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2021 FISA Conference – summary of the presentations

30 November 2021 FISA

The 11th Annual Conference of the Fiduciary Institute of Southern Africa (FISA), sponsored by Hollard, was held on 17 November 2021 in the Sandton Convention Centre. Presenters spoke to the theme of “Enduring fiduciary relationships”. The event was attended by more than 120 practitioners, academics, members of the media, and sponsors. The full recording will be available for virtual viewing on Asset TV from 25 November 2021.

Dr James Faber
University of the Free State

The Living Will – managing relationships around end-of-life directions and decisions 

A Living Will in its narrow definition is an advance directive to refuse end-of-life medical treatment. This refusal by a patient who has the necessary mental capacity to do so is recognised in South African common law. However, such a refusal does not have legal force if the patient is no longer mentally competent and it is within this context that a Living Will exists. While a Living Will has no legal force, it is sometimes made use of in practice but this opens up a massive area of current ambiguity around the concepts of enduring power of attorney, euthanasia, freedom of testation and constitutional rights. 

The concept of a Living Will was introduced in the USA in 1967. By 1992, all 50 states had passed legislation to legalise some form of advance directive. In South Africa, the SA Law Commission has recommended that Living Wills be recognised. Two draft bills have been dealing with the issue, but progress is frustratingly slow. The Rights of the Terminally Ill Act is still to be debated, and the National Health Amendment Bill, 2019 (Private Members’ Bill) lapsed in 2019. 

Possible legal recognition could be afforded 1) through the doctrine of informed consent in common law; 2) statutory interpretation of the National Health Act by way of a proxy directive; and 3) the ethical guidelines of the SA Medical Association and Health Professions Council of SA. 

Dr Faber then looked at Living Wills in the broader context of “traditional” Wills. He also discussed the fairly recent US concept of an “Ethical Will” which goes beyond the disposal of property to include aspects such as family history, cultural and spiritual values, stories about the objects beneficiaries will receive - and clarification about and personalisation of advance health directives. 

In conclusion he offered some possible practical suggestions, the main concept of which would be to have your Living Will incorporated into the main Will drafted as an open, living document within a holistic estate planning exercise. Include clear instructions on advance directives and organ donation i.a. within the Will. Incorporation of an end-of-life directive in a formally valid Will might have an impact on the legal status of such an end-of-life directive. 

 


 

Chris Murphy
Legacy Fiduciary Services

Managing the relationship between the executor and the family of the deceased

The function of an executor as a professional, whether directly or as nominee of a company, has become excessively more onerous than in the past. 

Mr Murphy discussed the potential for conflict of interest for a co-executor acting with one or more family members, citing Meyerowitz: “Where an executor’s private interests conflict with those of the estate, he may be removed from office.”

A recent court case addressed this issue: Brimble-Hannath v Hannath and others [2021] ZAWCHC 102. Here, as so often happens, a “second family scenario” complicated matters. The applicant, Mrs Brimble-Hannath, the deceased’s surviving spouse, brought an application for the removal of the first and second respondents as executors in their late father’s deceased estate. Both the first and second respondents wore (too) many hats through being trustees of a trust to which the deceased had left the bulk of his estate, as well as being beneficiaries of that trust. The third respondent was an agent appointed to assist with the administration of the deceased estate.

The court (Binns-Ward J) held that the mere fact that two (daughter) respondents were trustees of the trust inheriting the residue of the estate and at the same time lodging a claim against the estate, rendered them irreparably conflicted and not in a position to exercise their fiduciary duty as executors properly. The court ordered their removal as executors.

This is not an uncommon situation - for an executor also to be a creditor of the estate would put him/her in an undesirable position of having to be the judge of his or her own claim.

Court cases dealing with such conflicts of interest can often be avoided; instead of which the court process is expensive and costs are often treated as costs in the winding up of the estate, eroding the inheritance.

