of the trust, keeping a record of all trustees’ decisions and providing the beneficiaries with full disclosure of all financial matters.”
These responsibilities are governed by common law principles and legislation. “Trustees have a formal fiduciary duty, meaning they should always act in the best interests of the trust beneficiaries. Their appointment and duties are governed by the Trust Property Control Act. Trustees must therefore have detailed knowledge of the terms of the trust deed. They must also perform their duties with the skill, care and diligence expected of someone managing the affairs of another. Making sure that the people you appoint are more than capable of carrying out these duties with expertise and deep insight, is vital, over and above exercising their discretion with the necessary objectivity and independence.”
Michau says trustees often don’t realise they can be held personally liable if they are neglecting their duties. “There are several instances where the beneficiaries have successfully taken the trustees to court over assets improperly managed. In some cases, the trustees do not regard the trust assets as being separate from their own, and enrich or benefit themselves in the process.”
Given the enormity of the task, opting for a family member can seem tempting. After all, blood is thicker than water. But perhaps they don’t have the technical skills to make all the right decisions. Michau suggests carefully considering the following:
• Choose the right number of trustees. Decision-making should either be by majority vote or unanimously. Where there are only two trustees, decisions have to be unanimous. With four, it can lead to a deadlock. And having too many trustees is impractical. “There are no hard and fast rules, but we usually recommend three trustees. This means a majority vote can be reached if necessary,” she says.
• Consider whether trustees have the right skills to carry out fiduciary duties. “At least one of the trustees – whether professional or family member – needs to know how to administer a trust and document trust transactions.”
Michau’s recommendation is that – whether or not family members are appointed – each trust contracts a professional independent trustee or an institution providing professional trustee services. “This will give peace of mind that the trust will be managed properly and in terms of legal requirements. A professional independent trustee will also be able to advise the other trustees of any legislative changes, such as changes in tax laws, and the potential impact of these on the trust. In the case of a legacy trust spanning several generations, an institution providing professional trustee services will provide continuity without disrupting the trust’s activities from one generation to the next,” she concludes.


 

Copyright © Insurance Times and Investments® Vol:27.8 1st August, 2014
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