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Analysis: The Trusts and Succession (Scotland) Act 2024

Sarah-Jane Macdonald

Published bySarah-Jane Macdonald

2nd April 2024

Analysis: The Trusts and Succession (Scotland) Act 2024

Analysing the current state of Scots trust law following the passage of new trust legislation

Trust law in Scotland has been through a journey over the past year as a Bill set to reform it made its way through the scrutiny of the legislative process. Royal Assent was granted on 30 January 2024, yielding in the new Trusts and Succession (Scotland) Act 2024 (the “Act”).

The Act has largely been applauded by practitioners as long over-due and much-needed, having been over 100 years since the last substantial reform of trust law.(1) Indeed, the Act does a great many things to bring Scotland in line with other jurisdictions, and to assist with the practicalities of managing trusts. But with the peaks, also come some troughs, and the journey will continue as practitioners navigate their way through the new Act and traverse new problems.

What are the highlights of the Act?

Firstly, it must be borne in mind that this is a whole-scale reform of trust law, and one of the key things that the Act does is to consolidate the various historic legislation, together with some common law principles, into one single codified piece of legislation that will now govern all trust law in Scotland. That alone is no mean feat.

The Act does go much further than a mere re-writing of the existing law, as it addresses some practical problems and introduces new concepts into Scots law.

These “highlights” include:-

• s4 which provides for a general conveyance of trust property where trustees are appointed (other than by deed of assumption and conveyance);

• s6 which now provides a statutory basis for an attorney or guardian to be able to resign office on behalf of an incapax trustee, which historically was a point for debate whether such an act could be delegated by a trustee (2);

• ss7-8 now also give a statutory recourse to the court to seek the removal of a trustee (which, historically, could only be done under common law by application to the nobile officium) (3);

• s9 gives co-trustees the ability to remove one of their own in certain circumstances including where a trustee is incapable or has had some form of arrest – however, whilst giving with one hand, this is one area where the Act may not adequately deal with all scenarios;

• s9(2) is worth a particular mention as it allows co-trustees to remove a trustee who was appointed by virtue of their profession – after several issues with ex-solicitor trustees seeking indemnities and payment before they will resign, this will be a massive relief to former clients who previously had no recourse for “Family Protection Trust issues ”(4);

• s16 lessens the burden when applying to court for a power not available under the trust deed, whilst the previous law required the powers sought to be necessary or “expedient” for the administration of the trust, s16 only requires it to be shown that the powers provide some benefit;

• s19 provides clarity (or perhaps comfort) to trustees that in making investment decisions they may have regard to non-financial considerations too, (for example, ethical or social considerations) – unfortunately this does not apply retrospectively to trusts created before the Act comes into force;

• s21 confirms that sales and purchases of heritable property between charities can be at less than market value, but like s19 it does not apply retrospectively;

• s31(2) now applies a higher duty of care on professional trustees, being the standard as would be expected from a member of that profession - this now aligns with what many lay persons assume to be the case, and may allow litigation against such trustees which previously could have failed if professionals were merely held to the standard of a lay-trustee; and

• s65 introduces brand new law, which allows for the trust purpose to be altered if there is a “material change” in circumstances – this provision seems to open the door for what could be some fascinating case law as it can be utilised in a number of creative ways by trustees, beneficiaries and other parties alike.

What are some of the “troughs” to be aware of?

During the legislative process, the STEP Scotland Committee, together with other organisations including the Law Society of Scotland and the Faculty of Advocates, consulted with the Scottish Government on key issues within the Bill. Amendments were introduced at Stages 2 and 3 of the process to address some of these concerns. However, there remain a number of sections that are either open for interpretation, clash with one another, or just don’t quite go far enough.

Appointment of Trustees
Following the introduction of the Bill to Parliament, various parties commented that whilst the removal of trustees sections were fairly robust, the sections relating to appointments (ss1-2) were lacking. This was mentioned during the evidence hearings at Parliament and in the Consultation process. Regardless, no changes were made to expand these sections.

It remains the case that if a trust has no trustees, or no capable/traceable trustees, that a court application is required to seek the appointment of new trustees.

During Consultation, two additions were proposed to assist in these scenarios and to reduce unnecessary court actions, namely:-
• to allow the executors of the last trustee to die to appoint new trustees (akin to the ability to do so under the Trustee Act 1925 applicable in England & Wales); and
• to allow the beneficiaries of a trust where they are absolutely entitled (and over 18) to appoint new trustees.

Both would have solved this very common problem – particularly with life policy trusts where the trustees have not survived the death of the life assured.

Whilst the latter would have narrower application (as there are methods of transferring trust property to beneficiaries who are absolutely entitled), there are various bare trusts that must remain active – for example, personal injury trusts where transferring assets to the beneficiary would be detrimental and trustees are required.