It is logical that a professional, third-party independent executor can help avert conflicts of interest as discussed above, for example by:

  • taking FULL instructions from the client at the time of drafting the Will
  • finding out about the family dynamics with a view to advising on whom to appoint as executors and the optimal number of executors to appoint
  • importantly, “pressure testing” the Will with the actual scenario
  • minuting all advice given.

If the client is not prepared to listen to your advice, be prepared to step away.

 


 

Mr Gordon Stuart
Accuro Mauritius

Managing fiduciary relationships in multi-jurisdictional families

Mr Stuart, recipient of the 2021 FISA Chairperson’s Award, took the audience through a detailed case study of a multijurisdictional family. With a rapidly globalising South African high-net-worth population, it is not uncommon to find parents living in one country and children in others. Different countries have their own laws and taxes, including income and estate duty tax. The pace of legal, cultural and technical developments means that international estate, trust and tax planning continue to evolve with them. It is vital to understand and appreciate the cultures, both legal and national, of various jurisdictions. Mr Stuart emphasised the need for expert advice to be obtained from specialists in the respective countries, on a co-ordinated basis. He gave a useful checklist of factors to be taken into consideration for multi-jurisdictional families:

  • The residence, domicile and tax status of the estate owner (forced heirship rules, tax on gifts etc)
  • The residence, domicile and tax status of family members (tax on receipts from a structure etc)
  • The location of assets (this could impact tax, the practicalities of transfer etc)
  • The type of assets (if business assets, does the estate owner expect active involvement in the business by recipients and what is their expertise?)
  • Any United States connections (this always complicates matters, eg when it comes to situs tax)
  • The type of structure (trust, family investment company, foundation, something else?)
  • Family dynamics (immediate family or extended family, potential conflicts, ownership splits, separate structures for branches etc)
  • Loss of control for the estate owner
  • The future needs of the estate owner (eg what if too much is given away with no recourse for the estate owner?)
  • Costs (structures can be expensive)
  • The choice of jurisdiction for structures (taking into account regulations, substance requirements, expertise etc)

The fictitious example of the multijurisdictional family discussed by Mr Stuart touched on many of the above aspects, involving minor and adult children living in different countries, onshore and offshore residences, onshore and offshore trusts, loans to trusts and foreign bank accounts. At the end of each scenario/problem, he suggested a practical solution.

 


 

Louis van Vuren
CEO of FISA

Regulatory update 

Mr van Vuren gave a regulatory update as the Chief Master was unfortunately unable to attend the conference. He outlined the issues of the past 18 months that have led to excessive delays in processes that affect fiduciary practitioners and the public alike. These include: 

  • the failure to declare Wills an essential service during COVID-19 lockdowns, at a time when deaths were rising and mortality issues were top of mind. This was in contrast to some countries (e.g. New Zealand and Canada) where temporary legislation allowed the recognition of digital Wills
  • the regular closure of many Master’s Offices around the country for COVID-19 de-contamination after positive cases among staff members
  • problems with the government printer that led to the legal Government Gazette not being published for more than a month in March 2021
  • no consistency of processes among the various Master’s Offices, also with little or no consequence management
  • the suspension of Chief Director, Ms Tessie Bezuidenhout, with no clear reasons yet given for her and others’ suspension
  • the recent Master’s Office ransomware attack – leading to banks being unable to verify Letters of Executorship
  • the closure of the Pretoria Deeds Office, on account of the electricity supply not being paid. 

The number of complaints from FISA members has risen exponentially, in particular regarding deceased estates and trusts. Some attorneys have even started taking legal action to force outcomes from the authorities. 

FISA does have a cordial relationship with the new Chief Master, Mr Mafojane, but there has been a lack of communication around some essential issues. 

FISA will continue to be positive in developing a good relationship with the Master’s Office in the interests of its members and the public alike.


