Trust Resolutions: All Trustees Must Sign To Avoid Invalidity
As we know, trusts and the powers of the trustees, subject to the laws of the country, are governed according to the trust deed. Many of these trust deeds provide for ‘majority rule’ whereby if a decision is made by the majority of trustees and a resolution authorising same is signed by the majority of trustees, the decision and accompanying resolution is valid.
The Supreme Court of Appeal’s Ruling
This has been the status quo for time immemorial but recently changed in May 2023 when the Supreme Court of Appeal (‘SCA’) handed down a judgment stating that “a majority of the trustees may take a valid internal decision, but a valid resolution that binds a trust externally must be signed by all trustees, including the absent or the dissenting trustee.” The court went further to state that “… even if the Trust instrument stipulates that the decision can be made by the majority of trustees, all trustees are required to participate in the decision making and each has to sign the resolution”.
As this decision has been made by one of the highest courts in South Africa, it will apply across the country unless overturned by the Constitutional Court. Undoubtedly, this will cause an administrative burden for trustees because, in essence, it means that where decisions are to be made regarding the trust and a resolution needs to be signed, this can only be done at a meeting of all the trustees.
What This Means for Trustees
In essence, this means:
- No longer will a majority of the trustees be able to make decisions without consulting the minority;
- All trustees are to attend meetings where decisions are to be made;
- Accurate minutes of meetings must be kept to record the decision of each trustee;
- Trust resolutions must be properly drafted and signed by all trustees. Failure to do this means the resolution is invalid; and
- The trust can no longer be run by the majority of the trustees regardless of what the trust deed says.
At a time where there is increased scrutiny on trusts from the South African Revenue Services and the Financial Intelligence Centre, it is imperative that trust compliance and administration is done correctly. Failure on the part of trustees or trust administration companies to properly administer the trust could have dire consequences, leading to hefty fines or imprisonment.
If you need guidance on Trust Resolutions or assistance with trustee compliance, contact the Nolands team today for expert Legal advice and support.
FAQs
- Do all trustees need to sign a trust resolution for it to be valid?
Yes. Following the Supreme Court of Appeal’s May 2023 ruling, all trustees must sign a resolution — even those who dissent or were absent — for it to be valid externally.
- What happens if only the majority of trustees sign a resolution?
If not all trustees sign, the resolution will be considered invalid, regardless of what the trust deed states about majority rule.
- How can trustees ensure compliance with the new legal requirements?
Trustees should attend all meetings, keep accurate minutes, draft resolutions carefully, and ensure every trustee signs each resolution.
- What are the risks of failing to comply with trust resolution requirements?
Non-compliance can result in resolutions being invalid, which may expose trustees to legal challenges, administrative penalties, or even fines and imprisonment.
- Can a trust still operate if one trustee disagrees with the resolution?
Yes. A resolution can still proceed even if a trustee disagrees, but their signature is still required to make the resolution legally binding externally.
