Do trust beneficiaries have any rights?

Many people set up trusts, not really applying their minds. Often trust practitioners do not apply their minds and guide their clients either, use a standard trust deed template and just change the name of the trust, the names of trustees and use a standard template list of beneficiaries. Setting up a trust and selecting beneficiaries require a good understanding of trusts, as well as a proper consideration of one’s personal circumstances. There is no one size fits all solution. 

Estate planners and trust practitioners generally do not pay much attention to the estate planner’s personal circumstances when selecting beneficiaries, as there is this general misconception that beneficiaries have no rights and that trustees can do whatever they wish. Beneficiaries are also often told that they have no rights, when they enquire into the trust’s affairs.

The truth is, beneficiaries do have certain rights, which need to be well understood by everyone involved in trusts. The blanket selection of beneficiaries may cause issues during the life of a trust.

A personal right against the trustees for the trustees’ compliance with their duties

Many trustees believe that beneficiaries have no rights, especially if they are contingent beneficiaries in a discretionary trust.

In a 1996 Court case it was made clear that although contingent beneficiaries have no vested rights in trust property, such beneficiaries still have vested interests in the proper administration of the trust. This places a huge burden on trustees, as they can be held personally liable if they do not perform their duties as prescribed by law.

A right to information

Many people believe that trustees are under no obligation to account to beneficiaries. In a Court case in 1999, the Court held that the trustees have a duty to provide full trust administration reports and accounting records, dating back to the time a discretionary trust had been established, to trust beneficiaries, and even to contingent beneficiaries born later. The judge found that, as a result, a beneficiary is entitled to request and receive from the trustees full, true and proper accounting records of the trust, supported by vouchers. The judge further found that beneficiaries are entitled to have access to the books of account of the trust, despite the fact that they only have a contingent right. The Court did, however, stress certain limitations on these rights, and went on to stipulate that the beneficiaries could not interfere with the trustees’ discretion in making decisions.

Rights in respect of the trust assets/income as stipulated in the trust deed, which can be:

• Vested rights where assets and/or benefits vest in the beneficiaries, but are administered by the trustees
  
  These rights are acquired by beneficiaries in a vested/bewind trust, where the assets vest in the beneficiaries; in other words, the beneficiaries are the rightful owners of the assets and therefore have a right to it, but the administration is taken care of by trustees, until for example, when a child turns 25. The beneficiary cannot dispose of the assets until he/she takes over the control over the asset. The beneficiaries have vested rights to the income and/or assets of the trust. Upon the death of the beneficiary, these assets will be included in his/her estate. The beneficiaries will also be liable for all taxes resulting from the assets.

• Discretionary rights where trustees have full discretion to determine benefits of beneficiaries
  
  This applies to discretionary trusts. Beneficiaries have no right to income/capital until the trustees have exercised their discretion, and they can never be party to such a decision.

A right to be involved in a decision to amend a trust deed, or to deregister a trust – discretionary trust

The trustees owe a fiduciary duty to the actual and potential beneficiaries to act in their best interest. Amending or deregistering a trust would therefore need to be carefully considered by the trustees before they agree to it, even if they are instructed by the founder or any one trustee.

In a Court case in 1956, it was held that, where a beneficiary has accepted benefits from a trust, he/she is deemed to be a party to the original agreement and would therefore be required to be a party to any amendment agreement. In this event, the parties will require the beneficiary’s consent to amend the trust deed. This is a requirement, regardless what the trust deed stipulates. In other words, if the trust deed stipulates that the trustees can amend the trust deed on their own, but the beneficiaries have accepted benefits of the trust, this rule will overrule the provisions of the trust deed.

How do beneficiaries “accept” existing or future benefits?

• If the beneficiaries made themselves part of the contract by writing to the trustees to accept their benefits, then it is clear that they have accepted the benefits of the trust, even if the benefits are dependent upon the trustees’ exercising their discretion in the future. Although there is no prescribed form of acceptance, it is suggested that an unequivocal expression of intention to accept is required, as well as a communication of acceptance by the beneficiary to the trustees.
• If there were prior amendments to the trust, and the beneficiaries accepted these amendments, it may imply the acceptance of benefits.
• If awards were made to discretionary beneficiaries in the past, and these awards were accepted by the beneficiaries, it may imply that the beneficiaries accepted the benefits of the trust.

In 2017, the Master used a 2012 Court case to give clarity on the involvement of beneficiaries in a trust deed amendment or trust deregistration, and made the following distinction:

• Should the trust deed stipulate that the beneficiaries are required to be involved in a decision to amend the trust deed or to deregister the trust, the trustees must involve the beneficiaries in such decisions. 
• Should the trust deed specifically stipulate that the beneficiaries are not required to be involved in a decision to amend the trust deed or to deregister the trust, the trustees do not have to involve the beneficiaries in such decisions. Often the amendment clauses of trust deeds state that trustees cannot amend certain provisions of the trust deeds. In cases such as these, the trustees will therefore be allowed to make amendments other than such prohibited amendments, without the consent of the beneficiaries. They will, however, require the consent of the beneficiaries to amend those clauses that the trustees are prohibited to change on their own.
• Should the trust deed however be silent on the involvement of the beneficiaries, but the beneficiaries have accepted benefits conferred by the trust instrument, the trust instrument can only be amended or terminated with such beneficiaries’ consent.

A right to be involved in a decision to amend a trust deed, or to deregister a trust – testamentary trust

A beneficiary, as an interested person, may apply to Court to amend/deregister a testamentary trust. No other mechanism exists to amend/deregister a testamentary trust.