In late December 2023 the highly anticipated Trusts and Succession (Scotland) Bill was unanimously passed by the Scottish Parliament, and is due to shortly receive Royal Assent. The Bill is the result of a decade-long reform project undertaken by the Scottish Law Commission to review and modernise Trust law in Scotland. There are also some important changes to inheritance law.
We will be providing detailed briefings on how the new provisions will affect trusts once the Scottish Government have confirmed when the law will come into effect, but here is a quick summary of the landmark changes ahead, in the meantime.
The new Act will modernise the existing statutory law on Trusts, that has remained largely untouched for over a century, and clarify certain aspects of the underlying common law. The majority of the current legislative framework is found in the Trusts (Scotland) Act 1921 which (unsurprisingly) is not considered to reflect the use of trusts in modern society. Further to this, the 1921 Act has over the years been amended in a piecemeal fashion which has resulted in law which is complicated for both practitioners to follow and for trustees to comprehend and implement their duties. As the law currently stands, it is quite inaccessible to lay trustees, resulting in the requirement for court action and legal advice to resolve misunderstanding. The Act is a welcome attempt to provide a framework for trusts which is clear, coherent and reflects modern conditions.
Trusts are used in many aspects of life as a way of managing assets, investments and property. Although perceived as something only exercised by the wealthy, many individuals will find themselves involved with a trust in one form or another in their lifetime. Examples of these include life assurance and pension policies which are commonly held within a trust structure. If you are thinking of or have a prepared Will, trust provisions for beneficiaries that are young or lacking mental capacity are common.
Notably, the Act changes the powers to appoint and importantly, remove trustees. Presently, the 1921 Act requires the trustees to raise a court action for the removal of a trustee who has become "insane or incapable of acting by reason of physical or mental disability or being absent from the United Kingdom continuously for a period of at least six months". This causes administrative delays and becomes a costly burden for trustees to remove an incapacitated or absent trustee. The new Act creates the ability for the majority of trustees to remove a trustee from office who is mentality incapable, convicted of an offense which involves dishonesty or imprisoned. As such this addresses a longstanding frustration of the inability to remove a trustee from office.
The majority of the Act’s provisions relate to the powers and duties of trustees, providing a list of additional powers in specific circumstances, such as further increasing the scope of the investment powers of a trustee. A trustee must maximise the trust fund for the benefit of the beneficiaries and under the new framework, trustees will be able to take non-financial issues (such as weighing environmental and ethical factors) into consideration when deciding how to invest the trust fund.
In particular, the Act will also seek to clarify the role of trustees and their duty of care towards beneficiaries of a trust, as well as the role of the court when representing beneficiaries under the age of 18. As trusts are commonly used to safeguard vulnerable people, for example young children whose parents have died, it is important that there is a modern and accessible legal framework so that trusts can be administered efficiently and fairly. The Bill provides greater flexibility to deal with incapax trustees without delaying the ongoing administration of trusts.
Further, the Act implements a duty for trustees to provide information to beneficiaries, under the current law this exists however the new Act places a statutory importance to do so. This creates better guidance and practice for those operating a trust. For example, trustees will be required to provide requested information to beneficiaries concerning a trust, so long as the trustees consider it appropriate to do so. Thus, creating discretion for trustees on what information is shared and does not create a detailed list of what information should and should not be released to beneficiaries.
We’ll keep you updated once we know when the changes will come into effect. In the meantime, if you have any concerns about the implications of the impending changes to the law or want more information, please contact our specialist Private Client team on 03330 430150.