THE STRICT REALITY OF TRUST ADMINISTRATION: FIDUCIARY DUTY, TRANSPARENCY, AND THE COURTS

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THE STRICT REALITY OF TRUST ADMINISTRATION: FIDUCIARY DUTY, TRANSPARENCY, AND THE COURTS

• 23 April 2026
• Wills, Estates & Trusts
• SA Legal Academy

The era of using trusts as informal, unregulated wealth vehicles is over.

For decades, many South African founders treated trusts as an extension of their personal estates, viewing the appointment of trustees as a mere formality and the trust deed as a filing requirement. This approach is no longer just poor practice; it is legally fatal. Between the aggressive enforcement of the Trust Property Control Act (TPCA), the global demand for transparency via the Financial Intelligence Centre Act (FICA), and recent Supreme Court of Appeal judgments, the regulatory net surrounding trust administration has tightened drastically.

For legal practitioners, compliance officers, and professional trustees, the implications are immediate. If a trust is not administered strictly according to its deed and relevant legislation, it risks being deemed a "sham trust" or the "alter ego" of the founder. When this happens, the corporate veil is pierced, asset protection vanishes, and the trustees face severe personal liability.

This article unpacks the current legal realities of trust administration in South Africa, analyzing statutory duties, the new beneficial ownership regime, and critical lessons from recent case law.

The Legal Framework: Fiduciary Duty vs. Administration

At its core, a trust is a legal arrangement where ownership of property is transferred to trustees to administer for the benefit of designated beneficiaries. The absolute foundation of this arrangement is the separation of control.

Under Section 9(1) of the Trust Property Control Act 57 of 1988 (TPCA), trustees are mandated to act with the care, diligence, and skill reasonably expected of a person managing the affairs of another. Furthermore, Sections 10, 11, and 12 dictate strict administrative obligations: trustees must operate a dedicated bank account, clearly identify trust property, and strictly keep trust assets separate from their personal estates.

However, a critical distinction must be drawn between fiduciary responsibility and administrative duties.

Trustees can outsource administrative functions to a professional Trust Administrator. The administrator can handle record-keeping, compile resolutions, manage SARS submissions, and maintain statutory registers. However, trustees cannot delegate decision-making powers unless expressly permitted by the trust deed. A trustee must apply independent judgment to every transaction. The common "rubber stamp" trap—where a trustee merely signs documents drafted by the founder without applying independent oversight—is a gross breach of fiduciary duty. If the trust fails, the administrator may lose a client, but the trustee will face personal, joint, and several liability.

The Era of Transparency: FICA and Beneficial Ownership

Perhaps the most significant shift in trust administration over the last three years is the global crackdown on financial crime, which has fundamentally altered the privacy traditionally associated with trusts.

Trusts are now accountable institutions under FICA. The days of opaque ownership structures are finished. Trustees now bear a massive administrative burden regarding "Beneficial Ownership." They are legally required to identify, verify, and maintain meticulous, up-to-date registers of all beneficial owners.

In the context of a trust, a beneficial owner is not just the ultimate financial beneficiary. It includes the founder, all trustees, all named beneficiaries, and any natural person who exercises effective control over the administration of the trust arrangements.

These registers can no longer sit in a dusty file in a law firm's archive. Trustees must submit these beneficial ownership records electronically to the Master of the High Court. Failure to maintain these records, perform risk-based due diligence, and conduct ongoing monitoring exposes the trustees and the trust to severe regulatory penalties and restricts the trust's ability to transact with banks and other financial institutions.

Lessons from the Courts: Precedents Practitioners Cannot Ignore

Recent and historical case law provides a stark warning regarding the procedural strictness required in trust administration. The courts have consistently demonstrated that procedural missteps are not easily forgiven.

1. The Strict Requirement for Master's Authorization

In the foundational case of Van der Merwe v Van der Merwe en Andere 2000 (2) SA 519 (C), a farm owner sold his property to a trust, signing the agreement on behalf of the trust. However, at the time of signing, he had not yet received his official Letters of Authority from the Master of the High Court.

