News & Updates

Trustee Liability in Scotland – What’s New Following the 2024 Act?

Sarah-Jane Macdonald

Published bySarah-Jane Macdonald

5th July 2024

Trustee Liability in Scotland – What’s New Following the 2024 Act?

Whilst the majority of the Trusts and Succession (Scotland) Act 2024 (the “Act”) is not yet in force, anyone who is a trustee or advises trustees should now be familiar with the changes coming in.

A fundamental principle of trust law in Scotland has always been that trustees’ liability is limited to what is in the trust fund provided that the trustee had met their duty of care – to act as an ordinary and prudent person would in the management of their affairs. If a trustee breached that duty resulting in loss to the trust fund, remedies would be available to beneficiaries where personal liability could be sought.

Much of these principles evolved through case law, and, until now, there was no statutory definition of the duty of care. The 2024 Act now establishes a legislative framework that will soon apply to all trusts.

Has the duty of care changed?

s31 reflects the existing common law duty of care. However, it goes further and imposes a higher duty of care on those who act in a professional capacity. In such cases, the duty is to “exercise such skill, care and diligence as it is reasonable to expect from a member of the profession”.

This will apply to all trusts regardless of when they were created.

Given the increased potential liability, a thorough review of trusts may be necessary by businesses that have trustee company appointments.

What liability can trustees now face?

The wording of s36 caused concern to several stakeholders during the legislative process. It states that “a trustee only has personal liability for any loss to a beneficiary which results from: (a) the trustee’s own acts or omissions”.

It is understood that this was intended to limit liability to one’s own actions and re-state the position from the previous legislation, but the re-wording was troublesome. It did not limit it to situations where the loss occurred due to a breach of the duties owed.

In the final iteration, wording was added that this section is “subject to” the remainder of the Act. It is hoped that the Courts will follow the existing principles and that judicial authority will close any gap that remains.
s36 goes on to apply personal liability where there was a breach by a co-trustee if reasonable steps were not taken to stop such a breach occurring.

Is insurance the answer?

There are other remedies available to trustees in the Act, but s17 now provides authority that trustees may take out insurance to protect against personal liability. It also confirms that such cost can be met from the trust fund, despite some historic debate about whether that was appropriate.

Given the risk in relying on one of the other remedies, insurance can provide trustees with the comfort of that protection.

What’s next?

The trust provisions of the Act need further regulations from the Scottish Ministers to bring them into force. Meantime, organisations should take this time to review their trust banks and perhaps organise appropriate insurance.

 

This article first appeared in The Specialist 2024

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