Who should you trust with your beneficiaries’ inheritance?
The purpose of a last will and testament is to express your final wishes for your assets. Many people decide to set up a testamentary trust, or will trust, which comes into being on their death.
This decision may be motivated by many factors, foremost among them being, usually, the young age of beneficiaries if they are still minors.
Other factors include the need to use a trust instead of a usufruct or other limited right; the need to cater for a person with limited intellectual ability; or concern about the protection of an asset on behalf of a third party. A testamentary trust can often provide the ideal solution, with ownership and control of the assets vesting in the trustee as fiduciary owner, on behalf of beneficiaries who may enjoy particular benefits.
The crucial question is, who do you nominate as a trustee or trustees of your testamentary trust?
The Master of the High Court usually authorises the trustee nominated by the testator, subject to specific disqualifications, such as the proposed trustees’ insolvency, mental incapacity or conviction of certain offences.
It is advisable for you as testator to exempt the trustee from security, as most trustees will not be able, or prepared, to provide security.
A trustee, also known as a fiduciary, must at all times act with the care, diligence and skill that can reasonably be expected of a person who manages the affairs of another. The trustee must therefore always act with the utmost good faith and in the best interest of the trust and the beneficiaries — and not for their own benefit.
The trustee must also ensure that the trust complies with all legal, accounting and tax requirements.
Many people decide to appoint a family member or friend as trustee. Remember that this may, in some cases, be helpful, but in others detrimental. Here are a few general principles to consider if you decide to nominate a family member or friend as trustee:
- Consider the age of the trustee relative to the age of the youngest beneficiary.
- Consider the relationship between the trustee and the guardians, if any.
- Always consider splitting the role of guardianship and that of trustee.
And here are some specific questions you can ask yourself to help you in the decision:
- Does this person have the necessary skills and knowledge to administer and manage the particular trust property?
- Will they, at all times, act with the necessary diligence?
- Are their personal financial affairs in order and well managed?
- Will they have the ability to always keep the trust property separate from their own assets?
- Will they be able to treat all the beneficiaries fairly at all times?
- Will they have adequate time on hand to perform their duties effectively?
- Will they always act in the best interest of the trust and the beneficiaries, even to their own detriment?
It is my view that testators should always consider the appointment of a trust company or another independent professional trustee — either as sole trustee or in conjunction with a family member or friend. In cases of potentially explosive family dynamics, it becomes even more important to appoint a professional, independent third party.
If you appoint a trust company, an individual will act as nominee on behalf of the company, which ensures continuity even if such person retires, resigns or dies during the existence of the trust.
Trust companies can provide a professional service with extensive oversight mechanisms. When nominating professional trustees, testators should insist on nominees or individuals who are members of a professional fiduciary organisation, to ensure proper regulation and recourse.
• Nel is the chair of the Fiduciary Institute of Southern Africa (FISA).