The court ruled definitively: any action taken by a person acting as a trustee before receiving formal written authorization from the Master is null and void. Crucially, the court established that void acts cannot be ratified after the fact. This ruling underscores that the Master's authorization is not a mere administrative hurdle; it is the legal activation of the trustee's capacity to bind the trust.

2. The Turquand Rule and Third-Party Protection

Trustees are generally required to act jointly unless the trust deed explicitly allows otherwise. But what happens when an innocent third party deals with a single trustee?

In Vrystaat Mielies (Edms) Bpk v Nieuwoudt en ń Ander NNO 2003 (2) SA 262 (O), a contract was signed by a single trustee who lacked the formal internal resolution from his co-trustees authorizing the transaction. The trust attempted to escape the contract, arguing it was void due to a lack of joint action.

The court applied the "Turquand Rule"—a principle usually reserved for company law—to the trust. The court held that innocent third parties are entitled to assume that a trust's internal procedural requirements (like obtaining a resolution) have been complied with, provided the trust deed itself does not expressly forbid such authority. Because the trust deed in question allowed for broad authority, the contract was deemed binding. This case warns trustees that poor internal administration will not shield the trust from liability to third parties.

3. The Enforceability of Trustee Removal Clauses

What options exist when a trustee goes rogue, mismanages assets, or threatens the viability of the trust?

In the recent judgment of Jooste NO and Another v Pretorius and Others [2024] ZASCA 130, the Supreme Court of Appeal (SCA) dealt with a dispute within an animal charity trust. Two trustees voted to remove the third trustee (who was also the founder) because her misconduct was threatening the trust's primary foreign donor funding. The founder challenged her removal.

The SCA upheld the removal, affirming a critical principle: if a trust deed contains a specific clause allowing a majority of trustees (acting unanimously among themselves) to force the resignation of another trustee, that clause is valid and enforceable. The court noted this is especially true when the removal is in the best interest of the trust and prevents the destruction of its assets. This highlights the vital importance of meticulously drafting the trust deed to include mechanisms for resolving deadlocks and removing disruptive trustees without requiring lengthy court intervention under Section 20 of the TPCA.

Practical Implementation: The How-To for Your Firm

To protect your firm and your clients acting as trustees, practitioners must implement the following operational safeguards immediately:

• Audit Trust Deeds: Review existing trust deeds for clients. Ensure they contain modern clauses for dispute resolution, electronic meetings, and the forced resignation of rogue trustees (as validated by the Jooste case).
• Enforce Separation of Assets: Mandate that clients operating trusts open and utilize dedicated trust bank accounts as required by Section 10 of the TPCA. Commingling funds is the fastest route to an alter-ego ruling.
• Establish FICA Protocols: Implement automated systems within your practice to track, verify, and report the beneficial ownership of every trust you administer to the Master of the High Court.
• Draft Clear Mandates: When your firm acts as a Trust Administrator, draft precise Letters of Engagement. Clearly delineate your administrative tasks from the trustees' fiduciary and decision-making responsibilities to ring-fence your liability.
• Verify Master's Authority: Never allow a client to sign a contract, open a bank account, or transact on behalf of a trust before you have physically received and verified the Letters of Authority from the Master.

The Future: Adapt or Atrophy

Trust administration is a high-risk legal discipline. The South African regulatory environment is actively stripping away the informalities of the past. For legal practitioners, offering trust administration services represents a significant revenue stream, but it requires a rigorous, systems-driven approach to compliance.

Failing to understand the intersection of the TPCA, FICA, and recent case law will not only result in the invalidation of your clients' trusts, but it exposes the practitioners advising them to professional liability.

Master the Changes in Practice

To fully grasp the mechanics of the Trust Property Control Act, the new beneficial ownership requirements, and the practical challenges of drafting compliant trust instruments, access the comprehensive SA Legal Academy on-demand webinar, "Trust Administration," presented by Nicolene Schoeman-Louw.

Watch the full technical breakdown here.

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About the SA Legal Academy (SALA)

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