Trustee duties under the Trust Property Control Act

Zandrie Rademeyer | SchoemanLaw Inc

Category: Contract Law | Trusts

What or who is a trustee? When a trust is created, the founder entrusts assets to the control of another person or persons. That person is known as a trustee. A trustee is defined in the Trust Property Control Act 57 of 1988 as a person who the Master of the High Court authorises to administer and control the property held in a trust for the benefit of the trust's beneficiaries. The position of a trustee is significant. A trustee must manage the trust in accordance with legal requirements, fulfil specific duties and obligations, and refrain from certain restricted actions.  

The most important principle is that trustees must exercise the standard of care and skill that can reasonably be expected of someone managing another person's affairs1. The trustee must thus always act in the best interest of the trust and its beneficiaries. Trustees are also accountable to the beneficiaries and may not refuse to provide them with proper and accurate accounts. Unless the trustees have written permission from the Master, they must keep all documents relating to the management and distribution of trust property for at least five years after the trust ends.  

Trustees must also give effect to the stipulations of the trust deed; they have no discretion to abandon some and include others2. Trustees must also act within the ambit of the powers given to them by the trust deed3. The Master can also require the trustee to provide security to carry out their duties, unless the trust deed states otherwise. If they fail to act in line with these standards and duties, they can be held personally liable4.  

Duties of a Trustee 

The duties of a trustee are set out in the Trust Property Control Act, which requires the trustee to lodge the trust deed with the Master upon incorporation or when any amendments are made. The trustee must give their address to the Master and update the Master if that address changes5. Once the trust holds assets, the trustee must open a bank account in the trust's name and ensure that trust property is kept separate from personal assets6. The trust's property must also be clearly identifiable7.  

Powers of a Trustee 

Trustees do however, have certain powers which are usually set out in the trust deed. These include buying or selling trust property, handling distributions to the trust's beneficiaries, and managing the trust's daily operations. When trustees have these powers, they must take certain things into account, including the fact that they may not expose trust assets to risks, as this would breach their fiduciary duties. Section 9(1) of the Act requires trustees to act with the care, diligence and skill reasonably expected of a person managing the affairs of another. This is an objective standard and applies regardless of whether a trustee is a layperson or a professional. This means that a trustee's actions are considered based on what a reasonable person would do, while keeping in mind the specific trustee's experience.  

Trustees must keep accurate records of trust transactions and be able to account to beneficiaries and the Master when required. The Master may call upon trustees at any time to produce accounts or information relating to the trust. Trustees must apply their independent judgment and may not merely follow the wishes of founders, dominant beneficiaries, or third parties. Acting as a "rubber stamp" is inconsistent with fiduciary responsibility. While administrative functions may be delegated, decision-making powers may not be delegated unless the trust deed expressly allows it. Trustees remain ultimately responsible for delegated functions.​ 

A person is also not allowed to act as a trustee on behalf of a trust which must still be formed. The Master must first issue letters of authority and only then are trustees allowed to act on behalf of the trust. To give an example I refer to the case of Van der Merwe v Van der Merwe en Andere8. This case deals with the requirement that the Master must authorise a trustee before acting in that role. Although the Act does not expressly address situations where a person acts as a trustee without the necessary authorisation, the general principle of statutory interpretation is that any act performed in breach of a statute is void. Since the Act clearly states that the Master must authorise a trustee, any actions taken without such authorisation are null and void. This rule exists to protect beneficiaries and serves the public interest. The court further confirmed that once an unauthorised act by a trustee is void, it cannot be ratified later. 

Unless the trust deed provides otherwise, trustees must act jointly. A single trustee may not bind the trust unilaterally. Failure to act jointly can invalidate transactions and result in personal liability.​ Another case, Vrystaat Mielies (Edms) Bpk v Nieuwoudt and n Ander, explains what will happen if one trustee acts without the internal authorisation of the other trustees. This case concerned a contract concluded between C & W Landboudienste and the J Trust, signed by one trustee who lacked formal resolution authorising him to act. Neither C & W nor the applicant (to whom the rights were later ceded) was aware of this lack of authority. The trust argued that the agreement was void, but the applicant sought an order declaring it valid and enforceable.  

The court referred to the Turquand rule. This rule was established in Royal British Bank v Turquand. The Turquand rule protects third parties dealing with a company by allowing them to assume that the company's internal procedures had been followed, even if they had not. However, this protection does not extend to acts beyond the company's legal capacity, and the rule cannot render a void act valid from the start.  

The court held that the Turquand rule applies to trusts, allowing third parties to assume that a trustee has been properly authorised, provided the trust deed does not exclude such authority and the transactions falls within the trustee's powers. Since the trust deed granted broad authority, including allowing a single trustee to contract on behalf of the trust, the agreement was valid and binding on the trust, and the application was granted.  

Removal of a Trustee 

Trustees can be disqualified from appointment and removed in certain circumstances. S6 of the Trust Property Control Act lists the disqualification criteria. A person can also qualify to be a trustee but can later become disqualified. They will be disqualified if the trust deed disqualifies them from being a trustee, they are an unrehabilitated insolvent, a court has declared them delinquent, they had previously been removed from the office of a trustee because of misconduct, where they have been convicted of a crime in which dishonesty was an element of the crime or where they are an unemancipated minor or under a similar legal disability9.  

A removal of a trustee will only be valid if done by the Master. They can be removed if they have been convicted of an offence where dishonesty was an element of the crime, the estate of the trustee has been sequestrated, where a court has declared the trustee to be mentally ill, where the trustee failed to perform a duty satisfactorily, a breach of the beneficiaries' trust due to the trustee's conduct or any other reason that the court may find justifies a removal.  

Conclusion 

Trusts are useful and flexible structures, but that flexibility comes with serious responsibilities for trustees. Because trustees act in a fiduciary role and must always act in the best interests of the trust and its beneficiaries, anyone considering becoming a trustee should do so cautiously and only after understanding what the role entails. The same care should be taken by trust founders, including companies, when choosing trustees.  

For further assistance, consult an attorney at SchoemanLaw.   

Zandrie Rademeyer | SchoemanLaw Inc  

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