The trustees’ mandate is to execute functions on behalf of the trust, and in terms of the trust deed. The trust deed should determine how the trust may be amended, should such a need arise. A trust deed, for example, restricts trustees from purchasing fixed property. However, the main purpose for which the trust was established necessitates this right. In this case, the trust deed would need to be amended so as to allow for this purpose. Sometimes the trust deed does not provide for its amendment. This may be problematic, especially when the founder is no longer around, as party to the contract, to amend it.
In general, there are three ways to amend an inter-vivos trust deed:
1. Contractual amendment while the founder is alive
An inter-vivos trust is a stipulatio alteri (a contract on behalf of a third person (Crookes v Watson case of 1956). In terms of the principles applicable to a stipulatio alteri, the beneficiaries in the case of an inter-vivos trust acquire stipulated rights in the trust property only when they accept the benefits of the stipulatio. Because a trust is a contract, the parties to the contract are permitted to make amendments by unanimous agreement in terms of the rules of the Law of Contract. The founder and trustees can therefore conclude a later agreement to amend or substitute an earlier agreement between the same parties.
It is important that each of the original parties to the trust deed consent to the amendment. The trustees need not be the same persons as the original trustees. The trustees, in the interim, owe a fiduciary duty to the actual and potential beneficiaries to act in their best interest. Amending an agreement would therefore need to be carefully considered by the trustees before they agree to it, even if they are instructed by the founder to make these changes.
Where a beneficiary has accepted benefits from a trust, he/she is deemed to be a party to the original agreement and would therefore be required to be a party to the amendment agreement (Crookes v Watson case of 1956). In this event, the parties will require the beneficiary’s consent to amend the trust deed. This is a requirement, regardless what the trust deed stipulates. In other words, if the trust deed stipulates that the trustees can amend the trust deed on their own, but the beneficiaries have accepted benefits of the trust, this rule will overrule the provisions of the trust deed.
How do the beneficiaries “accept” existing or future benefits?
If the beneficiaries made themselves part of the contract by writing to the trustees, then it is clear that they have accepted the benefits of the trust, even if the benefits are dependent upon the trustees’ exercising their discretion in the future
If there were prior amendments to the trust, and the beneficiaries accepted these amendments, it may imply the acceptance of benefits
If awards were made to discretionary beneficiaries in prior years, and these awards were accepted by the beneficiaries, it may imply that the beneficiaries accepted the benefits of the trust, and that any amendments affecting their rights cannot be made without their approval
Although there is no prescribed form of acceptance, it is suggested that an unequivocal expression of intention to accept is required, as well as a communication of acceptance by the beneficiary to the trustees
Because many trusts contain drafting errors, and have of outdated terms, there is a small window of opportunity for these trusts to be regularised using this method, whilst the founder is still alive.
2. Amendment in terms of the provisions of the trust deed
This takes place when the trust deed is amended in accordance with the variation clause of the trust deed. This method is usually relied upon when the founder has passed away.
Where a beneficiary has already received benefits from a trust, he/she is deemed to be a party to the original agreement, and is therefore required to be a party to the amendment agreement, regardless of the provisions of the trust deed. Usually the variation clause determines how changes to the trust deed must be performed. This variation clause may differ from trust to trust, and must receive specific attention when establishing the variation requirements contained in a specific trust deed. In the event that the trust deed does not contain a variation clause, the trust deed would be amended using one of the other two options.
3. Amendment through application to court
If the founder has passed away and the trust deed does not make provision for an amendment, amendment by Court application would be the only alternative course of action. Section 13 of the Trust Property Control Act allows a “trustee or any person” having “sufficient interest in trust property” to apply to the Court to change the provisions of the trust, where the provisions of the trust are against the public interest, or jeopardise the beneficiaries’ interests or the trust’s objective.
In March 2017 the Master of the High Court published a directive providing that the Master will ensure that amendments comply with the prescribed provisions regarding amendments, and will not amend any protected provisions of a trust deed.
Three possibilities exist to amend a trust deed:
1. Should the trust deed stipulate that the beneficiaries are required to be involved in a decision to amend the trust deed or to deregister the trust, the trustees must involve the beneficiaries in such decisions.
2. Should the trust deed stipulate that the beneficiaries are not required to be involved in a decision to amend the trust deed or to deregister the trust, the trustees do not have to involve the beneficiaries in such decisions.
Often the amendment clauses of trust deeds state that trustees cannot amend certain provisions of the trust deeds. In cases such as these, the trustees will therefore be allowed to make amendments other than such prohibited amendments, without the consent of the beneficiaries. They will, in other words, require the consent of the beneficiaries to amend those clauses that the trustees are prohibited to change on their own.
3. Should the trust deed however be silent on the involvement of the beneficiaries, but the beneficiaries have accepted benefits conferred by the trust instrument, the trust instrument can only be amended or terminated with such beneficiaries’ consent.
The amendment can either be carried out in the form of an addendum to the original trust deed, or an amended trust deed can be drafted to completely replace the original trust deed. The latter method is preferred to ensure that newly introduced clauses do not conflict with the original trust deed.
Use a professional
It is important to use the services of a professional when initially drafting a trust instrument. This will ensure that the trust instrument is drafted correctly with valid and executable provisions. This will also prevent problems that may arise should the trust instrument require amendment in the future. Also use the services of a professional when amending a trust deed, as any mistakes or oversights could render an amendment invalid.
Phia van der Spuy is a registered Fiduciary Practitioner of South Africa and the founder of Trusteeze, which specialises in trust administration. She is also the author of Demystifying Trusts in South Africa (Createspace).