How carefully must a trustee step when it comes to buying trust property?

“I’m a trustee on the family trust of a deceased friend where I’ve helped look after the family assets in the trust for his children. Part of the trust property is a beach property that the children want sold and that has been on the market for quite a while. I’ve been toying with the idea of buying the property myself and I’m sure the children wouldn’t mind, but am hesitant to do so because of my position as trustee. Can I consider buying the property from the trust or would that be wrong?”

Because of the unique nature of a trust and also the fiduciary responsibility that a trustee holds in respect of the trust property and trust beneficiaries, buying property from a trust, should rightfully be approached with caution where you are also a trustee of the trust. 

To determine a trustee’s right to benefit from a trust in which he holds the position of trustee, one must carefully look at the fiduciary duties of a trustee. In the first instance, section 9(1) of the Trust Property Control Act 57 of 1988 states that trustees must, in the performance of their duties and in exercising their powers, act with the care, diligence and skill which can reasonably be expected of a person who manages the affairs of another. Secondly, trustees must act in good faith, implying that trustees must always act in the best interests of the beneficiaries.

Accordingly, buying property from a trust could result in a trustee being accused of acting with self-interest and deriving a benefit that is detrimental to the beneficiaries of the trust or of mismanagement of the trust.

To safeguard yourself against such accusations, a trustee may undertake the following steps in mitigation: 

•       If you have an interest in the transaction which may affect the trust property, the nature and extent of the interest must be disclosed beforehand to other trustees and trust beneficiaries.
  Carefully review the trust deed to determine whether the sale of property is allowed and in line with the objectives of the trust and whether the powers and duties of the trustees allow such a sale. 
  Obtain legal advice from an independent advisor or obtain leave from the Master of the High Court to purchase the property and confirmation that such purchase will not be detrimental to the trust beneficiaries.

Should you feel that it is appropriate for you to consider the purchase of the beach property from the trust, our advice would be to carefully follow the steps above, and only after the appropriateness of the purchase is confirmed, should any offer be made.

September 7, 2017
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