The rights of trust beneficiaries

What is a trust?

Generally, a trust is described as a legal arrangement set up by a founder, where the founder transfers property to the trust and that property is held or administered by one or more trustees separately from the property of such trustees, for the benefit of another person, or persons, or for a charitable or other purpose.[1] The Trust Property Control Act, 1988 regulates the administration of trusts that came into effect after 1 March 1989.

In respect of vested trusts, the beneficiaries have vested rights in the capital assets of the trust, or to the income derived from the capital assets, or to both. In respect of discretionary trusts, the trustees have discretion to decide whether to distribute any of the capital assets or income of the trust to a beneficiary, and if so, to decide when and in what amount. Beneficiaries of a discretionary trust (known as contingent beneficiaries) do not have vested rights in the capital assets or income of the trust unless the trustees exercise their discretion and decide to distribute all or a portion of the capital assets or income of the trust to such beneficiaries. Contingent beneficiaries acquire vested rights on the date when the decision of the trustees becomes effective.

The rights of contingent beneficiaries

Although contingent beneficiaries do not have vested rights over the capital or income of the trust, they do have rights to the proper administration of the trust as well as rights against unfair and differential treatment by trustees.[2] Consequently, contingent beneficiaries have a right to access "all the information needed for them to form a judgment as to whether a proposed course of action for which their consent is required or is asked is in their interest."[3] What exactly such information will entail shall depend on the different circumstances in each case. Where a contingent beneficiary is also a trustee, he/she will have access to financial and other information relating to the trust assets. Other contingent beneficiaries of the same trust will not necessarily have access to the same information if they are not also trustees. Ultimately, it must be determined whether a beneficiary's treatment by the trustees is justified by the circumstances.[4]

The rights of contingent beneficiaries are clearly limited to firstly the rights to the proper administration of the trust; and secondly, to the rights not to be treated unfairly or not to be discriminated against by the trustees. The rights of contingent beneficiaries to access financial and other information pertaining to the trust assets are limited to the extent that the information provided satisfies the beneficiaries that the trust is properly administrated.

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This article was prepared by Wildu du Plessis and Tristan Hussey .

[1] E Cameron, M De Waal & P Solomon Honoré's South African Law of Trusts 6 (2018) 2.

[2] Griessel NO and Others v De Kock and Another 2019 (5) SA 396 (SCA) paras 17 & 19.

[3] Kruth v Rall N.O. and Others 2023 (6) SA 514 (WCC) para 27.

[4] Kruth v Rall N.O. and Others (n 3 above) para 50.