A family trust usually comes into existence when the aim of the trust is to benefit the members of a family, and the founder, the trustees and the beneficiaries of the trust are all related or connected to one another (whether by blood or by marriage). 

The standard instruction that we usually receive from clients who want to establish a trust for the benefit of their family include the following:

1. The father must be the founder of the trust (the person that in effect establishes the trust).
2. The father and mother must be the co-trustees of the trust (the persons who are responsible for the management and administration of the trust and the assets in the trust).
3. The children and lawful descendants of the mother and father must be beneficiaries of the trust (the persons who will be entitled to receive benefits from the trust (whether it be income or capital)).

Unfortunately, it is not that simple and there are many requirements that need to be met in order to successfully establish a family trust.

Before we can start drafting the relevant documents to establish a new family trust, the client first has to provide us with certain information which specifically includes identifying the persons who will serve as the trustees of the trust.

As the trustees will be responsible for the management of the trust and the trust assets, it is important that the persons who will serve as trustees are responsible and trustworthy, which is why clients usually want to “keep it in the family”.

However, one of the requirements (as required by the Master of the High Court) when it comes to the establishment of a new trust, is that an independent trustee must be identified and appointed. A person will only qualify as an independent trustee if that person will not receive any benefit from the trust and is not related or connected to any of the beneficiaries or other trustees.

This is because the purpose of an independent trustee is to ensure that a trust has at least one person who cannot be unduly influenced by the other trustees or the beneficiaries, and who can maintain order among the parties of the trust. An independent trustee can also go a long way in protecting the integrity of the trust and, when needed, proving that the activities of the trust are indeed a true reflection of the objectives of the trust (which are outlined in the trust deed).

A good bet for appointment as an independent trustee is a client’s lawyer, auditor or trusted family friend with whom a client has a good relationship. The benefits of appointing a lawyer or an auditor as the independent trustee, is that the trust will then have an “in-house” specialist with knowledge about the management and administration of trusts and aspects such as tax and accounting.

Stay tuned to the Commercial Insider to find out what the other requirements for the establishment of a new family trust are.