With the recent implementation of the beneficial owner register (BOR), trustees are very cautious to include beneficiaries, who has not yet received a benefit in the BOR. Trustees of Discretionary trusts often has the absolute discretion to decide on when a beneficiary receive a right/benefit, making them beneficiaries.
The recent court case of N and Others v Maluleke N.O and Others  ZAGPPHC 911 involves two trusts, the Trading Trust and the Legacy Trust, and the only beneficiary of the Trading Trust is the Legacy Trust. The beneficiary clause of the Legacy Trust specifies that beneficiaries will be selected by the trustees in their absolute discretion from a list of nine names and their descendants, as well as any trust set up for their benefit, and failing these options, the nearest relatives of the founder.
The 1st and 2nd applicants were included in the list of nine names and argued that they had an interest in the trust property as members of a class from which beneficiaries could be drawn. However, the court held that, on a pure reading of the beneficiary clause, until the trustees selected beneficiaries in 2022, no person had any right to be a beneficiary. The court distinguished this case from Potgieter v Potgieter on the basis that there was no attempt in the present case to amend the trust deed.
This case underscores some valuable points, namely:
- The importance of precise language in trust instruments defining the beneficiaries. The beneficiary’s clause must be drafted with care and precision to avoid any ambiguities or uncertainties. The trustees should be given clear discretion to select beneficiaries, and any limitations on their discretion should be clearly specified.
- The importance of adhering to the terms of the trust instrument, as any attempt to modify the terms of the trust must be done in accordance with the trust instrument and the relevant laws.
- That it would be unwise for Trustees to adopt the one size fits all approach that the details of any person whose name appears in the definition of the term “beneficiary” in a Trust Deed must automatically be included in the beneficial owner register as a “named beneficiary”. On the contrary, Trustees must seek expert advice to ascertain whether the persons whose names are listed in the definition of the term “beneficiary” are beneficiaries as defined in the Deed or merely potential beneficiaries that form part of a pool or class from which the Trustees may select beneficiaries from time to time.
- Failure to appreciate this critical abovementioned distinction could result in over-reporting in the form of the unnecessary inclusion of the details of a potential beneficiary in the beneficial owner register, thereby exposing the Trustees to a civil claim for damages at the instance of an aggrieved potential beneficiary.
In conclusion, the N and Others v Maluleke N.O and Others case serves as a reminder to all parties involved in the establishment and administration of trusts to exercise caution and attention to detail when drafting and interpreting trust instruments. And most importantly in filing the beneficial ownership register.
Contact Sentinel International Advisory Services today of any assistance in drafting Trust Deed, Deed of amendment of submission of Beneficial owner register with the Master of the High Court.
Senior Trust Officer