Empowering trustees in a complex world
The trustees of a family trust, or those representing the participants of an employee share incentive trust, often don’t realise that they could be held liable if they failed in their duty to manage the trust in accordance with the stipulations of the trust deed. It’s therefore crucial that all trustees undergo trustee training to ensure they’re well equipped to act at all times in the best interests of the beneficiaries.
When an employer sets up an employee share incentive trust, the participating employees have to be represented on the board of trustees – the representative trustees are usually elected from the ranks of the participating employees. In the case of a family trust, the trustee or trustees are generally elected from family members.
In terms of the Trust Property Control Act 57 of 1988, all trustees, including independent trustees, can be held liable if they don’t perform their duties and exercise their powers with the care, diligence, and skill that can reasonably be expected from a person who manages the affairs of another.
Section 9(2) of the Act stipulates that any provision in any trust deed will be void if it has the effect of indemnifying trustees against liability for breach of trust, or failing to perform their duties.
The obligations and responsibilities of trustees can be complex – to empower them to understand their roles and give them the information they need to carry out their duties, it is recommended that all trustees, other than trustees with experience as such, undergo some form of trustee training. At the very least, such training should include legal and regulatory requirements.
Duties of trustees
In the case of employee incentive trusts, the duties of trustees normally include:
- taking receipt of funds from the employer
- subscribing for shares
- allocating units to participants in accordance with the stipulations of the trust deed
- maintaining a register of participants and their unit allocations
- ensuring that the trust funds are invested appropriately
- handling the administration function of the trust
- keeping proper records of the affairs of the trust and all its transactions
- taking control of all trust assets
- ensuring that accounting records are kept, and tax compliance is done in terms of the trust deed requirements and any tax-exemption requirements (if applicable)
- ensuring that the annual financial statements of the trust are audited (if a requirement)
- ensuring that trustee meetings and meetings of participants are held, including an annual general meeting at which the annual financial statements of the trust are presented to the participants
- acting in the best interests of the participants
- adhering at all times to applicable legislation, as well as to the terms of the trust deed.
In the case of a family trust, the trustees, as well as the next generation as succeeding trustees, need to perform similar duties, as applicable in the context of the particular family trust.
The trust deed
Trustees of employee incentive trusts need to ensure they are well acquainted with and observe the terms of the trust deed. The trust deed is the founding document and essentially the ‘constitution’ of the trust. This document will usually contain:
- the rules that prospective participants must follow and conditions they must meet to qualify to receive benefits from the trust fund
- rules relating to the allocation of units to participants
- notice, quorum, voting, proxy and adjournment requirements for trustee meetings and annual general meetings of participants
- any applicable rules in terms of the BEE codes
- rules relating to distributions and payments to participants
- rules relating to termination of the trust.
The rules applicable to a family trust differ from these, but will also be contained in the trust deed.
Trustees in office should also have an understanding of:
- the principles relating to accounting and tax applicable to the trust and to participants
- whether an aspiring trustee is eligible to be appointed as trustee
- what it means for a trustee to apply their discretion as trustee
- how to actively take part in trustee meetings
- the concept of trusts in the context of South African law.
Sanlam Private Wealth offers training to trustees on all the aspects of trusteeship as set out above. To book a trustee training session, or for further information, please contact firstname.lastname@example.org.