Concerns were raised around non-trustees appointing new trustees. However, given that any trustee appointed in this manner would be governed by the Act and would have the same duties and potential liability as a court appointed trustee, it appears to have been a missed opportunity to address these issues.

Removal of Trustees - Incapacity
Mentioned as a highlight is the new s9 ability for co-trustees to remove one of their own in certain circumstances without recourse to the court – including the ability to remove an incapable trustee. In the majority of cases, this will provide a practical way to remove a genuinely incapable trustee.

That said, it places the decision as to whether a person has capacity on the co-trustees, which could be abused in practice. An example may be a trustee that has mental health difficulties and has bad spells, albeit they can perform their duties with support. If there are only two trustees who do not get along, the co-trustee could make a unilateral decision to remove the apparent incapable trustee, leaving them as sole trustee.

In contentious family situations where different families are to be provided for in terms of a trust, it could also result in a single sole remaining trustee favouring their family to the exclusion of all other parties.

Whilst that may appear a rather draconian example, the Act would allow it.

s13(2) deals with steps that trustees must take to make such decision, which includes giving a trustee who is to be removed both (a) adequate notice that the decision is to be made, and (b) an opportunity to express an opinion in the matter before the decision is taken.

That said, there is nothing in the Act to allow such a trustee to stop such a decision being made.
Without any other means in law to do so, an action could potentially be raised via the nobile officium to argue the point. However, in practice, a trustee is likely to need to take other steps to stop their co-trustee from taking any actions with the trust fund meantime.

Removal of Trustees – Criminal Offences
this will include where a trustee is (per s9(1)):-
“…(b) convicted of an offence involving dishonesty,
(c) sentenced to imprisonment on conviction of an offence, or
(d) imprisoned for contempt of court or for not having paid a fine”

To put this in context, there had been calls to the Scottish Government to update the law, particularly where situations arose where a deceased’s killer could be their executor. A public appeal was made to pursue reform on the requirement to seek the removal of an executor in this situation. s8 deals specifically with this point and sets out the requirements for a court action.

However, s8 does still require a court action. s9 can only be implemented if there exists a co-trustee to exercise the power - it cannot be exercised by beneficiaries or third parties.

In addition, s9 will not apply where the conviction, sentence or imprisonment occurred before the section is enacted. This means that even where there do exist co-trustees to effect a removal, a court action may still be required depending on the timing.

Aside from the “killer executor” issue, which caused the public outcry, there were also similar concerns raised around other convictions. For example, a trustee may have been convicted of sexual assault or domestic abuse, but potentially be in a position where they are over-seeing the trust fund for their victim (which could further exacerbate any abuse). Court action to justify their abuser’s removal may be too intimidating a prospect and could put parties off doing so.

From a public policy point of view, it is unfortunate that s9 does not go further in this regard.

Decision making & signature of documents

One area where the Act is inconsistent is in relation to the ability to make decisions and then implement decisions.

s13 deals with the making of decisions, and it confirms that trust decisions can be made by a majority “of those for the time being able to make it”. However, ss44 and 79 deal with the signing requirements to implement trustee decisions, both of which require a strict majority of the trustees.

Take for example a trust with four trustees, albeit two have wavering capacity, it would be possible under s13 for the two capable trustees to validly make a trust decision. However, if a document required to be signed to implement it, they could not follow through on that decision.

This resulted from various feedback from conveyancers who raised concerns about evidencing whether there was a majority of trustees “for the time being able” to sign such documentation. It was argued, strongly, by private client professionals that if two trustees were to hold themselves out as being such a majority, then any deed signed by them should, on the face of it, be accepted as there are sufficient provisions to deal with a situation where the trustees have acted improperly in doing so.

Despite this, it seems the conveyancers won, and the requirements for a strict majority remain.

This may require some trustees to be removed from office between decisions being made and documentation being signed. As noted earlier, for that to happen there must be intimation and an opportunity for the trustees to express an opinion before the removal. If there are decisions requiring to be made and implemented timeously it may mean trustees either miss out on potentially lucrative opportunities, or they breach their duties and remove a co-trustee without undertaking all proper procedures.

This has both unlocked how trustee decisions can be made, and also tied one hand behind trustees’ backs to impede onward implementation.

Delegation of Agents
s22(1) confirms trustees may delegate “the exercise of any of their powers”. Whilst s22(5) does curb this by stating certain powers cannot be delegated, this is overridden if “the trust deed expressly provides otherwise”.

It therefore appears that settlors could now permit any and all powers to be delegated, including those otherwise prohibited under s22(5) – for example, who to appoint as trustee, who to distribute to and other powers historically reserved to trustees.

