Revocation and termination of Trusts

Cameron (491) defines revocation as the process by which the founder with or without the concurrence of the trustees and beneficiaries brings to an end a trust which has already been set up. Variation consists in the alteration of the terms of a trust by the founder, the trustees, the beneficiaries, the court or some combination of these. Termination is the discharge of a trust by one of these agencies or by statute or operation of law.

Statutory powers of court

The Trust Property Control Act empowers the court to order the termination of a trust if the court is of the opinion that the facts comply with the stipulations of section 13 of the said Act. It means that if a trust instrument contains any provision which brings about consequences which in the opinion of the court the founder of the trust did not contemplate or foresee and which:

(a) hampers the achievement of the objects of the founder; or
(b) prejudices the interest of beneficiaries; or
(c) is in conflict with the public interest,
the court may, on application of the trustee or any person who in the opinion of the court has a sufficient interest in the trust property, make in respect thereof any order which such court deems just, including an order terminating the trust (see Wessels 1993 De Rebus 819).

The South African Law Commission’s Report on the Review of the Law of Trusts (Project 9, June 1987) in substantiating the abovementioned stipulations at 43 to 48, does not recommend that wide powers to vary trust provisions be given to the court. Nor does the Commission recommend that the right of the founder, the trustee and beneficiaries to vary a trust be changed. In paragraph 12.19 they state:

“The Court already has a common-law power to vary the trust provisions if a change in circumstances not foreseen by the founder has made the carrying out of the purpose of the trust ‘practically impossible or utterly unreasonable’. The Commission recommends that this power be extended to all cases where the provisions of a trust instrument bring about consequences which the founder did not contemplate or foresee and which hamper the achievement of the objects of the founder or prejudice the interests of beneficiaries or are in conflict with the public interest”.
(See also Ex parte Watling 1982 1 SA 936 (C) 940H, Ex parte Sidelsky 1983 4 SA 598 (C) 601E.)

The significance of section 13 lies in what Wessels (1993 De Rebus 821) describes as the unlimited scope (“onbeperkte omvang”) of the court’s discretion in terms of section 13 as well as the giant leap the legislator has made away from the conservative common law principles to vary testamentary stipulations. As pointed out by him, save for one reported and one unreported case, very limited case law guidelines exist in respect of the court’s application of its discretion, and time will tell how this section will be applied.

Common law revocation and termination of an inter vivos trust

An inter vivos trust will terminate when the trust deed stipulates it will terminate. This can be after the lapse of time or at the happening of a future event or it can be left to the discretion of the trustees to terminate the trust (Olivier 264, 271 and 277).

The rule against perpetuities in Anglo-American law, which limits the duration of a trust, is not applicable in South African law where a trust can continue indefinitely (Olivier 98; Cameron 55, 125–127, 170, 587–588; Honoré 42, 102–104, 513–514). Unfortunately our courts and authorities on the topic, have not made a clear distinction between the inter vivos trust and the testamentary trust as far as the perpetuity of the trust is concerned. Honoré, for instance, is not in favour of the unlimited time at which an interest in the capital of a trust fund may be made to vest.
Referring also to the Margo Commission Report they are of the opinion that it may create an economic and a social problem. The contrary may, however, happen: namely that the compulsory vesting of trust property in beneficiaries at some or other future date, may cause social and economic problems for beneficiaries. For instance, in the case of a protective trust, it may be the wish of the founder that the trust assets never vest in successive beneficiaries who have a tendency towards extravagance. If a discretion is given ad infinitum to the trustees of a trust to decide when and under what circumstances the assets will vest in one or more from a predefined group of beneficiaries, the trust becomes the only adaptable and flexible tool to protect such a wasteful beneficiary (or even successive beneficiaries with that inclination) against themselves, thus rather preventing social and economic problems. It will also be a sad day if the trust law is contaminated with economic rules by adjusting the trust law to suit economic principles.

In the case of an inter vivos trust which is in any case regulated by the law of contract, it is advisable not to limit the discretion of the trustees regarding the termination of a trust.
What has been said above about the power of variation given specifically to certain parties to a trust in the case of an inter vivos trust, in B18.2.1 to B18.2.5 is mutatis mutandis also applicable to the revocation and termination of a trust. Thus, where for instance beneficiaries have accepted benefits from the trust, they have to be a party to the termination of a trust, irrespective of what is stipulated in the deed of trust.