 Ms Lelane Bezuidenhout 
The Financial Planning Institute

The estate planner’s relationship with the client 

In unpacking the fiduciary duty to clients from a financial planning perspective, Ms Bezuidenhout outlined the regulatory regime as follows:

  • FSCA – the FAIS Act and General Code of Conduct
  • FPI – Code of Ethics and Practice Standards

Within this regime, the CFP® professional financial planner has various duties: to always act in the best interest of the client; follow the client’s instructions; be loyal; display the care, skill and diligence expected of a professional; disclose and manage conflicts of interest; and, importantly, know your limitations and refer fiduciary matters to a specialist when it comes to complex estate planning matters. She then took the audience through the duties that the financial planner owes to clients and when they apply, eg at all times / when providing financial advice / when providing financial planning. 

Ms Bezuidenhout provided a six-point procedure for Practice Standards as follows;

  1. Establish the relationship with the client and put in place a Service Level Agreement
  2. Gather both qualitative and quantitative information
  3. Analyse the information (foundational and technical analysis)
  4. Develop a plan in consultation with other professionals if need be
  5. Implement the estate plan
  6. Monitor and update on a regular basis in consultation with the client and family where needed 

She concluded by given an interesting overview of understanding different generations which will influence how one approaches their planning – Generation X (1965-1980), Generation Y (1981-1995) and Generation Z (1996-2012). Millennials are current students and alumni and Generation Z are prospective students – planners need to be start understanding what drives them.

 


 

David Hurford 
CEO, Fairheads Benefit Services

Umbrella trusts and beneficiary funds – managing relationships at scale 

 

Umbrella trusts were established in the late 1980s to receive and hold death benefits of deceased retirement fund members, allocated to the latters’ dependants in the discretion of the retirement fund trustees. Umbrella trusts are regulated by the Trust Property Control Act and the Master of the High Court. The Fidentia scandal led to the establishment of a new vehicle in 2009, the beneficiary fund, regulated by the Pension Funds Act and the FSCA. At February 2021, the beneficiary fund market was valued at around R17 billion. 

While beneficiary funds are now the default option for receiving employment-related death benefits, umbrella trusts still play a role and can accept payments from a variety of sources including disability and medical negligence claims, deceased estates, inter vivos trusts, testamentary bequests and discretionary savings. 

The advantage of both the umbrella trust and beneficiary fund structures are that monies are pooled and economies of scale achieved, leading to administrative efficiency and cost-effectiveness. 

Beneficiary funds are designed to protect the assets of children and therefore any retirement fund member, regardless of their level of income, can consider their use in estate planning as an alternative to a testamentary trust, by stipulating on their pension fund nomination form that the trustees consider the use of a beneficiary fund in the event of their death.

Advantages of beneficiary funds are that they are cost effective and tax effective, and offer institutional investment returns. Beneficiary funds are taxed in the same manner as retirement funds in South Africa, that is no tax is paid in the fund. Furthermore, any payment out of a beneficiary fund, whether capital or income, is tax free. 

Retirement fund trustees need to assess guardian/caregiver competency – if it is uncertain that that s/he would not use a lump-sum benefit in the best interests of the child, then a sub-account is set up in the minor’s name in an umbrella beneficiary fund. A monthly stipend is paid to the guardian/caregiver and capital payments made eg to schools. Fairheads outsources investments to best-of-breed asset managers, in compliance with Regulation 28. A lifestage model determines the asset allocation, based on the member’s age, lump sum size and income/captial needs. At age 18 the member is entitled to the residue of the investment, unless s/he elects to leave it in the beneficiary fund.


 

Adv Sankie Morata
FISA Bursary Trust
 

Adv Morata outlined the purpose of Trust, namely to supply bursaries to previously disadvantaged individuals who qualify to enrol for a tertiary qualification applicable to the fiduciary industry. Such individuals need either to be employed, or express a desire to be employed, in the fiduciary industry, and show that they can make a positive contribution to the industry as well as promote the development of equal opportunities. Awards are made in the discretion of the Trustees. 

So far, four individuals have been awarded bursaries, covering tuition to study for the Advanced Diploma in Estate and Trust Administration offered by the School of Financial Planning Law at the University of the Free State, as well as the LEAD course offered by the Legal Education and Development section of the Law Society of South Africa. 

