In part seven of his series on Estate Planning, Rory McFarlane, of Durban attorneys Shepstone and Wylie, looks at how you can change trust deeds.
Often beneficiaries of a trust, or the trustees, find the trust deed regulating the administration of the trust too restrictive.
Circumstances may have changed since the trust was established and there is a need to vary the trust deed. But can a deed be varied and, if so, how does one do so?
Both testamentary (will) trusts and inter-vivos trusts have as their foundation a deed of trust or trust instrument. In a testamentary trust, the deceased's will is the trust instrument while with an inter-vivos trust an agreement, known as a deed of trust, is prepared and registered with the Master of the High Court.
The ability to vary the trust depends on the type of trust and whether the variation is being sought by agreement between the parties to the trust in terms of common law, or by the Court in terms of statute.
Variation of an inter-vivos trust by agreement:
An inter-vivos trust is based on the law of contract and any variation of the terms must be done accordingly. It requires at least the consent of the founder and the trustees. The founder cannot unilaterally vary the trust's provisions, while the trustees can only if they have been given the power to do so in the trust deed.
A trust deed may be varied by agreement between the founder and the trustees provided the beneficiaries have not accepted any benefit from the trust. If any beneficiary has accepted a benefit, he or she too will have to be made party to the amendment.
The variation agreement must be signed by the trustees and affected beneficiaries and lodged with the Office of the Master of the High Court.
By the court:
The Trust Property Control Act 57 of 1988 gives the court the statutory authority to vary a deed of trust at the instance of a trustee or beneficiary provided it can be shown that the offending provision brings about consequences which the founder of the trust did not contemplate or foresee. Also, the court will only vary the trust deed if the interests of the beneficiaries are prejudiced, if it hampers the objectives of the founder, or if it is in conflict with public interest.
For example, the court would authorise the variation of a trust deed when a founder has failed to take into account the erosive effect of inflation in the provisions of the trust deed.
Variation of a will trust by agreement :
A will trust only comes into effect on the death of the testator who is the founder of the trust. The trust cannot be varied by agreement between the trustees and the beneficiaries. The trust has as its base the deceased's will and agreeing to amend the trust would be agreeing to amend the person's will after they have died.
However, an agreement between the beneficiaries known as the "family arrangement" is possible. This agreement usually occurs where a testator appoints his wife as the income beneficiary of the trust and, upon her death, directs that the capital is to be distributed to his children.
There is nothing to stop the widow, as income beneficiary, from relinquishing her right to the income so that the capital devolves to the children before her death.
It is important that all the beneficiaries be party to such an agreement and that they all have contractual capacity.
By the court:
The general rule is that a court will not, save in exceptional circumstances, agree to vary the terms of a person's will after the person has died. The testator's wishes are to be respected.
However, as with inter-vivos trusts, the court does, in limited circumstances, have the power to vary the provisions of a will where, for example, there has been a change of circumstances unforeseen by the testator which has rendered compliance with his directions impossible or unreasonable.
Whether you intend creating a trust in terms of your will or during your lifetime you should give careful consideration to the need to have the trust's provisions varied in the future.
Ensure that the trustees of your inter-vivos trust are given the power to vary the trust if the need arises and make provision for variation both before and after the founder's death.
In the case of a will trust, get legal advice to ensure that the provisions of the will are wide enough to cover changing or unforeseen circumstances so as to prevent the cost to your estate of applying to court to have the provisions of the will varied.