The Supreme Court of Appeal (SCA) has affirmed the primacy of a testator’s wishes in determining how trust assets should be distributed, dismissing an appeal by trustees who sought to exercise their discretion over the distribution of a multi-million-rand family trust.
The dispute centred on The Schoonies Family Trust, established in 2006 by the now late Johannes Bernardus Alphonsus Schoonhoven.
The legal battle pitted the trustees—his three sons on one side and one on the other—over who had the final say in designating the capital beneficiaries upon the trust’s termination.
“Capital beneficiaries” refers to who or what receives the founding assets of the trust.
The three trustees approached the courts seeking an order that gave them the authority to select who among the individuals in the list of potential beneficiaries would receive the trust capital.
Their brother, Pieter Schoonhoven, contested this, arguing that their father had already exercised this right himself through his last will and testament, executed in 2010.
In a unanimous judgment penned by Justice David Unterhalter, the SCA found in favour of Pieter Schoonhoven, upholding the decision of the Pietermaritzburg High Court, albeit for different reasons.
The SCA’s analysis hinged on the interpretation of clause 27 of the trust deed, which contained a “testamentary reservation”.
This clause granted the founder the right, via his will, to determine the trust’s vesting date and to “prescribe the formula for the distribution of the trust fund among the capital beneficiaries”.
The founder had explicitly set the vesting date as 15 years after his death and stipulated that “the capital beneficiaries will receive the net proceeds of the trust in equal shares”.
The trustees argued that the wording of the will was insufficient to constitute a full exercise of the founder’s right to identify the specific beneficiaries.
They contended that the phrase “the capital beneficiaries” was vague, especially since the list of potential beneficiaries included open-ended classes such as “lawful descendants” and future trusts or companies created for beneficiaries.
They claimed this ambiguity left the designation power with them.
The SCA soundly rejected this argument. It held that the founder’s rights under the trust deed were “widely framed” and included the freedom to designate beneficiaries, even from “broad and undetermined classes”.
“The right to choose from the ranks of listed beneficiaries allows for the choice of all,” Unterhalter stated, adding that the founder’s use of the definitive phrase “the capital beneficiaries” in his will, mirroring the language used in the trust deed’s default distribution clause, clearly indicated his intention that all persons listed as potential capital beneficiaries should benefit.
The court further dismissed the trustees’ concern that this interpretation could lead to “allocative inequality”, where individuals might receive vastly different effective shares due to differing numbers of descendants or the creation of multiple trusts.
The judgment noted that the trust deed explicitly permitted unequal distributions, and such potential outcomes were a permissible incident of the founder’s broad discretionary powers.
The court concluded that the founder had validly and bindingly exercised his right to designate all persons within the defined classes as capital beneficiaries.
Consequently, the trustees had no remaining discretion to exercise; hence, their application for declaratory relief was correctly dismissed by the Midlands court.
