When trustees wish to amend a trust deed, in light of changes in legislation or circumstances, they have to consider the terms of the amendment clause in the trust deed.
They may find one of the following scenarios in reading the trust deed to determine whether the deed may be amended, who the parties to the amendment have to be, and whether there are any restrictions on amendments to the deed:
Scenario 1:
The trustees are not empowered to amend the trust deed, because the trust deed does not contain an amendment clause in terms whereof the trust deed may be amended.
Scenario 2:
The trust deed contains an amendment clause in terms whereof the trust deed may be amended, but the power to amend the deed is restricted in such a way that the proposed amendments cannot be done.
Scenario 3:
The trust deed contains an amendment clause in terms whereof the trust deed may be amended with no restrictions thereto, by agreement of the Founder and trustees, and specifically without any beneficiary having accepted benefits having to be a party thereto.
THE LEGAL POSITION IN SOUTH AFRICA
COURT CASES ON THE AMENDMENT OF TRUST DEEDS
CIR v Estate Crewe 1943 AD 656:
The Appellate Division held that the inter vivos trust came about as a result of a contract between the founder and the trustees, which is the current legal position in South Africa (SA).
McCullough v Fernwood Estates Ltd 1920 AD 204
It was held in the Appellate Division that it is an essential element of the stipulation in favor of a third party that third parties acquire no rights before and until they have accepted the rights stipulated in their favor.
The Appeal Court in SA has held that trust beneficiaries similarly acquire no rights until they have accepted the trust benefits stipulated for them.
Crookes v Watson 1956 (1) SA 277 (A):
As a result of this judgement in the Appellate Division:
- A trust deed can be amended while the founder is alive, by agreement between the founder and the trustees, if the beneficiaries have not accepted any benefits stipulated for them in the trust deed;
- If the beneficiaries have accepted such benefits, they are parties to the contract in terms of which the trust was created (the trust deed) and their consent is required to amend the trust deed;
- A clause in a trust deed that the deed cannot be amended, or the absence of a clause that the deed may be amended, does not necessarily mean that the deed cannot be amended, as a trust deed functions as a contract, and can thus be amended with the consent of the contracting parties.
APPLICATION OF CASE LAW TO THE SCENARIOS ABOVE
Scenario 1:
If the Founder is alive and mentally capable to act, and the minimum required number of trustees are in office, the trust deed can be amended by agreement between the Founder, all the trustees in office, and all the beneficiaries who have accepted trust benefits.
Scenario 2:
If the Founder is alive and mentally capable to act, and the minimum required number of trustees are in office, the amendment clause in the trust deed can be amended by agreement between the Founder, all the trustees in office, and all the beneficiaries who have accepted trust benefits, to remove such restrictions to amend, if within the objective of the trust. Thereafter the trust deed can be amended, in line with the terms of the amended amendment clause.
Scenario 3:
The trust deed may be amended adhering to the terms of the amendment clause with the Founder and trustees as parties thereto and agreeing thereto, without the beneficiaries having to agree thereto, even if they have accepted benefits from the trust.
The above scenarios and the solutions thereto are stated in general terms, and may not be applicable in a scenario not stated above, or where there are conflicting clauses in a trust deed. An application can obviously always be made to court to amend a trust deed, when for instance there is no amendment clause in the deed or the amendment clause requires the Founder to agree and the Founder no longer being alive or able to act legally. If you have any further questions about the above or require advice about the amendment of a trust deed, kindly contact Marteen Michau at marteen@fidelisvox.co.za
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)