Independant trustee

[Dave A]

I have received a letter from the lawyer that established a couple of trusts for me a while ago. The gist is to advise that things have changed since he established the trusts,

The judgement by The Supreme Court of Appeal in Land and Agricultural Bank v Parker and Others 2004 JDR 0574 (SCA) has had far reaching ramifications for Trusts, Trustees and Business owners. The gist of the decision is that the courts have become more vigilant in ensuring that the trust is not merely an “alter-ego” and that there is a distinct separation of control and benefit between the Trustees and the Beneficiaries.

It was stated that the Parker case ‘….brings to the fore yet again questions about the use and abuse of the trust form in business dealings.’ The court held that the trust is undermined where the functional separation between control and enjoyment i.e. between Trustees and Beneficiaries, is lacking. A directive was issued to the various Masters Offices throughout the country to insist on the appointment of an independent outsider as trustee to every trust in which the trustees are beneficiaries and the beneficiaries are all related to one another.

and he now suggests the need for a professional independant trustee.

Does anyone know if this is really the case?

Is there really a problem with having only trustees that all happen to be beneficiaries?

[Sieg]

Trustees and the Parker decision

Dave

it may be an idea to read the Parker decision and then take a decision. e mail me and I'll send you a copy.

Sieg

[Marq]

As far as I can determine the 'Parker Case' relates to the issue of Capacity and Authority. Specifically the number of actual Trustees Vs the minimum number as per the Trust Deed. I did not see anything related to the control and benefits of trustees and beneficiaries.

This sounds like a lawyer trying to drum up business for himself bending a ruling to suit his objectives.

One of the main reasons I have not done any Trusts is because of the minimum of two trustees ruling. The problem being, as an example, I set up a trust with myself and my wife as Trustees and something should happen where she is operating by herself, she has to be reliant on an 'outsider' trustee in the form of the accountant, lawyer or friend. While they all tell you it just a title and there is no intentions regarding the ongoing relationship of the trust, there are always enough examples of this not being the case.

Is this one of those examples? I don't know and may not have the gist of the case correct - but there is always that niggle at the back of my mind.

Related to this discussion would be the L Badenhorst Divorce Case which looked at control of assets and intentions behind the setting up of trust. Again the independence does not relate to changing the rules of trustees and beneficiaries but it relates to the application of trust law as it stands.

As in most things the legal side will look at intention and if this is outside the letter and spirit of the law, then the courts have no problem in applying an adverse ruling.

[Martinco]

I might be wrong but as far as I could establish you have to have an independent person as a trustee. i.e. minimum of three persons .
The contrary means the Trust is not legal.
I listened to "Wat sê die prokureur" recently and this subject was discussed and according to Igna Kleinsmidt this is compulsory !
I am selling this for the same money I paid for it !

[Dave A]

This sounds like a lawyer trying to drum up business for himself bending a ruling to suit his objectives.

It does a bit. But in this instance it goes beyond that.

To be plain, the main purpose is to ensure continuity for my business and other major interests in the event of my untimely demise, so there isn't a lot of activity. It has nothing to do with protecting assets from creditors.

Essentially the lawyer is trying to change our contract. I paid substantially more than par for those trusts to be set up on the understanding that the lawyer's role as trustee was covered in the fee for the rather minimal number of resolutions that would be required, and to execute certain preset resolutions should I no longer be able to fulfill the role of trustee.

To change the contract, he needs to establish that the conditions under which the contract was entered have materially changed.

One of the main reasons I have not done any Trusts is because of the minimum of two trustees ruling. The problem being, as an example, I set up a trust with myself and my wife as Trustees and something should happen where she is operating by herself, she has to be reliant on an 'outsider' trustee in the form of the accountant, lawyer or friend. While they all tell you it just a title and there is no intentions regarding the ongoing relationship of the trust, there are always enough examples of this not being the case.

Have a resolution in place for your replacement.

I might be wrong but as far as I could establish you have to have an independent person as a trustee. i.e. minimum of three persons .
The contrary means the Trust is not legal.

I suspect confusion around the three trustee issue stems from the NCA requirements i.r.o. trusts for the NCA's specific purposes.

[Marq]

Have a resolution in place for your replacement.

Thats the problem......whom to choose?

[Dave A]

I don't know if this will help with your particular challenge in this regard, but I like the saying "don't try to rule from the grave."

Our duty is to pass the batton without hamstringing the new bearer. What they do with it is up to them. Even if it is a matter of incapacity as opposed to something more terminal, if we are beyond making decisions, we're probably beyond caring what those decisions might be too.

[Marq]

Our duty is to pass the batton without hamstringing the new bearer.

Quite right Dave - couldn't agree with you more.

This is however is a decision to be made in the here and now not the here and after. Theres two of you here now - If one of the parties says I don't want some other dude, who I do not really know, to be my new partner should you leave me here. I don't know what he may be capable of of and I don't trust this Trust set up thing because of that. So because of that one angle, the trust thing is not going to work.

So yes, I won't be interested in what happens here should I be on the cloud with harp in hand, but at the same time one does not want to leave the loved ones in a poor house because some con man 'trustee' takes advantage.

Paranoid? Who said that.

[Basment Dweller]

I read somewhere that the master of the high court reject trusts that are registered without an independent trustee...does anyone have any clarity on this?

Also what is the minimum amount of trustees one can have on a trusts board?

[Houses4Rent]

I doubt the master goes that far, but SARS will. Minimum is 2, you and the independent trustee.

[CLIVE-TRIANGLE]

When the Trustees are also beneficiaries of the Trust and the beneficiaries are related to each other, it is required that an independent third party also be appointed as a Trustee.

Be aware that various offices of the Master will not issue a Letter Of Authority if there is not an independent trustee, anyway.

SARS don't have any role here, other than to register the trust if required, for tax. That they may scrutinize the trust's taxes more closely in the absence of an independent trustee is a given .... but they scrutinize trusts anyway.

Trusts are about as toxic as a sub-prime mortgage.

[Basment Dweller]

Trusts are about as toxic as a sub-prime mortgage.

Care to explain?

[CLIVE-TRIANGLE]

The true intent of trusts is to facilitate estate planning. However that has become incidental and they have in recent times more often than not been used in an attempt to avoid, estate duty aside, other taxes and a place to stash assets that would otherwise be at risk in beneficiaries' hands.

This has resulted in SARS, for at least a decade now, really digging into trusts' activities, especially if it trades, and rental activities is classed as a trade. This oversight really prejudices "true" family trusts. Banks also are very wary of them, especially when mortgages are involved. I have seen more than a few instances where they expect all trustees, including independents, stand surety for any borrowings. Good luck with that.

Also, most trustees don't really have a clue about their fiduciary duties and seldom act in the interests of all of the beneficiaries, especially when minors are involved and often their decisions are open to challenge because they have not grasped the underlying principles, let alone complied with accepted due process regarding approval of dealings.

[Justloadit]

I must admit that having placed most of my assets into a trusts, that it has already served me on one occasion when the sheriff pitched up at my premises to attach. Fortunately nothing in my name so I could negotiate the terms of an unknown court order that was served on me, or had to pay a hefty sum with 14 days.

This is the reason you need the independent trustee, who is in the trade so to speak, who advises you when ever you make any decisions which involves the trust.

[Houses4Rent]

Trusts are not toxic at all, but the bad management of them is. If all is done for the right reasons and if run properly incl having an suitable independent trustee I cannot see anything toxic about trusts at all. Of course if they are set up for the wrong reasons and not run properly they are useless. This applies to pretty much anything.