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Newsletter 28

Newsletter 28


Dear Colleague
 
The end of autumn is in sight as the chilliness of winter is slowly creeping up and the night air becomes crisp and cold.  In anticipation we can await another winter season in which to enjoy cozying up on the sofa under a warm, fluffy blanket, enjoying hot chocolate and marshmallows! Just a reminder of the privilege to be able to enjoy another winter in the circle of seasons.
 
Please remember to return ORIGINAL signed Wills to Legatus Trust for safe-keeping.
No file is opened for a client until the original document is received.
 
Over the next two issues, we are going to concentrate on the implications of estate duty.
 
IMPLICATIONS OF ESTATE DUTY, Part 1 - Property
…..  Read more in the next edition!
 

DUTIES OF THE TRUSTEES
 
The duties of the trustees of a trust are wide-ranging and important, and form part of a properly structured and administered trust.
 
Trustees of a trust are akin to the managers of a company. They are the guardians of the trust's assets and have a duty to manage these assets in the best interests of the beneficiaries, as provided for in the trust deed. In terms of the Trust Property Control Act, they also have a fiduciary duty to beneficiaries. All trustees (whether independent or not) are charged with the responsibility of ensuring that the trust functions properly and to the greatest advantage of the beneficiaries. Specific obligations are discussed below.
 
OBLIGATIONS IN RELATION TO THE TRUST DEED
 
Trustees must lodge the initial trust deed and amendments with the Master of the High Court and be familiar with the trust instructions, including the nature and extent of their powers and duties. A trustee should not accept any appointment until comfortable with the information contained within the trust deed.
 
OBLIGATIONS IN RELATION TO TRUSTEES
 Authority to act
No trustee has any power to act on behalf of the trust in any way until formally appointed by the Master, who then issues a letter of authority. Any action by a trustee prior to this appointment is void and cannot be validated by subsequent ratification.
 
Notice of address
A trustee is required to inform the Master of postal and physical addresses or any change thereof by registered mail, within 14 days of such change.
Exercising discretion
A trustee may delegate tasks but is required to make decisions and exercise discretionary powers personally and independently, without the influence of any other person. Where a trustee relies upon a dominant co-trustee and approves of wrongful conduct, that trustee may be removed from office by the court.
 
Avoid a conflict of interest
A trustee must act in good faith and always avoid conflict of interest between personal interests and, official and fiduciary duties to the trust and to the beneficiaries. A trustee may not gain personally from the trust fund (other than reasonable remuneration) in his/her capacity as trustee.
 
Declare a personal interest
A trustee who in any way acquires an interest in an agreement or proposed agreement which has been or is to be entered into with the trust, must immediately declare the nature and extent of this interest in writing to the other trustees.
 
Duty of care, diligence and skill
Trustees could find themselves personally liable for losses suffered by the trust if it can be proved that they did not act with the necessary care, diligence and skill that can reasonably be expected of a person who manages the affairs of another. It is important to note that “skill” encompasses more than simply acting in good faith. Trustees may be proved negligent not only if they invested in risky investments but also if they invested capital too conservatively, resulting in the capital not growing sufficiently.
 
Accountability
A trustee is always accountable to both the Master and the beneficiaries.
 
OBLIGATIONS IN RELATION TO PROPERTIES 
Taking control of the trust assets
Part of the process of taking control of the trust assets is to ensure that money in the trust is properly invested after considering the beneficiaries’ needs.
 
Registration and identification of trust property
Trust property must be kept separate from any private property. Property, including immovable property and any account or investment at a financial institution, should be registered in the name of the trust.
 
Treatment of trust property
The courts have, in various cases, established the “joint action” rule whereby trustees are required to act jointly in dealing with trust property. When trustees are dealing with third parties, even if it is permissible that a decision be made by the majority of trustees (as per the trust deed), all trustees must be involved in the decision and all trustees should be notified that a decision needs to be made.
 
Collect debts due to the trust
Trustees are required to collect debts owed in respect of trust property.
 
Distributions
Trustees are responsible for distributions to the beneficiaries.
 
OBLIGATIONS IN RELATION TO ADMINISTRATION AND FINANCES OF THE TRUST
Trust bank account
The Trust Property Control Act (and often the trust deed) requires trustees to deposit trust money into a separate bank account in the name of the trust.
 
Administration and investment
The trustees are required to administer the trust in terms of the law and the provisions of the trust deed, and act with a highest degree of diligence and caution.
 
Reasonable return on trust capital
Trustees can be held liable should monies not be invested prudently, but also when they play an inactive role in the administration of the trust.
 
Keeping books and records
  • Trustees are obliged to keep records of all trustee decisions, as well as copies of all vouchers, and should always be ready to produce a documented record of how a decision was reached.
  • Trustees are obliged to prepare annual financial statements and to submit it together with the trust’s income tax return. It is important to note that it is not a requirement that trusts be audited.
  • The Trust Property Control Act requires trustees to keep documents for at least five years from the date of the trust’s termination.
 Reporting to beneficiaries
Trustees have a duty to provide full trust administration reports and accounting records, dating back to the time a discretionary trust had been established, to trust beneficiaries (even if they only have a contingent right) and even to contingent beneficiaries born later.
 
Income tax
Trustees are representative taxpayers on behalf of the trust and, as such, the South African Revenue Service (SARS) will expect them to pay the tax of the trust.
 
Compliance with legislation
Trustees should ensure that the trust complies with the Trust Property Control Act and all other applicable legislation, such as the Income Tax Act, the Tax Administration Act, the Banks Act, the Value-Added Tax Act, the Financial Institutions Act, the Prevention and Combating of Corruption Act, the Financial Intelligence Centre Act, and the National Credit Act.
 
Sources:  Phia van der Spuy, founder of Trusteeze;  Elmarie de Vos, Trust Manager, Legatus Trust


RULING FROM THE GRAVE – DAD KNOWS BEST
 
Maurice Laboz, a millionaire real estate mogul in Manhattan, New York, passed away in early 2015 at the age of 77. He left his wife, Eva, nothing as they were busy getting a divorce at the time of his death. To his daughters he gave $10 million each and the rest of his $37 million estate, he gave to charities. He had quite a lengthy list of strict conditions attached to his daughters’ inheritances, though.
 
His daughters would receive their inheritance only once they turn 35. According to the New York Post, their dad doled out early-bird bonusses to his girls in his Will on achieving the following goals:
  • Marry well-positioned men who would need to sign an affidavit not to touch their money;
  • Graduate from an accredited university and write an essay on what they intend to do with the funds (their father’s trustees were to approve this letter);
  • Hold down good jobs with decent salaries by 2020 (they would get an annual payment up to three times the income listed on their personal tax returns);
  • If they were to bear children and not have jobs outside the house, the trustees would annually pay each 3% of the value of their trust on 1 January (there was a catch: the money would only be paid out towards a “child born in wedlock”);
  • Act as “caregivers” to their mother, Eva Laboz (then 58).
 
Maurice’s daughters, Victoria and Marlena, aged 17 and 21 at the time, contested the conditions of the Will. Eva also legally contested it on the basis that they were still married when he died.
 
This is now a classic case of ruling from the grave!
 
 
Until next time.
“The Legatus Times” Team


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