In practice, it may be unlikely that trustees would choose to delegate any such powers to an agent given the potential for litigation if the agent were to act improperly. If trustees have delegated powers and not adequately supervised the agent, which resulted in the breach then they can face personal liability (and may not be able to recover it in whole from the agent).

This appears to go much further than was anticipated. It was suggested during the legislative process that the s22(5) restrictions should apply regardless of what the trust deed says to prohibit those traditionally dispositive powers (rather than administrative powers) from being delegated. However, it was felt that because it requires both the express provisions by the settlor to provide such powers and also a decision by the trustees to exercise them, that protections were in place.

Whether such powers become a feature in Scots law will remain to be seen.

Trustees’ duties to provide information
s29 sets out the requirements for trustees to provide certain information to beneficiaries, whilst confirming Letters of Wishes and Minutes relating to decisions can be withheld. If trustees refuse to provide information, s30 does allow applications to be made to the court to seek disclosure by the trustees.

The class of persons who could raise such an action were incredibly broad, and covered any “potential beneficiary” and also persons who had no interest in the trust (but were a descendant of the settlor, for example). During the amendments, these actions were restricted so that they would not be entertained by persons whose “interest in the trust is, or would be, so remote as to be of negligible value”. This brought it in-line with parties who would be advised of a potential trust variation, i.e. those with a genuine interest.

That said, it may not stop the vexatious litigator. If they are within the scope of persons permitted to raise an action, it would be for the trustees to argue that the action should not proceed on the basis the party’s interest is of negligible value. This may still have cost implications for the trust.

Accumulation Periods
s45 ought to be lauded as one of the highlights of the Act as it abolishes accumulation periods for trusts – something many practitioners were keen to see.

The original wording of the Bill meant that it would not apply retrospectively to trusts created before the Act was in force. However, during the legislative process feedback was given that it ought to be. The Bill was amended, and accordingly, s45(5) now states that it can apply to trusts pre-dating the Act if “the trust deed expressly provides for accumulation in anticipation of any change in the law”.

Leaving aside how one might interpret whether a trust deed has expressly provided for a change in law – one of the key questions raised with the Scottish Government in the consultations was whether it could apply if an accumulation period had already ended. For example if a trust did have sufficient wording in it, but the accumulation period ended 10 years ago and all income was paid out now – could the accumulation period be “re-opened”, as it were, to allow accumulation again – or would the original period stand. In other words, is this just to apply to trusts where the accumulation period has not already ended.

There was a clear disparity in the responses as to what will apply. The legislation does not confirm the position, so if trustees are faced with a decision to re-accumulate or not, directions may need to be sought from a Court for clarity (unless there is another means of agreeing the position – e.g. by agreement with the beneficiaries).

The role of Protectors

Much like the issue with s22 and the appointment of agents, a similar issue arises with protectors. s53 (2) states that a trust deed can confer “powers” on protectors without restriction.

A saving grace for trustees is that s57 provides some protection from personal liability where they have complied with the direction of the protector. It is not absolute protection as the trust deed could overrule this, and, it is unclear whether a beneficiary could raise an action directly against a protector or if it would be against the trustees who could then seek to rely on s57.

Is this the end of the journey?

Royal Assent is not the end of the story, it is just the beginning. How the Act is implemented in practice will be down to how practitioners interpret and implement the provisions. This may give rise to professional practice developing in one or more areas, case law in others, or perhaps further amendment by the Scottish Parliament if appropriate.

At this time, the sections relating to succession (ss 76 – 77) will automatically come into force 3 months’ from Royal Assent being granted, but further regulations are required to enact the remainder of the Act.

NOTES:

(1) John McArthur and Sarah‑Jane Macdonald, ‘A century in the making’, Trust Quarterly Review, Vol20 Iss2 (2022)

(2) Under s.83(a) of the Act, ‘incapable’ (and related expressions) is defined in accordance with s.1(6) of the Adults with Incapacity (Scotland) Act 2000 (fundamental definitions), but with the modification that the reference in the
closing words of that definition to any provision of that Act is to be read as to
any provision of this Act.

(3) In Scots law, literally the noble power or office of the Court of Session. It allows the Court of Session to exercise its equitable discretion to modify the common law or to grant relief in a situation where no provision exists under
the ordinary law.

(4) In particular, the action group (known as ‘Victims of McClure Solicitors’) represents concerns of parties who set up family protection trusts with WW and J McClure Solicitors prior to its going into administration, and this section might be of some assistance to those parties. However, there are other firms who have promoted similar products and their clients may face these same problems, albeit they are not part of this campaign. It was recently reported that the action group met with Police Scotland and registered a complaint of criminal activity; however, it is unclear at this time what the outcome of that complaint may be, bit.ly/3TogLqs

 

This article first appeared in STEP Trust Quarterly Review.

 

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