Why do you need an Independent Trustee?

by Eduan Botha

Independant Trustee

This is a question we get asked quite often and it deserves some attention. You may answer that your Independent Trustee is responsible for handling all your trust requests such as resolutions, annual meetings, advice, signing off financial statements and being the liaison between the Master's Office and yourself as the client.

However, your Independent Trustee (IT) actually fulfils a much more important role than described as above. The law requires that an IT must be appointed on a family business trust, which is the type of trust we utilise. The reason for this is that some people abused this trust form for years by not following the law, and administrating their trust as if it was their own personal wallets, thereby creating a situation what we call the trust being your 'alter ego', or being an extension of yourself.

When you manage your trust as an extension of yourself then you open yourself up to personal liability if and when you are attacked by creditors. The court will disregard the trust form and treat the assets as belonging to the trustee and not the trust. Thus you lose the protection afforded to you by the trust.

The courts have long recognised that this is a problem, and in the seminal case of Land and Agricultural Bank of South Africa v Parker, the Supreme Court of Appeal strongly suggested that at least one person, that is totally independent from all the beneficiaries and trustees, be appointed to avoid the trust being used as an alter ego.

Subsequent to the ruling above, the Chief Master of the High Court issued a directive requiring at least one independent trustee to be appointed before a new family business trust may be registered. The independent trustee should hold no familial relation or connection with any of the other trustees, beneficiaries or founder of the trust.

The reasoning behind requiring an independent trustee is that he or she is responsible to make sure that the trust provisions are adhered to and that all legal requirements should be met. This is why it is advisable to have a legal professional as your independent trustee. He or she will be able to make sure that trust decisions and operations are in line with the accepted standards and requirements in order to have the trust stand separate from the founder and trustees' personal estates.

Remember that substance over form is very important, and that one requires actual separation of control from the founder. You cannot just appoint an IT for show, the IT must actually fulfil the role of an independent outsider that ensures that the provisions in the trust deed are complied with. Again, it is highly suggested that your IT be a legal professional as they are able to do so.

To be put in touch with a Wealth Masters approved Independent Trustee, please contact services@wealthmastersclub.com.