The Importance of Proper Administration of a Trust

by Eduan Botha


Trust Administration

When we present the Wealth Masters seminar, we always speak of the proper administration of a trust. At the end of the trust section, we always summarise by stating that a contract (the trust deed) + proper administration = a trust.

In practice, however, we sometimes have instances where it seems our clients do not entirely understand the concept of proper administration. The responsibility does not solely lay with the independent trustee to ensure that proper administration takes place. There are certain responsibilities that the other trustees also carry. It should be a joint effort and endeavour.

Proper record-keeping of decisions

Resolutions, Resolutions, Resolutions. I can't emphasize enough how vitally important it is that every decision the trustees (and therefor the trust) make, should be reduced to writing and signed by all trustees.

This should happen before the transaction occurs. If you only request a resolution after the fact, then that transaction is void. You breached your powers as a trustee. People don't realise this, and it sometimes happens that we find out years after the transaction that it has occurred, and this is not a great situation to be in. Trustees may never backdate resolutions. Your Independent Trustee will refuse to sign a backdated resolution.

The golden rule I always tell my clients if they are unsure whether they require a resolution or not is that as soon as money will leave the trust, it must be supported by a resolution. Obviously, resolutions are required for a multitude of other instances, but in the day to day functioning of the trust, one should always bare the golden rule in mind.

Blanket resolution

To ease the day to day running of the trust we can provide the client with a blanket resolution which authorises the trustees to undertake any transactions up to an amount of R 20 000.00 without needing a separate resolution. Anything more than that will require a resolution.

In the case of a blanket resolution, the onus rests with the client to ensure that they keep all records of transactions (till slips, invoices, proof of payments, etc.) that occurred under that blanket resolution.

Your bookkeeper will require this for compiling the annual statements, and they will also be called upon when a possible legal dispute arises regarding a particular transaction.

Crypto resolutions

The crypto resolution we draft for our trusts contains certain limitations to ensure proper record-keeping. The resolution is valid for an amount up to R 100 000.00 or six months, whichever occurs first. It is the responsibility of the client to ask for a new resolution if the R100 000.00 limitation is surpassed, or if the six-month period lapsed.

The once-off resolution whereby we bring the cryptos into the trust contains no such limitation; however, we need the precise current FIAT value of the investment in order to accurately bring it into the trust.

Annual General Meeting

The onus rests on all trustees to ensure that the required yearly meeting is held, and the record thereof signed. All trustees must agree to and undersign the annual meeting document. The meeting may be held in person or electronically, whichever way is most convenient to all trustees involved.

Proxies and agents of the trust

A trust may appoint another person to conduct certain activities on behalf of the trust. The best way to explain this is by way of an example. Let's say the trust intends to buy a motor vehicle. Somebody needs to physically attend to the licensing office in order to first obtain a BRN/TRN number and then thereafter to register the vehicle. This takes time and it is not always possible for trustees to personally attend to these types of matters. The trustees may appoint an agent or proxy to handle this on behalf of the trust, but it must be done via a resolution. 3rd Parties will not want to contract or deal with an agent unless they can provide the authorising resolution.

So, to save yourself time and hassle, speak to your Independent Trustee beforehand so that these types of resolutions are correct and in place. We will not necessarily be able to immediately provide you with it if the agent is currently waiting in line at the licensing department and unable to proceed without the resolution. Rather have it in place beforehand.

General communication

One important thing to always remember is that your independent trustee fulfils a mandated role on your trust to make sure that it is independent and that the trust cannot be ruled as an extension of yourself or the 'alter ego' of the founder. It is a legal requirement for the types of trusts that we utilise and that is why proper administration is so vital. Remember substance over form. We have to administer the trust correctly in order for the above to be true.

However, your independent trustee is also there to guide you. We can advise on certain plans that you have or offer our expert opinion on transactions you wish to undertake. Make use of your Independent Trustee and consult with him or her if you have any uncertainties or even general questions regarding your trusts. If we can ensure that we are all on the same page when it comes to trust administration, that the rules are understood and followed and that there is communication between all trustees, then we will never experience issues with proper administration.


Should you wish to be put in touch with an Independent Trustee, you can make contact on https://wealthmastersclub.com/services/trust-services




 
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