More than just the new requirements regarding beneficial ownership registers

Recent changes to the Trust Property Control Act resulted in a collection of articles being published in the media and in newsletters of legal practitioners and accounting firms which report on the new requirements on the trustees to keep registers regarding beneficial ownership and business transactions and -relationships with accountable institutions. Apart from these new statutory duties on trustees required by legislation, it is also important to keep the duties of trustees in terms of the common law in mind. This article summarises the duties of trustees as follows:

Common law duties

• Always act in good faith and jointly – all trustees must participate in trustee meetings and other trust matters and must act together. A decision in the absence of a trustee or without his/her knowledge is irregular. Furthermore, the trustees must always act in the interests of the beneficiaries.
• Observe the contents of the trust instrument and give effect thereto – trust deeds can differ from one deed to another and as such, the trustees need to study and observe the trust deed and must give effect thereto.
• Take possession of the trust property – upon creation of the trust, the trustee must take possession of the trust property donated or bequeathed to the trust.
• Make the trust property more productive – the trustees must see that a reasonable return is obtained on the capital of the trust and/or that the assets grow in value and generate income but must avoid high risk investments.
• Preserve the trust property –the trustees must strike a balance between productive growth (as indicated above) and prudent preservation thereof.
• Keep the trust property separate – the trust property should not be blended with a trustee’s personal property and a trustee must refrain from controlling the trust as part of his personal estate.
• Always act impartial - a trustee must avoid a position where private interest conflicts with his duty of trustee. A trustee may also not unduly favour one beneficiary over another when exercising their discretion to allocate benefits to beneficiaries.
• Exercise independent judgement and discretion – a trustee must formulate and express his/her own view when engaging in trustee decisions and cannot assume a passive role in the administration of the trust by being a sleeping trustee. A trustee who fails his duty of independence commits a breach of trust and may be removed as trustee.
• Maintaining the trust’s accounting books – trustees must keep proper records of the trust’s financial affairs by maintaining the trust’s accounting books, which generally consist of a profit-and-loss account, income-and-expenditure account and balance sheet.
• Account to beneficiaries and co-trustees – beneficiaries and co-trustees are entitled to demand information from the trustees regarding the state of investments of trust property and other dealings with the trust property and includes the financial statements of the trust.

Statutory duties

The Trust Property Control Act places the following duties on trustees:

• Lodge the trust instrument and any variations thereto with the Master of the High Court.
• Notify the Master of any change of address of a trustee in writing within 14 days of such change.
• Furnish security to the Master (unless exempted).
• Act with care, diligence and skill which can reasonably be expected of a person who manages the affairs of another.
• Open a separate bank account for the trust to deposit monies received.
• Disclose his position as trustee to the accountable institutions with which the trustees engage with and inform the said institution that the transaction relates to trust property (see the new extended list of accountable institutions in Schedule 1 of the Financial Intelligence Centre Act).
• Separate trust property from private property – keep a register of trust property and keep the said property as identifiable from his own property.
• Keep up-to-date records of the beneficial ownership of the trust.
• Lodge a register of prescribed information on the beneficial ownership with the Master.
• Make such information contained in the said register available to such persons entitled thereto.
• Record the details of accountable institutions which the trustees use as agents relating to trust property and from which the trustees obtain any services.
• Rectify irregularities in trust administration.
• Account to the Master if called upon to do so.
• Retain trust documents (relating to investments, control, administration, alienation or distribution of trust property) in safe custody since the creation of the trust until at least five years from the termination of the trust.

In terms of the Income Tax Act, all trusts must also be registered as a taxpayer with SARS.

Fiduciary duty

The principal components of trustees’ fiduciary duty stems from both the common law and statutory duties listed above, which do not constitute an exhaustive list, but mainly consist of the following, namely:

• Care, diligence and skill
• Impartiality
• Accountability
• Independence 

A trustee’s failure to comply with any of the above duties may result in a breach of trust that can result in a trustee’s removal from office. A failure to comply with the statutory duties mentioned above, especially with regards to the new reporting requirements may lead to a criminal conviction and a sentence of imprisonment, a fine or both.

The days of being a sleeping or inactive trustee has passed as the duties mentioned above are duties which rest on the shoulders of all the trustees, including the independent or unrelated trustee. We strongly urge all trustees to get their record-keeping and compliance requirements up to date. Should you require any information, please contact our Trust Law professionals at our firm.