Do your Trustees know their duties?
While having a Trust is a significant step towards protecting, growing your assets and saving money on estate duties and taxes, how your Trust is managed by Trustees is equally important. That's why the most important thing is explaining all the risks and liabilities to your prospective Trustees before they agree to act on the Trust's behalf. Read on to find out what your Trustees' duties are, so they'll know the consequence of not acting with the care, skill and diligence necessary could cost him everything.
When you’ve found the right people to be Trustees for your Trust, you need to ensure they know what their duties are.
By doing this, you’ll ensure your “Trust will always be administered in the way you desire and according to the law,” advises Gavin Fourie in The Trust Report.
In addition to this, your Trustees need to know they’ll be held liable for not acting diligently. “If they don’t, they can be held personally liable for any financial losses befalling the Trust,” says Fourie.
Trustees need to uphold these 8 responsibilities
According to The Trust Report, the main responsibilities of your Trustees are:
To maintain proper records of the Trust.
To keep safe custody of all Trust records.
To ensure the financial statements are submitted to SARS on an annual basis. Your Trustee is the representative taxpayer of the Trust. “SARS will look to him to pay the taxes of the Trust. In various circumstances, SARS will hold the Trustee personally liable for the taxes of the Trust,” says Fourie. So make sure your Trustee is familiar with the Income Tax Act and other legislation that impact on Trusts and Trustees.
To have regular Trustee meetings.
To conduct these meeting in the correct manner and ensure a record of the meeting is kept.
Establish beneficiaries’ needs regarding the long-, medium- and short-term financial and income needs.
To invest Trust capital. Once the needs of the beneficiaries have been established, negotiated and agreed, the Trustee has to make the investments.
Distribute Trust capital. The final act of a Trustee is the distribution of Trust capital. Your Trustee must ensure the beneficiary receiving the Trust capital is entitled to receive it. If a distribution is made in error, “the Trustee will be held personally liable for the money he hasn’t been able to recover from a beneficiary paid in error,” says Fourie. Your Trustee will also be personally liable if he’s unable to get money back from Trust beneficiaries to pay income taxes or Trust creditors.
Knowing what your Trustees’ duties are and explaining them will ensure your Trust is managed diligently and according to the law.