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Beneficiaries of a trust
One of the elements of a valid trust is that the trust object must be sufficiently certain. The trust object may consist of
(a)the benefit of one or more named persons or classes of persons, including juristic persons; and/or
(b)one or more impersonal objects such as educational trusts, which benefit specific persons.
One of the principle rules is that if the person or class of persons for whose benefit the trust is intended is not named or determinable, the trust fails for want of a certain object. In a court case a testator appointed executors and trustees, made a specific bequest to his daughter and went on to stipulate further that the balance of my estate to be left to the discretion of my executors. The court held that the balance of the estate went on intestacy, since neither a valid trust was created nor could it be implied that the daughter was heir to the residue of the estate.
Thus the beneficiaries of a trust must be identifiable.
Requirements of a valid trust
A valid trust must contain certain essential elements. In the absence of any one of the following features a trust will fail:
The founder must express his clear intention to be obligated to create a trust.
The property subject to the trust must be defined with reasonable certainty.
The trust object, which may be either personal or impersonal, must be defined with reasonable certainty.
The trust object must be lawful. For example a trust cannot be created which gives a beneficial interest to an insolvent and deprives his creditors of that interest, since that would be considered a fraud on insolvency law.
In the view of the author the beneficiaries of a trust, being one of the essential elements of valid a trust, may not be varied. When beneficiaries of a trust are varied two events occur. First, the existing beneficiaries are removed, which immediately renders the trust invalid because one of the essential elements of a valid trust is missing. Upon the happening of this first event the trust will in the view of the author fail. Second, the new beneficiaries are named in a new trust.
Change in beneficiaries
The issue whether the beneficiaries of a trust may be varied was addressed in a recent decided income tax court case. A trust was created with a husband, wife and their descendants as the nominated beneficiaries. The trust acquired immovable property, which was subsequently sold to a certain Mr. X. The transaction was concluded as follows: The husband and wife agreed to withdraw as beneficiaries and that Mr. X and his son take their place as the income and capital beneficiaries of the trust. They also agreed to resign as trustees. Mr. X and his nominees became the new trustees. The parties unsuccessfully attempted to avoid paying transfer fees on the sale of immovable property.
In relation to the issue of the change in beneficiaries of the trust the court held as follows: The court accepted that the trust was formed for the benefit of the husband, wife and their descendants and held that whilst it is permissible in the law to substitute trustees with relative ease, the same does not apply insofar as beneficiaries are concerned and, indeed, the designation of a trustee or acceptance by a designated trustee is not essential to the existence of a trust. Any substitution of beneficiaries must be in accordance with the object and purpose of the trust and in the first deed the donor nominated the husband, wife and their descendants as the income and capital beneficiaries of the trust. It was held that substituting Mr. X and his son for the husband, wife and their descendants, the object and purpose of the trust as envisaged by the donor, had been terminated.
The court held that in law beneficiaries may consent to amend a trust deed and in certain circumstances may even consent to bring an end to a trust and beneficiaries can, in effect, vary the trust, because they can use the trust property to set up a new trust that differs from the old and this is in fact what happened in this case as, on the facts, a new trust was in fact created especially in view of the fact that the object and purpose of the trust as envisaged by the donor had come to an end.
The court held that transfer duty must be paid in respect of the transaction because a new trust came into existence.
The above circumstances may also have capital gains tax consequences. |
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