When a trust is terminated the destination of the remaining trust property, if any, depends on the mode of termination. If the beneficiaries have brought it to an end they are entitled to direct how the property should be distributed. If the founder has revoked the trust by virtue of a unilateral power of revocation or with the concurrence of the trustee, he is entitled to recover the trust property by condictio. In any other case of termination of a trust inter vivos the provisions, if any, of the trust instrument apply, but in default of such provisions the founder or his successors may recover the trust property by condictio, unless the founder intended to part permanently with any claim to the property, or he or his successors have since the commencement of the trust waived any such claim, in which case the property vests in the state as bona vacantia (Honoré 467).

Common law powers of revocation and termination of a testamentary trust

What has been said above in paragraph 18.3 regarding the powers of variation of the testamentary trust, is also applicable to the revocation and/or termination of a testamentary trust.
The termination or revocation of the trust is usually dependent on one or more events as defined in the trust instrument. Such an event can be the death of a named person, the attainment of a specified age by a beneficiary, a fixed date mentioned in the trust deed, or a provision that the trust is to continue indefinitely until the trustees resolve to terminate it. As far as the latter is concerned, it is important to note that as far as the testamentary trust is concerned, there is also no limit to the time at which an interest in the capital of the trust fund may be made to vest in the beneficiaries. In this way, the founder is entitled to give capital to his great-grandchildren (Ex parte Estate Vincent 1964 2 SA 99 (C); Ex parte Heyman 1937 CPD 282 and Ex parte Estate Graaff 1947 4 SA 496 (C)).

The principle of perpetuity was strongly implied in the majority decision in CIR v Sive’s Estate 1955 1 SA 249 (A) where the testator bequeathed the residue of his estate to his children in equal shares, provided that as regards half of each share the trustees had the entire discretion to decide whether the whole or any portion should be paid to a child entitled thereto and, if the trustees decided to make payments to them, when they were to be made. In the same manner the trustees were to pay each child so much of the income derived from his share as they might deem fit. The Appellate Division held 3 to 2 that the testator did not intend to vest any portion of capital or income in his children, so that they did not have a vested interest on which estate duty was payable. The decision also implies that a trust can be valid though the trustees have a discretion indefinitely to postpone the distribution of both income and capital. Honoré is concerned that the trustees should have a discretion indefinitely to postpone a distribution of both income and capital and that it may be contrary to the common law principle that the founder of the trust for designated beneficiaries should not be permitted indefinitely to postpone the distribution of the trust property to those whom the trust is intended to benefit. In view of the fact that the rule against perpetuity of the trust is not applicable in South Africa, the concern may be unfounded, especially in view of what was said above in respect of the protection of heirs or beneficiaries. (See also Cameron 125–126, 599 and 601.)

When a testamentary trust is terminated the residual provisions of the will, if any, take effect. In default of such provisions the property goes on intestacy. Whether in such cases the intestate heirs are to be determined as at the date of the testator’s death or date when it becomes clear that the trust will fail has now been resolved by the Appellate Division on the latter (Harris v Assumed Administrator Estate MacGregor 1987 3 SA 563 (A)). In default of intestate heirs the assets will vest in the state as bona vacantia (Cameron 551–552; Honoré 467–468

Formalities upon termination of a trust

The Trust Property Control Act does not provide for any formalities or specific control measures to be complied with when a trust is terminated. Termination per se does not also terminate the trusteeship. The duties to the trustees’ office may continue to exist. Prior to termination, all liabilities will have to be paid and trust property distributed according to the trust instrument. Honoré at 183 states that the office comes to an end only when the trustee has duly disposed of all the trust property (Cameron 226–227). Surely, only after the Master has confirmed this will the trustees really have discharged their obligations.

For this purpose, the Master of the High Court may require reasons for termination or the original resolutions terminating the trust by the trustees (if applicable), as well as the original letters of authority together with confirmation that the beneficiaries under trust have received their benefits (see also Cameron 551–552; Honoré 183 and 467). Where the beneficiaries have accepted any benefit prior to the termination of the trust, it appears as if they have to be a party to the resolution to terminate the trust, although the trust deed may stipulate otherwise (Crookes v Watson supra and Hofer v Kevitt supra).


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