GETTING IT RIGHT: TRUST ADMINISTRATION

In simple terms, the Trust Property Control Act 57 of 1988 (TPCA) defines a trust as an arrangement whereby ownership and control of property of a person is transferred to one or more trustees, in terms of the trust instrument, not for the benefit of the trustees, but rather for the benefit of the trust beneficiaries. These assets are owned by the trust to achieve the objectives outlined by the trust deed.

The trust deed is the very foundation of a trust and should set out the guidelines for the operational requirements of the trust, including the duties, obligations and restrictions of trustees and beneficiaries. The first step in ensuring that your trust is governed correctly is having a solid trust deed that outlines the operational requirements and is also compliant with any relevant legislation and common law.

The misconception that trusts are not heavily regulated often leads to trustees performing their duties in a half-measured manner. In truth, the TCPA and common law places stringent regulations on trusts and the requirements of trustees.

The duty of care is an onerous one. Trustees hold office and have a duty to fulfil the mandate of that office, with all the rights, duties and obligations that this entails. They also have an obligation to govern the trust to the best of their ability and act with the utmost care.

The TPCA requires trustees to perform their duties and exercise their powers with the care, diligence and skill which can reasonably be expected of a person who manages the affairs of another. Contrary to popular belief, a trustee cannot be indemnified from liability for a breach of trust where they have failed to act with the degree of care, diligence and skill required. 

Depending on the type of trust and its objectives, there are a variety of Acts to look at when measuring compliance, most important being the TPCA. Other Acts may include:

For the most part, a well-composed trust deed will set a solid foundation for the governance of a trust. It will make provision for, amongst others, appointments, reporting, meetings, and the removal and resignation of trustees. 

Another key feature is ensuring that trustees are competent and have extensive knowledge of the trust deed. However, to be truly effective in managing a trust, you may wish to extend your governance purview by creating a more extensive governance framework. This can be achieved by introducing controls and protocols to further manage the intricacies of the trust, particularly by involving all stakeholders in planning. 

Trusts may differ from more conventional business entities, but that does not mean that general good governance principles will have no application. When drafting a governance framework, trustees can look to general good governance principles and apply the practices of the King IV Report and Codes. The King IV Report focuses on transparency, accountability and co-operation, which might prove extremely useful in administering a trust. 

The combination of a well-drafted trust deed, diligent and knowledgeable trustees, cooperative stakeholders, and a clear and effective governance framework, will provide all the tools a trust needs to be effective in meeting its objectives and providing maximum benefit to its beneficiaries.