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Wealth Masters - Choosing Beneficiaries

Updated: Mar 22, 2023

Article by Jonique Groenewald

The Trust Property Control Act, 57 of 1988, defines a Trust as "an arrangement through which the ownership in property of one person is by virtue of a Trust instrument made over or bequeathed …to the Beneficiaries designated in the Trust instrument, which property is placed under the control of another person.

It also goes on to note that "the Trustee, to be administered or disposed of according to the provisions of the Trust instrument for the benefit of the person or class of persons designated in the Trust instrument or for the achievement of the object in the instrument."

To simplify, it means the Founder of the Trust places the Trust's assets under the control of the Trustees to get administered in the best interest of the Beneficiaries.

The position and rights of Trust Beneficiaries must be clearly understood when the Trust gets formed and while it is administered. This article will examine the role of Beneficiaries of a Trust if they have any powers and/or rights, and who can or cannot be Beneficiaries

Beneficiaries as the Object of a Trust

As only Beneficiaries can receive benefits, they are an essential object of a valid Trust. Without a clearly defined object, a Trust cannot come into existence. The Beneficiaries, for whose benefit the Trust gets created, are then seen as the object of the Trust.

Beneficiaries can be defined by name, such as Jane Doe, Peter Max, etc. They can also be defined as an identifiable class of people, for example, The descendants of Jane Doe or the siblings of Peter Max etc.

An unidentifiable class cannot be Beneficiaries. For example, the friends of Jane Doe – this is not sufficiently defined.

More often than not, we suggest that Beneficiaries be mentioned in an identifiable class of people and not by name, as this would make the compliance processes in terms of the Financial Intelligence Centre Act (referred to as "FICA"), a lot more complicated. Mentioning each Beneficiary by name means you would need to apply for FICA clearance for each Beneficiary mentioned by name - which is an administrative nightmare. Defining Beneficiaries as an identifiable class also ensures that the Trust does not easily run out of Beneficiaries, which would lead to all assets getting forfeited to Government.

Another Trust can also be the Beneficiary of a Trust where there are other named Beneficiaries. We also prefer that the Trust gets mentioned by an identifiable class such as any Trusts established to benefit the Beneficiaries – to simplify FICA.

In terms of the Chief Masters Directive 2 of 2017, Beneficiaries are included when it comes to amendments to the Trust Deed in the following instances:

1. Suppose the Trust Deed stipulates that the Beneficiaries must be involved in a decision to amend the Trust Deed or deregister the Trust. In this case, the Trustees must include the Beneficiaries in such decisions.

2. Should the Trust Deed stipulate that the Beneficiaries are not required to be involved in deciding to amend or deregister the Trust, the Trustees do not have to involve the Beneficiaries in such decisions. However, where an amendment clause of a Trust Deed states that Trustees cannot amend specific provisions of the Trust Deed, the Trustees would need the consent of Beneficiaries to amend the provisions as the Trustees are prohibited from amending it on their own.

3. When the Trust Deed does not mention the involvement of Beneficiaries in deciding on amendments, but the Beneficiaries received benefits from the Trust, the Trust Deed can only be amended or terminated with the consent of such Beneficiaries

We do, however, have to consider case law too. Case law has also confirmed the inclusion of Trust Beneficiaries in amending a Trust document. In Ferreira and Another v Van der Merwe N.O and Others [2019] it was held that "where Beneficiaries to the Trust had previously accepted benefits, these Beneficiaries are considered to form part of the parties who signed the contract and will therefore form part of the agreement to amend the Trust Deed."

Furthermore, it needs to get noted that as soon as a Beneficiary receives distributions from the Trust, removing them as a Beneficiary may be a complex process, as they will have to consent to it.

In Conclusion

It is crucial that the Trust Beneficiaries get chosen wisely and that it reflects a specific family's circumstances or the intention of the Founder. It is of the most significant importance that the Trust document gets set up in a way that promotes these intentions.

Your Independent Trustee, who has the knowledge and necessary legal expertise in drafting and setting your Trust instrument, can advise on whether your Trust Deed's clauses align with your intentions for the Trust Beneficiaries.

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