A trust is a legal entity consisting of a donor/founder, trustees and beneficiaries. The founder holds assets (without owning them) for the benefit of the trust beneficiaries. In South Africa, trusts are governed by the Trust Property Control Act of 1988, and are registered by the Master of the High Court.
All trustees have certain obligations regarding the trust, including (but not limited to) the following:
- First, above all, a trustee must read and understand the trust deed or the trust instrument, and to understand the powers, duties, and responsibilities. Trustees must also become familiar with the duties and obligations in law, particularly the Trust Property Control Act of 1988 (“the Act”).
- Create a proper record/inventory of the trust assets. There must be a proper record and an inventory of all assets and statements reflecting the financial side of the trust.
- Open a bank account in the name of the trust as soon as they receive money on behalf of the trust. The Master of the High Court can demand an account from the trustees regarding the administration and their disposal of the trust property.
- Act only when authorised to do so. According to Section 6 of the Act, any person who is appointed as a trustee in terms of a trust instrument or a court order which came into force after the commencement of the Act, shall act in that capacity only if authorised thereto by the Master.
- Should an unavoidable conflict of interest arise, the trustee must treat the situation by disclosing the conflict and not taking part in any decision from which a benefit might be derived.
- According to Section 9 of the Act, a trustee must act with “the care, diligence and skill which can reasonably be expected of a person who manages the affairs of another.” Essentially, trustees are obliged to act in a fiduciary capacity. To do so, co-trustees are expected to work together and to act in the best interest of the trust beneficiaries. Regardless of whatever powers and discretions the trust deed grants to trustees, the trustee may not take any action that will be in breach of this general fiduciary duty.
- If a trustee wishes to declare a personal interest, he/she must immediately declare the nature and extent of this interest in writing to other trustees should that trustee acquire an interest in an agreement or proposed agreement that has been or is to be entered with the trust.
- A trustee must personally and independently make decisions and exercise discretionary powers to the advantage of the beneficiaries. The trustee may also be held responsible to the beneficiaries for any appointed agent’s actions or misconduct.
Read more: Ten things to know about trusts.