12 May AMENDING A DISCRETIONARY LIVING TRUST
There are some important points that support the rationale for amending a trust deed. An amendment to a trust deed is often required to accommodate important changes or provide for unexpected situations.
- A change of legislation, such as, new or amended laws, changes precipitated by actual court cases and High Court precedent rulings or new directives from the likes of SARS.
- A change of circumstance that the founder could not have foreseen or contemplated.
- A change of beneficiary (an addition or deletion), often initiated by divorce, remarriage, death or insolvency.
- A disagreement between parties.
- When the trustees require less restrictive parameters to perform their duties more effectively.
- To overcome poor drafting that lacks sufficient clarity for the trustees to act with any certainty.
- To remedy any flaws and mitigate any risks uncovered in an independent audit of the trust. The authority to amend a trust deed is found in statutory law, common law and the trust deed itself. If a trust deed is silent about amendments, statutory law and common law become the reference points.
Discretionary living trusts enjoy contractual autonomy under the law of contract (the freedom to contract with whomever and on whatever terms), a consequence linked to the constitutional values of dignity, equality and freedom. That said, there are three exceptional circumstances where the High Court may be called upon to intervene. The courts generally strive to implement amendments that are aligned as closely as possible to the founder’s original purpose.
1. Dire necessity, that is, to remedy a situation where funds are required urgently – usually to make provision for a situation the founder could not have foreseen.
2. Discriminatory provisions of public interest that are considered harmful to the moral welfare of society and in violation of public policy, specifically the right to human dignity, freedom and equality. Any transgressions may lead to severability by the courts, that is, the striking out of the offending provision in the trust deed.
3. When the object of a charitable trust cannot be realised. The introduction of the Trust Property Control Act 57 of 1988 was a turning point that gave the courts the power to intervene when an obstacle hinders the achievement of the founder’s objectives, prejudices the interests of the beneficiaries or is in conflict with the public interest.
In this case, a trustee or anyone who, in the opinion of the court, has a sufficient interest in the trust property, may apply to the court for relief. The court may either delete or amend any such provision, or order that a particular trust property be substituted for other property, or that the trust be terminated. Each case is judged according to its unique circumstances but the court does not have the authority to add anything deemed missing to the trust deed.
IMMOVABLE PROPERTY ACT 94 of 1965 According to the Act,
any trust beneficiary with an interest in immovable trust property that is subject to a restriction, has the right to appeal to the court to have the restriction removed or modified. If the immovable property belongs to a discretionary living trust, the beneficiary would need to apply first to the trustees, and approach the court only if their request was unsuccessful. The following parties, under common law and the trust deed, may make amendments. The scope of any amendments is determined in the trust deed.
1. The Founder: by agreement with the trustees and the beneficiaries who have accepted benefits.
2. The Trustees by agreement with the beneficiaries who have accepted benefits. If the trust deed is silent on amendments, an application to court would have to be made.
Where trustees have authority and are wanting to make an amendment to a trust deed, they are required to adhere to strict protocols and any beneficiaries who have accepted their benefits, would also have to agree as a party to the amendment.
Amendments to a discretionary living trust require a unanimous vote among the relevant parties before being lodged at the appropriate Master’s office. The Master will require the original signed trust deed amendment (or a certified copy thereof), together with the resolution.
A discretionary living trust is able to overcome the potential complications more commonly associated with a testamentary trust, namely that the trustees may be authorised to facilitate amendments that support general administrative function and decision-making, even after the death of the founder.