Samuel Alfred Schoonhoven N O and Others v Pieter Cornelius Antonius Schoonhoven and Others

In 2006, Johannes Bernardus Alphonsus Schoonhoven (the founder) registered a discretionary trust called The Schoonies Family Trust. On 21 July 2010, the founder and his wife executed a will. The founder died in 2015. The Trust Deed included a definition of 'Capital Beneficiaries' which required designation from listed categories including: the founder and his wife (items i-ii), the founder's four sons (item iii), their lawful descendants (item iv), trusts created for their benefit (item v), juristic persons in which they hold shares (item vi), and testate or intestate heirs if none of the above exist (item vii). Clause 27 of the Trust Deed contained a 'testamentary reservation' giving the founder rights to: (1) determine the vesting date, and (2) prescribe the formula for distribution of the trust fund among capital beneficiaries. Clause 5.2 of the Will determined the vesting date as 15 years from the founder's death. Clause 5.3 stated that 'the Capital Beneficiaries will receive the net proceeds of the Trust in equal shares.' A dispute arose between the trustees (three of the founder's sons and another) and Mr Pieter Schoonhoven (the fourth son) about whether the trustees had discretion to designate capital beneficiaries, or whether the founder had already designated them in his Will.

• Did the founder's Will designate the capital beneficiaries of the Trust?
• What is the scope of the founder's 'prescription rights' under clause 27 of the Trust Deed – do they include both identification of beneficiaries and distribution formula?
• Can an exercise of discretion to designate capital beneficiaries validly include indeterminate classes that may or may not exist at the vesting date?
• Does the phrase 'the Capital Beneficiaries' in clause 5.3 of the Will refer to all persons listed in items (ii)-(vii) of the definition of capital beneficiaries?
• Do the trustees have discretion to designate capital beneficiaries when the founder has already exercised his rights under clause 27?

The appeal was dismissed with costs, including the costs of two counsel where so employed. The high court's order dismissing the trustees' application for declaratory relief was upheld, though on different reasoning than the high court employed.

Where a discretionary trust deed confers testamentary reservation rights upon a founder to prescribe the formula for distribution of trust assets among capital beneficiaries, and such rights are exercised in a will referring to 'the Capital Beneficiaries' receiving equal shares, this constitutes a valid designation of all persons falling within the defined class of capital beneficiaries, even where that class includes indeterminate sub-classes (such as trusts or juristic persons to be formed). Such designation is valid and binding provided the overall class is adequately specified, notwithstanding that: (i) specific members of indeterminate sub-classes cannot be identified at the time of designation; (ii) equal designation may lead to unequal results due to subsequent events; and (iii) the trust deed expressly permits allocative inequality. Once the founder has exercised such testamentary reservation rights, the designation is binding and trustees have no residual discretion to re-designate capital beneficiaries.

The Court made several obiter observations: (1) That discretionary trusts with wide discretionary powers, including powers to select beneficiaries, are well-established in South African law, provided beneficiaries or classes are adequately specified (citing Braun v Blann and Botha NNO and Smit v Du Toit). (2) That in a simplified case, if given the right to choose from x, y and z with no minimum or maximum specified, one has the following choices: x or y or z; x and y; x and z; y and z; or x and y and z – conceptually, choosing from a list allows for choosing all. (3) That the problem of indeterminacy regarding classes of beneficiaries is not confined to trusts and companies but extends to lawful descendants who may be born after the founder's death. (4) That there is no reason to suppose a founder intended to accord himself a more limited right of designation to exercise by discretion than the residual provision with which he was content in the event he did not exercise his discretionary rights. (5) That the freedom and paramountcy of testamentary prescription rights is clearly expressed in trust deeds that provide such prescriptions shall have preference and be binding.

This judgment clarifies important principles regarding discretionary trusts in South African law: (1) The scope of testamentary reservation rights in trust deeds must be interpreted purposively and can encompass both identification of beneficiaries and distribution formula. (2) A founder's discretion to designate capital beneficiaries can validly extend to indeterminate classes (trusts or companies to be formed, descendants to be born) provided the class itself is adequately specified, even if specific members cannot be identified at the time of designation. (3) The reference to 'capital beneficiaries' or 'the capital beneficiaries' in a trust context, absent contrary indication, should be interpreted to mean 'all capital beneficiaries' from the defined class. (4) Allocative inequality is permissible in the exercise of testamentary discretion under trust deeds where the deed expressly permits unequal distributions. (5) Courts will give paramountcy to the exercise of reserved testamentary rights where the trust deed makes such provisions binding. (6) The case reinforces Endumeni principles of contextual interpretation applied to trust deeds and wills, emphasizing fidelity to the founder's intention. This decision provides guidance on the interpretation of common clauses in South African discretionary family trusts, particularly regarding the interaction between trust deeds and wills where testamentary reservations exist.