When my father drafted his will many years ago, he was advised that he could determine, in his will, how the assets of the family trust (of which he was the founder) had to be distributed amongst the beneficiaries. Is this legal, and if so, what are the effects thereof?

Many trust deeds, especially the ones drafted in the 80's and 90's, contain what is called a "testamentary reservation" in terms whereof the trust deed provides a specific person (often the founder or one of the trustees) with the power to determine in his or her will, certain aspects, for example, the trustees' remuneration, the vesting or termination date and/or the formula for the distribution of the trust assets (and or income), either during the existence of the trust or at the termination thereof.

This power is nothing other than a contractual right given to (or reserved for) a person to amend the trust deed unilaterally (i.e. on his own, without participation of the trustees or beneficiaries) by using a will for that purpose. If the testamentary reservation is utilised incorrectly in a fully discretionary trust, it can result in the vesting of certain rights in a beneficiary, thus causing the protective nature of a trust as well as its flexibility thereof to be lost. This can of course also result in unwanted and unnecessary tax implications.  

When exercising these powers, one has to do so cautiously and in a strict sense, for example, if the power is reserved to prescribe the formula for the distribution amongst the beneficiaries upon termination of the trust, the reserved power will not allow the person to state that one of the beneficiaries shall be the sole beneficiary and thereby disregard the other beneficiaries. 

Another negative aspect of exercising such a reserved power to vary the trust deed is that it may be indicative of an element of control of the trust which can result in the trust being regarded as such person's alter ego and which can also have negative estate duty implications.  

The testamentary reservation should preferably not be used and, if used, then only with great caution. It is recommended that, if a person wishes to or has the need to give some guideline to successor trustees, it should rather be done by way of a mere indication of a wish in a properly drafted letter of wishes, clearly indicating that no legally binding obligation can flow from such a mere wish.