News & Updates

Trust Litigation in Scotland - Changes on the Horizon

Sarah-Jane Macdonald

Published bySarah-Jane Macdonald

18th March 2024

Trust Litigation in Scotland - Changes on the Horizon

With Royal Assent being granted to the new Trusts and Succession (Scotland) Act 2024 (the “Act”) on 30 January 2024, Scotland is embarking on a wholescale reform of trust law.

Whilst most of the Act merely codifies the law as it has always been understood, there are several new provisions that could give rise trust litigation, covering Trustees, Powers and Terms & Routes.

Trustees
Duty of Care
Historically, Scotland has not required any greater duty of care by someone acting in a professional capacity, e.g., a solicitor or accountant. s31(2) of the Act now requires such a trustee “to exercise such skill, care and diligence as it is reasonable to expect from a member of the profession in question”.

Although there is no case law on this point yet, it was suggested during the consultation process that practitioners should refer to professional negligence cases.

This opens the door to potential litigation that might otherwise have failed were it not for a trustee’s profession. This can’t be used retrospectively for breaches that occurred before the section is enacted, but it does apply to all trusts (including those created before the new Act).

Ability to Remove
Practitioners have welcomed the provisions allowing the removal of an incapable trustee without recourse to the court (s9(1)). Whilst in most cases this will offer a practical solution, it is open for abuse.

Take for example, two sibling trustees that do not get along, one perhaps with difficulties but who could (with support) continue to act. The “capable” trustee could unilaterally remove their sibling and assume trustees aligned with their own interests. Such trustees could then appoint the trust fund to the entire exclusion of the removed trustee (or their family).

There appears no statutory recourse to a removed trustee to contest this decision, albeit the commonlaw nobile officium could be an option. However, such a party may have to act quickly to seek Interdict from the court to stop their co-trustee from taking any actions meantime.

Powers
Protectors
Chapter 7 of the Act formally introduces the concept of protectors. Whilst this generally brings Scotland in line with other jurisdictions, the Act (s53(2)) has given an unfettered ability to give protectors any powers that a settlor sees fit – for example powers to direct that the trustees appoint assets to a certain beneficiary, or to direct the removal of a party.

This could be subject to litigation where a settlor appoints themselves as protector and the trustees have their hands tied to only do as the settlor directs. Scotland doesn’t have the concept of a “sham” trust, as England
& Wales do, but it could certainly be argued in the future. Likewise, HM Revenue & Customs may be inclined to
challenge such trusts.

More broadly, any action raised by a beneficiary would still, by default, be against the trustees. Trustees would
then need to rely on s57 to seek that the protector be personally liable.

Delegation
s22 of the Act allows trustees to appoint agents and whilst s22(5) does restrict this by stating certain powers cannot be delegated - this is overruled if “the trust deed expressly provides otherwise”.

Much like protectors, it opens the doors for dispositive powers to be exercised (and abused) by non-trustees.
Whilst the trustees would have recourse against the agent to hold them to account for any troublesome actions,
beneficiaries would still have a right to seek redress from the trustees.

Trustees would need to defend their decision to appoint the agent, and their supervision over the agent that allowed the breach to occur.

In practice, trustees ought to seriously consider delegating such powers given that liability can ultimately rest with them.

Terms & Routes
Change of Trust Purposes
s65 introduces a new court action available to various parties to have a trust’s purposes changed if there
has been a material change in circumstances. This is open to a very wide class including the settlor and any
descendant of the settlor – even if they are not potential beneficiaries of the trust.

This has never been possible before and the uses of the section seem
unlimited. One potential use would be for a scorned party who was excluded from a Will to seek entitlement to a trust created under a Will, or an inter vivos trust by the deceased. They would need to show that there had been a “material change in circumstances” and persuade a court that it the purposes ought to be altered.

Provision of Information
s29 now sets out what information trustees ought to provide to a beneficiary, and what is, generally, regarded as being excluded (e.g., letters of wishes and minutes of decisions).

However, it also allows a range of people to seek the court to overrule a trustees’ decision not to disclose
information. Much like s65 (above), it is open to any potential beneficiary and certain non-beneficiaries.

A caveat was included that persons could only do so if their interest was not of “negligible value”. That
could open a debate as to whether an action would be competent, before even considering the basis of
their request.

When Will This Be In Force?
With all these changes afoot and new case law that has yet to be developed, it should be noted that the Act is not yet in force. The Scottish Ministers are required to introduce further regulations enacting the sections, which could be done in a piece-meal fashion.

That said, anyone acting for parties who are beneficiaries of Scottish trusts, or where the domicile of a trust may be in question, should be live to the changes now and taking advice as appropriate.

 

This article was first published in ThoughtLeaders4 Private Client Magazine.

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