Independent trustees – Compliance AND Value Contributor

Niel du Plessis shares his view on new regulations in the trust and fiduciary environment.

Professional advisers agree that an independent trustee is an important element to good corporate governance and from a business optimisation perspective. On 6 March 2017 the Chief Master’s Directive 2 of 2017 was issued high-lighting the need for the Master to consider the appointment of an independent trustee to a “family business trust”. According to the directive, this is a trust where the trustees have the power to contract with independent third parties (and thus create trust creditors), the trustees are all beneficiaries and the beneficiaries are all related to one another. The directive also sets out the requirements for the independent trustee.

Most family trusts will fall within the definition of a “family business trust” and as such need to consider the appointment of an independent trustee.

The requirements in the directives emphasize the importance of the independence of this trustee and I agree that this is important. What is however as important, if not more important, is that independence is demonstrated in the dealings of the trust and in the trust records. This should be demonstrated by having trust meetings and proper minutes of these meetings, noting the considerations of the trustees and that dealings are indeed to the advantage of the trust and the trust beneficiaries without disadvantage to third parties.

The quality of the independent trustee is of vital importance and relevant experience, legislative awareness, business acumen and independence of mind-set are not negotiable when considering which individual should fulfil this role. To put it bluntly, this should be an individual capable of independent thought and who can convey their thoughts effectively, not just a compliance expert.

Compliance is important and the Master’s directive is aimed at improving compliance. It is however necessary that trustees still consider the value proposition from appointing an independent trustee to ensure that the appointment is not just a compliance exercise, but contributes towards the business and overall objectives of the trust.

Appoint independent trustees who provide valuable inputs to the trust and the utilisation of its assets, more than only compliance. It’s going to cost money, so let it work for you.