In Sickness and in Health, ‘Til Death do us Part

A recent judgment, handed down In the Eastern Cape Division, considered the interpretation of a clause in a trust which appointed, as a beneficiary, ‘the lawfully wedded spouse of the FOUNDER’.

The circumstances were that the founder had become divorced from the person who was his spouse at the time of the formation of the trust (‘the first wife’) and had remarried. The founder later passed away and the remaining trustees sought the direction of the court as to whether the subsequent spouse (‘the second wife’) should be regarded as a beneficiary, having been the ‘lawfully wedded spouse of the FOUNDER’ at the time of his death. Accordingly, the question was whether she was entitled to be a beneficiary of income from the trust.

Two possible interpretations of the term ‘lawfully wedded spouse’ were canvassed. The first was that this referred to the spouse at the time of the founding of the trust, the second was that it referred to whomsoever may have been married to the founder at the time of his death.

The learned judge found that in such circumstances, where there were two possible interpretations of the phrase, it was entitled to take cognizance of the context and conduct of the founder and trustees as a means of interpreting what the drafter intended and should not apply an interpretation that was blind to such context.

In the light of the consideration that the first wife had continued to be treated as an income beneficiary and other such pointers, the court found that the term ‘lawfully wedded spouse of the FOUNDER’ referred to the first wife and that the trustees could, therefore, not treat the second wife as a beneficiary.

This sounds a clear warning to the founders and trustees of trusts to:

• clearly specify whom they intend to appoint as beneficiaries and, if circumstances change, then such changes should be made in the trust deed; and

• revisit the contents of the trust deed from time to time to ensure that they comply with their mandate.