Trusts: New directive on independent trustees
The directive applies to all new trusts (those “registered for the first time”) by the Master.
Following a series of court cases in which the “trust form” was held to have been abused by the trustees (often in the form of trustees treating trust assets as their own), and in particular a 2004 Supreme Court of Appeal decision suggesting the appointment of independent outsiders as trustees in certain family trusts, the Chief Master has directed that Masters “must consider appointing” an independent trustee where any new trust is a “family business trust”.
“Family business trust” is defined as having “the following combined characteristics:
- The trustees have the power to contract with independent third parties, thereby creating trust creditors; and
- The trustees are all beneficiaries; and
- The beneficiaries are all related to one another.”
Note: There appears to be no requirement that the trust actually trades as a “business”.
“Independent trustee” is described (in summary – the actual list is a long one), as follows –
- Must be “an independent outsider with proper realisation of the responsibilities of trusteeship” and “competent to scrutinise and check the conduct of the other appointed trustees”.
- “Does not have to be a professional person such as an attorney or accountant” (bear in mind though the clear practical advantages of having a qualified professional as your independent trustee – also in practice Masters may well insist on professional qualifications and membership of a professional association).
- Cannot have any “family relation or connection, blood or other, to any of the existing or proposed trustees, beneficiaries or founder of the trust”.
- Must be “knowledgeable about the law of trusts” and have “knowledge and experience of the business field in which the trust operates”.
- Must have no interest in the trust property as a beneficiary.
The Master can elect not to appoint an independent trustee in certain circumstances, either on the basis of good cause shown, or subject to the lodging of security, or subject to appointment of an auditor to produce annual audited financial statements under an instruction “to inform the Master when potential harm to creditors is likely.”
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)