Discretionary trust

Case Summary of Tan Sri Dr M Mahadevan v. Dr Jeyalakshmi Ratnavale & Ors [2017] 6 CLJ 49 (Court of Appeal)

Brief Facts :-

The original suit was brought by Dr. Ratnavale (the Appellant), where the Appellant (Tan Sri Dr Maha) and second Defendant were appointed as executors and trustees. Ratnavale passed away on 9 April 1973 and on the date of his death, the eight beneficiaries mentioned in the will were alive. The trustees of the Ratnavale’s will had not exercised their discretion in respect of the distribution of the properties of the Ratnavale estate as provided for in the will and 2 of the beneficiaries, i.e the testator’s wife, Annalakshmi, and mother, Ratnamal, had since passed away. The remaining beneficiaries were the 6 children of Ratnavale, the respondents in this appeal. The Respondents applied to the court to terminate the trust created under Ratnavale’s will and prayed for all the properties of the Ratnavale’s estate be distributed equally to the respondents as the surviving beneficiaries to the trust. The HC ruled that Ratnavale’s will be terminated and that the two properties be transferred to the respondents. Hence, the appeal by the appellant and the issue for determination, in essence, was whether the named beneficiaries in Ratnavale’s will who had survived the testator but subsequently died remained as beneficiaries and were entitled to the distribution of the Ratnavale’s estate.

Held :-

  1. The COA ruled that beneficiary under a discretionary trust had no immediate right to the trust property. The only right of a beneficiary of a discretionary trust is to require the trustees to consider from time to time whether or not to apply the whole or some part of the income for his benefit.
  2. The Court will look only at the construction of the will and the intentions of the testator in Ratnavale’s will, and the only way to execute the will. The words used in   the will must be given the meaning which was rendered necessary by the context of the whole will in that a particular passage must be read together with whatever was relevant in the rest of the will to explain it.
  3. The testator gave all of his properties to his late wife, his late mother and all of his 6 children. However, since the said will had created a discretionary trust, therefore the trustee ought to exercise their discretion in allocating the discretion as they deem fit.
  4. The Court also ruled that a discretionary trust does not automatically give rise to disenfranchisement upon the death of any of the beneficiary, because there were no provisions in the will that give rise to this. Hence, the representatives of the estate of the wife and mother of Ratnavale were entitled to demand their ‘equitable chose of action’ to be remitted to their estate so that they could compel the executors to carry out the terms of the trust. Every beneficiary in a discretionary trust has the legal right to challenge the decisions of the trustees if that decision was arrived at in bad faith or illegal even though the testator had given the trustees a full discretion to determine the proportion to be given to the beneficiaries. Such a legal right can only be taken away by clear words. However, there was no intention to disenfranchise the deceased beneficiaries in the mother and the wife from the estate.
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