After a good game of golf, over a few drinks in the clubhouse it might be easy to accept the invitation to become a trustee of a good friend’s family trust. He assures you that the position is not onerous, he will do all the thinking and other than the odd trustee meeting (which could also take place over a few drinks at the clubhouse) you would not be expected to do much. Your acceptance of the position would merely give respectability to the trust and add a degree of legality that the trust conforms to existing practice.
You might well have heard talk about family trusts, maybe even thought that you should consider creating such a vehicle for your own assets and therefore this exposure via the friend’s trust would give you insight into trust law without having to pay an attorney for this information.
All will probably proceed quite smoothly for a while until the friend’s business wobbles and his creditors become demanding; the South African Revenue Services believes that their due should be greater or his wife grows weary of his indiscretions.
This is the warning from David Knott of Private Client Trust, the fiduciary services division of Private Client Holdings, and a member of the Fiduciary Institute of South Africa, who says that it would be at this stage that the sharp attorneys will take a keen interest in the administration of the trust to date.
“Unless proper records have been kept including contracts, accurate cash transactions, annual financial statements and a comprehensive minute book recording all major decisions, the trust could be attacked and the trustees found wanting. It is not enough for you to plead ignorance or that you were not consulted – just as a company director cannot escape liability for the actions of his co-directors, this also applies to trustees. Our Court reports are littered with instances where trustees have been held personally responsible to make good on financial losses.”
“If you have created a trust to hold assets, you must keep your co-trustees appraised at all times as to the affairs of the trust,” says Knott. “No decisions should be taken without full consultation amongst the trustees, neither should you hold any casting vote or have the ability to bully the other trustees. It goes without saying that the proper records mentioned above must also be maintained. Short of this, the trust could be set aside as a sham or your alto ego and so open to attack. The very reason for the creation of the family trust would now be thwarted.”
Knott advises that you must think very carefully and understand the duties and obligations of a trustee before accepting this appointment. “At least one of your co-trustees should be the nominee of a trust company or an attorney skilled in this aspect of law. Ideally this professional trustee should also be responsible for maintaining proper records and the execution of instructions. The cost of using a professional trustee pales when considering the costs of what could go wrong when the administration is under scrutiny.”