Trusts and Succession (Scotland) Bill: A comprehensive overview

For over a century, the Trusts (Scotland) Act 1921 (the "1921 Act") has been the main piece of legislation governing trusts established under Scots law. While there have been amendments to the 1921 Act and additional legislation implemented over time, there have been calls for Scottish trust law to be overhauled in order to ensure it remains fit for the modern world. Those calls culminated in the publication of an extensive report by the Scottish Law Commission ("SLC") in 2014 with recommendations for reform. In light of the SLC's report, the Scottish Government committed to reviewing the current state of trust law in Scotland and, on 22^nd November 2022, the Trusts and Succession (Scotland) Bill (the "Bill") was introduced to the Scottish Parliament.

Trusts have an important role in society: they are regularly used in the management of wealth across generations and feature prominently in the pensions and life policy spheres. They are also used as part of structuring commercial enterprises. In light of the various uses of trusts, which the SLC itself underlined in its report, the changes envisioned to Scottish trust law by the passing of the Bill into law are worthy of attention. While the Bill continues to work through the legislative process, this blog gives an overview of some of the changes which it intends to make to Scottish trust law.

Resignation and removal of trustees

Under the current law, when a trustee decides that they no longer wish to continue in that office, they are afforded the power to resign under the 1921 Act. That power, however, is subject to important limitations: (i) sole trustees cannot resign unless a replacement is appointed; and (ii)where the trustee has accepted a legacy in return for taking office, or is appointed on a remunerated basis, unless the constitution of the trust – the trust deed – provides otherwise, they are not entitled to resign. The Bill would amend the current position slightly, by removing the restriction at (ii). However, the Bill still requires for there to be a replacement for a sole trustee before they can resign.

The Bill also attempts to cure what many deem to be an unsatisfactory state of affairs, in terms of what is required in order for a trustee to be removed from office. Currently, it is not uncommon for a trust deed to include provisions regulating trustees deciding to remove a fellow trustee from office. However, without such a provision, 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". In practical terms, it can be challenging, time consuming and expensive for trustees to discharge the evidential burden in court to remove a fellow trustee. The Bill seeks to remedy the situation by introducing the following mechanisms:

• The Bill provides for the removal of a trustee from office by a majority of the other trustees where the trustee is mentally incapable, is convicted of an offence which involves dishonesty, is imprisoned for an offence or for contempt of court / not paying a fine. This would apply regardless of the date that the trust was created. Notwithstanding the utility of such a change, commentators have pointed out that due care needs to be given to defining the term "mentally incapable" to avoid the possible abuse of the power where trustees disagree with one another, and to ensure that any such definition accords with associated mental health legislation.

• Although relatively rare under current law, and only where there is provision in the relevant trust deed, the Bill provides that a trustee could be removed from office by a unanimous decision of the beneficiaries of a trust. However, this power is subject to some restrictions, including that it would only be open to beneficiaries who are absolutely entitled to the trust property, aged 18 years old and capable of making such a decision.

• As is the case under current law, there remains scope for a trustee to be removed by an action in the courts. Under the terms of the Bill, such an action could be raised by the trustees, or indeed a beneficiary of the trust provided they were able to evidence that the trustee should be removed owing to, amongst other reasons, their being unfit for office, having neglected their duties or being incapable of performing the duties expected of them. Commentators have suggested that, if the Bill is to become law, there is clarity given on the meaning of some of the terminology to illustrate the circumstances when court involvement would be competent.

Trustee duties

Arguably one of the most important aspects of the role of trustee is the standard of care expected of them in discharging their duties. Under current law, the standard is generally understood to be an objective one: trustees are obliged to exercise the same level of care that "…a man of ordinary prudence would exercise in the management of his own affairs". The Bill revises the position with a view to providing a minimum standard of care owed by trustees, in that they will be expected to exercise "such care and diligence as any person of ordinary prudence would exercise in managing the affairs of another person". This would not be capable of dilution in a trust deed and would be the starting position under the Bill.

The situation would be different, however, under the Bill, depending on the trustee in question. Where a trustee is a person (natural or legal) whose business happens to be the provision of professional services in relation to trust management, they will be obliged to meet the standard of care which it is reasonable to expect from a member of that profession.

Further, where the trustee does not provide professional services in respect of trust management, but has professional qualifications and is asked to employ those qualifications to provide relevant services or advice to the trust - regardless of whether that is for payment or not - that trustee must exercise the standard of care reasonably expected of a member within that profession.

Another duty which can present challenges for trustees is the duty to provide information to beneficiaries. Under current law, trustees are obliged to provide certain information to beneficiaries when requested to do so. The Bill places this duty on a statutory footing but does not go so far as to detail the specific information which must be provided by trustees, beyond confirmation of their status as a beneficiary and details of the current trustees to facilitate correspondence. It obliges trustees to provide information requested by a beneficiary concerning a trust, unless the trustees consider it inappropriate to do so i.e., it is left to the trustees to determine what is / is not appropriate information to be shared. The provision is set to apply regardless of what the trust deed provides, with only a very limited exception for a particular kind of trust.

Conclusion

At the time of writing, the Bill is at Stage 1 of the legislative process and is being examined by the Delegated Powers and Law Reform Committee. Although the Bill will be subject to scrutiny and potential amendments in the coming months, it represents a significant step towards the modernisation of Scottish trust law.