One bursary holder has thus far successfully passed the diploma and applied to FISA for the designation of Fiduciary Practitioner of SA® (FPSA®), which was granted. 

The Board of Trustees of the FISA Bursary Trust are appealing to employers and practitioners in the industry to contribute to the Trust. As the Trust is registered as a public benefit organisation, contributions will qualify for a tax deduction under section 18A of the Income Tax Act, 1962. 

More information as well as a summary of the Bursary Trust and biographies of the Trustees are available from Aaron Roup at [email protected]

 


 

Prince Siluma
FNB Fiduciary
 

What is the difference between charity and philanthropy? This is the interesting question Mr Siluma kicked off with, pointing out that charity is giving help NOW whereas philanthropy focuses longer-term on finding the source of human suffering and addressing that. A positive side-effect of COVID-19 has been a massive increase in philanthropy worldwide. Health is clearly a focus and, in South Africa, education too. 

Regarding the role of planners, it is essential for philanthropy to be part of a legacy plan, as opposed to undertaken on an ad hoc basis. People often make decisions based on their feelings rather than an objective analysis. Planners can help clients to reach the right balance between “heart and head”, ensuring that emotional blindness can be removed. Planners can also assist with creating structures, such as trusts or foundations, through which funds can be channelled, to ensure the impact of the philanthropy can be measured. 

Mr Siluma also gave some interesting statistics:

  • The emerging middle class is giving roughly one third of their monthly earnings to help others
  • 83% of high-net-worth individuals gave money, time or goods in 2018
  • 85% of people agree that community-based organisations are effective in solving societal problems
  • The estimated total corporate social investment (CSI) investment in 2020 was R10,7 billion (up 4,9% from 2019)
  • Motivation to give is driven by ubuntu which is enshrined in our Constitution 

There are organisations starting to fill the gap left by government organised by bodies such as the Independent Philanthropy Association of South Africa. There are also developments such as crowdfunding.

 


 

Dr Janette Minnaar-van Veijeren
ProEthics

Building lasting relationships based on trust

Dr Minnaar-van Veijeren spoke about the imperatives for building relationships based on trust, and the new role of leadership.

An interesting survey was published by the ACFE titled the 2020 Global Study on Occupational Fraud and Abuse. This survey put the cost of dishonesty / fraud to 5% of an organisation’s revenue each year. Owners or executives committed only 20% of occupational frauds but they caused the biggest losses.

Dr Minnaar-van Veijeren outlined the common law duty of company executives, emphasising that their main duty is to care for the organisation. In the words of Professor Mervyn King, “We become the heart, mind and soul of an organisation when we become a director/board member”.

She also quoted the Global Business Ethics Survey (GBES) published in March 2021 by the US Ethics & Compliance Initiative which found that more than 44% of employees were experiencing more work-related pressure than before the COVID-19 pandemic began. Previous studies by the GBES have shown that any organisational changes (such as work from home- WFH) typically have an adverse effect on ethics outcomes. During WFH, rules and policies seem and are more distant, with employees reporting feelings of disconnectness and disengagement; there is fear and uncertainty around health, safety, the economy and the future; indeed the pandemic has led to a global sense of fatigue.

A study published in July 2021 in Leader.co.za revealed that bosses have a significant influence on how their staff adapt. Therefore the GBES report cautions that organisations take precautionary action to limit stress and support behaviours that epitomise a strong ethics culture. This puts the ball squarely in the court of the leaders of an organisation who need to adopt a new ethical leadership model. Expressed ethical leadership and support is therefore paramount.

Dr Minnaar-van Veijeren concluded by encouraging leaders: “If you see the pandemic as an opportunity to reset and to rethink – to acquire knowledge, aptitudes, new capabilities and so on – it’s more than likely that your own learning mindset will become contagious. You will influence your employees positively and drive critical engagement so much more successfully.”


The conference was closed with a highly productive, interactive hour-long panel discussion during which the speakers answered questions from the floor.

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