John Campbell
The idea that each individual owns and controls his or her property lies at the very foundation of most (perhaps, all) societies. However useful the concept is at an ideological level, it is a notion that is increasingly less appropriate to describe property rights as the 20th century advances into the 21st.
One reason for this is the increasingly apparent advantage to individuals of not owning the property – whether it be money or stocks and shares or land or in whatever form – that provides their living.
Most commonly this separation is done by way of the creation of a trust, and can be driven by any number of motivations: parents often used to leave their estates in trust for their children until they reached a certain age when, presumably, they would be sufficiently responsible and not squander it.
More and more, estates are left in trust to avoid death duties (this practice is so widespread in England that inheritance tax is colloquially known as the “voluntary tax”) or other taxes or creditors.
But these advantages will only be achieved if ownership of the property, or at least its control, actually passes to someone else – the trustee. It is transfer of ownership or control that is the reason why the property can dodge otherwise legitimate raids by the revenue authorities or creditors – the property actually does not belong anymore to its original owner, or at least he or she does not control it anymore.
Of course this stratagem has its dangers: the price that must be paid for insulating one’s estate from predators in this way is that the trustees will henceforth have control and management over it. One solution is to choose friends or relatives as trustees. Hopefully there is only a small likelihood that such people will abuse their position. Another is to choose reputable professionals, tightly controlled by their governing associations, such as attorneys or accountants.
But whatever safeguards the property owner seeks in this way, he or she can have no absolute guarantee against abuse or incompetence, and that is why the law has stepped in to impose duties on trustees.
Thus a trustee must normally make an inventory of the property he holds; debts due to the estate must be collected; the trustee must keep all of this separate from his own property; and, most importantly, he must invest it so that it at least retains or, if possible, increases its value.
In making investments he must act, as Tony Honor and Edwin Cameron in their leading work on the South African Law of Trusts say, with “the utmost good faith and exercise proper care and diligence”. In short, this means that a trustee must obtain a “reasonable return” on the capital of the trust.
Most fundamentally, a trustee must avoid any conflict of interest between his financial imperatives and those of the trust and, manifestly, he must not make any unauthorised profit from his administration of the trust. He is fully accountable for his actions and must ultimately account to the beneficiaries for the use and investments of the trust property.
If a trustee fails in any of these duties and loses trust money or allows the value of assets to diminish, whether because of incompetence or a dishonest personal profit made out of the trust, he can be sued for what has been lost.
All of this means, eponymously, that a trustee must administer trust property with the highest level of integrity and openness. He or she must act unselfishly and quite independently of his own material interests. The law demands nothing less.