Trusts remain very popular arrangements through which many South Africans benefit from assets without physically owning them, most often with a view to passing the value of those assets on to beneficiaries. A key element in both the popularity and effectiveness of such trust structures is that the founder of the arrangement is able to appoint one or more trustees, who are tasked with administering the trust in the best interests of its nominated beneficiaries.
Given this massive responsibility it’s ironic, then, that so many people still make the mistake of appointing unqualified and inexperienced people to this vital trustee role.
According to Johan Strydom of FNB Fiduciary Services, the issue has its roots in a general lack of understanding by people of just how complex the job of a trustee can actually be – and this often leads to the appointment of relatives or close family friends to the role, which can be hugely problematic, and very expensive for all parties down the line.
“Often, when someone establishes a trust, especially one aimed at holding assets for loved ones, the founder is under the impression that they should appoint a family member as trustee,” Strydom explains, “based on the belief that since that person has a relationship with the beneficiaries they will make sure they are properly looked after.”
In addition, Strydom says that he often sees trust founders appointing family members or other unqualified individuals because they believe that this will save them money and they won’t have to pay any professional fees.
“At face value, these both seem like legitimate reasons to elect friends or family members as trustees,” Strydom points out, “but in our many years of experience, this decision most often delivers in exactly the opposite results than those that the trust founders had hoped for.”
Strydom points to the Trust Property Control Act as a vital piece of legislation that clearly sets out the duties of any person who is contracted to look after the assets of another individual, which is essentially the definition of a trustee. In terms of this Act, irrespective of whether one is dealing with a family trust, charitable trust, or any other type of trust arrangement, the role of any trustee is essentially one of care, diligence, impartiality and skill. But while family members may very well care deeply for the beneficiaries of the trust, and act with what they believe to be utmost diligence, the fact that they are emotionally connected to the beneficiaries means that they will often find it difficult to make objective, non-emotive decisions that are truly in the long-term best interests of those to whom they have a duty of care.
“A professional trustee, on the other hand, has no emotional connection to the beneficiaries and, as a result, can make difficult decisions without being influenced by family bonds or manipulated by their short-term circumstances,” he says.
And Strydom points to the fourth quality of ‘skill’ as being arguably the most important one to consider when appointing a trustee. “The trusts landscape in South Africa is incredibly complicated and is constantly changing as new legislation and tax regulations are added,” he explains, “which means that very few, if any, individuals have the necessary knowledge, experience and skill to successfully navigate this technical environment and ensure the proper and compliant management of the trust.”
He points out that this lack of skill on the part of a trustee not only places the trust and its beneficiaries at massive financial and tax risk, but it can also prove very costly down the line, when a professional has to come in and fix the mistakes that have been made by an inexperienced trustee.
“Ultimately, appointing a qualified professional from a reputable organisation, like FNB Fiduciary with its thousands of diverse trust clients, is the best way anyone can add value to the trust and its beneficiaries,” Strydom concludes, “and ensure that the original objectives of the trust founder are achieved in the process – which is, after all, the main responsibility of a trustee in the first place.”
