Can someone ‘stand in’ for you as trustee?

Often trustees do as they wish and are not aware of (or ignore) the fact that they have to abide by the instructions of a trust deed; it being a contract between the trustee/s and the founder/s. Many have never even read the trust deed. Many trustees also do not understand the unique nature of a trust and the outcomes of relevant court cases, which apply to them as trustees. Conflict between the trustees often complicates matters.

What does the trust deed say?

Trust deeds may deal with what is expected of trustees and how decisions should be made. The estate planner may be specific in how they want the trust’s affairs to be managed. Some of the older trust deed templates service providers used referred to the fact that a trustee may get someone to ‘stand in’ for them in their temporary absence, such as when they travel overseas for more than two weeks or so. Some trust deeds go as far as allowing a trustee to appoint an alternate trustee in their stead and/or to send a proxy to a trustee meeting on their behalf. It is important to know that if a stipulation in a trust deed conflicts with the law, including our common law (the outcome of court cases), the legal principle overrides the ‘illegal’ stipulation in the trust deed. As long as the trust deed does not allow for methods that have the effect of contravening the common law – such as the abdication of powers and duties to anyone else – the trust deed can determine which methods of participation are allowed, or specifically disallowed, such as the use of proxies, electronic or telephonic meetings.

What is the starting point?

The courts emphasised that a trust functions through its appointed trustee/s. Due to its lack of legal personality, trust assets are registered in the name/s of the trustee/s in their capacities as trustee/s. It complicates matters when more than one trustee is appointed, as trustees hold a single office irrespective of their number. Therefore, all trustees must act together for and on behalf of the trust. The courts go as far as holding that when dealing with third parties, even if the trust deed stipulates that a decision can be made by the majority of trustees, all trustees are required to be involved in the decision and have to sign each resolution (Land and Agricultural Bank of South Africa v Parker case of 2005). The following was held in this case – “It is a fundamental rule of trust law… that in the absence of contrary provision in the trust deed the trustees must act jointly if the trust estate is to be bound by their acts. The rule derives from the nature of the trustees’ joint ownership of the trust property. Since co-owners must act jointly, trustees must also act jointly”. It is clear the courts expect the participation of all trustees in matters relating to trust affairs. This often creates difficulty in coordinating meetings and decisions, especially when trustees are very busy or do not get along.

Temporary absence

Before technological advancement, it may have been challenging to coordinate meetings when trustees could not physically meet. Nowadays, people are comfortable with electronic (Zoom, teams, etc.) or telephonic meetings, so there is no real excuse why a trustee cannot personally participate in trust matters. Although the common law does not prohibit the use of telephonic or other similar forms of participation of trustees, it is advisable that the trust deed specifically allows for that. The Steyn v Blockpave case of 2011 encouraged allowing trustees to provide their input, telephonically or otherwise. To avoid abuse, it is recommended to provide specific, practical requirements for such meetings in sufficient detail in the trust deed.

Round-robin resolutions are a practical way to exercise votes, and our common law does not prohibit using round-robin resolutions. It is, however, recommended to specifically allow round-robin resolutions in the trust deed to ensure the smooth running of the trust, as long as all trustees sign them.

‘Stand in’/alternate trustee

Many trust deeds allow using an alternate trustee if an appointed trustee cannot attend a meeting or is temporarily absent and cannot participate in the trust’s affairs. Even if the trust deed allows for the appointment of a temporary alternate trustee to serve in the place of another trustee, such alternate trustee’s actions may be null and void for the following reasons:

Section 6 of the Trust Property Control Act (the Act) requires a person to be duly authorised by the Master of the High Court before they can act as a trustee of the trust. The Act does also not make provision for the appointment of an alternate trustee. Our common law requires all trust decisions to be made by duly appointed trustees and no one else.

There is no room in South African law for a ‘silent’ or ‘sleeping’ trustee such as a trustee who appoints an alternate rather than acting themselves.

A trustee cannot empower an alternate trustee to act on their behalf to exercise general discretion and decision-making which vests in them. The alternate trustee can, therefore, not decide as they wish. A stipulation in the trust deed allowing an alternate trustee to vote as they “may deem fit” results in an abdication of a trustee’s powers, which is not allowed. If an alternate trustee is allowed to exercise their independent judgement and form a personal view at a trustees’ meeting, they would be allowed to act similarly to an appointed trustee of the trust, without being duly authorised as trustee, as required in terms of Section 6 of the Act (Hoosen v Deedat case of 1999).

There is, therefore, a real risk that, even if a trust deed allows for the appointment of an alternate trustee, a decision taken by trustees, including such an alternate trustee, would be invalid and of no force and effect.

Proxy (similar to representative)

A possible solution for a trustee who, in an unlikely event, cannot attend a meeting is using a proxy. A proxy is a written authorisation from an absent trustee that grants a limited power of attorney to another person (the proxy) to vote on behalf of and per the directions of the trustee. A proxy allows a duly authorised person to represent a trustee at a meeting if it is specifically allowed in the trust deed (therefore no common law right of a trustee to send their proxy to a meeting – the Malatji v Ledwaba case of 2021). If the trust deed does not specifically allow for the use of a proxy, the trustees have to be present in person at the meeting to be entitled to vote. Such a proxy can merely act as the messenger of the trustee they represent and convey the thoughts and/or votes of the trustee who granted the proxy. A stipulation in the trust deed allowing a proxy to vote as they ‘may deem fit’ results in an abdication of a trustee’s powers, which is not allowed. If a proxy (even a co-trustee) is allowed to exercise their independent judgement and form a personal view at a trustees’ meeting, they would be allowed to act similarly to a trustee of the trust, without being duly appointed as trustee, as required in terms of Section 6 of the Act (Hoosen v Deedat case of 1999).

Conclusion

When a trustee signs up to act as a trustee, they have to accept full responsibility for their role and responsibilities and cannot conveniently use others or hide behind them when they have to face their co-trustees.

* Phia van der Spuy is a chartered accountant with a Master’s degree in tax, is a registered fiduciary practitioner of South Africa, a chartered tax adviser, a trust and estate practitioner and the founder of Trusteeze®, the provider of a digital trust solution. – IOL