A trust deed can be amended in various ways by either the founder, the trustees, the beneficiaries, the court or a combination of these.

The founder of a trust created between living persons (an inter vivos trust) may, within the trust deed, reserve a right to amend the trust deed during his lifetime. The founder may also confer this right upon the trustees, however this is usually conferred with certain limitations.

A trust is created by means of a contract between the founder and the trustees, and thus it may be amended by a further agreement between the founder and the trustees. If the founder, however, has deceased, amending the trust deed in this manner is impossible and the provisions of the trust deed that govern amendment thereof, shall be the determining factor. If the trust deed is silent on this aspect, the trustees may apply to court in terms of section 13 of the Trust Property Control Act for the amendment and variation of the trust deed.

Another factor that will affect the amendment of a trust deed, is whether the beneficiaries of such a trust have accepted benefits from the trust. As trust deeds are contracts created for the benefit of a third party (known in our law as stipulatio alteri), if the beneficiaries have not yet accepted benefits, the founder may enter into a contract with the trustees to amend the trust deed even if this may affect the interests of the beneficiaries, as a beneficiary has no rights to the trust property until the acceptance of a trust benefit.

This was confirmed in Crookes NO v Watson where the court held that:

“a trust deed executed by a settlor and a trustee for the benefit of certain other persons is a contract between the settlor and the trustee for the benefit of a third person…. and the settlor and the trustee can cancel the contract entered into between them before the third party has accepted the benefits conferred on him under the settlement.”

If, however, the trust has already distributed benefits to the beneficiaries, the law requires the beneficiaries to consent to such amendment. This was confirmed by the Supreme Court of Appeal in Potgieter v Potgieter NO where the court confirmed the view of Crookes regarding amendments of trust deeds when benefits have not been accepted, and further held that:

“…once the beneficiary has accepted those benefits, the trust deed can only be varied with his or her consent. The reason is that in the case of a stipulatio alteri, it is only upon the acceptance that the beneficiaries acquire rights under the trust…”

The court also answered the question as to whether acceptance by a beneficiary of a distribution made by the trustees of a discretionary trust, results in the beneficiary acquiring a right in terms ofthe trust deed. The court held that:

“They (the appellants) were clearly contingent beneficiaries only. But that does not render their acceptance of these contingent benefits irrelevant. The respondents referred to no authority that supports any proposition to that effect and I cannot think of a reason why that would be so. The import of acceptance by the beneficiary is that it creates a right for the beneficiary pursuant to the trust deed, while no such right existed before. The reason why, after that acceptance, the trust deed cannot be varied without the beneficiary’s consent, is that the law seeks to protect the right thus created for the first time. In this light, the question whether the right thus created is enforceable, conditional or contingent should make no difference. The only relevant consideration is whether the right is worthy of protection, and I have no doubt that it is.”

The Chief Master of the High Court of South Africa has adopted the above approach and will require proof of consent from the beneficiaries, if the trust deed is to be amended. It will also confirm that any other amendment requirements, in terms of the trust deed, have been met. Only if the Master of the High Court has reasonable grounds to believe that the amendment requirements were not met, will it question the amendments lodged by the trustees. In the event that the Master refuses to effect such amendments, on the grounds of non-compliance with the law or the trust deed, the trustees will have no choice but to apply to court in terms of section 13 of the Trust Property Control Act for the court to amend the trust deed.

Should you be in a position where an amendment to a trust deed is being effected, or is to be effected, and you would like to ensure that it is done correctly, and lawfully, be sure to contact our offices and our capable team will assist you promptly.

At Schröter Attorneys, we regularly advise on the legality of trust deeds, amendments of trust deeds and legal and tax risks of trust deed provisions. We also represent trustees and beneficiaries in disputes regarding trusts, as well as parties to divorces where family trusts are involved. Contact us today to arrange a consultation and obtain peace of mind regarding your trust’s legal concerns.