In an increasingly international legal landscape, Scottish lawyers advising on trusts must be vigilant about the jurisdictional nuances that can arise in practice. There are many instances in which English law may apply to trusts being administered north of the border, even where that is not immediately apparent on the face of the trust deed. Failing to recognise when English legal advice is needed can expose advisers to professional risk and lead to flawed outcomes for clients.
The overlooked complexity of cross-border trusts
Trust law in Scotland and in England and Wales shares common roots but has diverged significantly over time. Scotland’s trust law is rooted in civil law principles, while English trust law is shaped by equity. This divergence means that even seemingly minor differences, such as the powers of trustees, the treatment of beneficiaries, or the rules around perpetuity, can have major implications.
Yet, in practice, Scottish lawyers may encounter trusts that are governed by English law without immediately recognising this, or the fact that English legal input may still be required on account of English-situs assets or beneficiaries. We would recommend English legal input is sought in the following scenarios:-
- Where the trust deed is not clear on its face that Scots law applies, and references to English legislation appear and/or the trustees are resident in England and Wales;
- Trust assets (in particular real estate) are located in England and Wales even in cases where the trust itself contains a governing law provision reference Scots law. The law governing real estate located south of the border will be that of England and Wales. This can sometimes cause a clash between Scottish trust principles and those of English land law, of which practitioners should be mindful. This is particularly acute in scenarios such as changing trustees.
Common pitfalls for Scottish lawyers
Some of the most frequent mistakes we see Scottish lawyers make in practice when dealing with trusts that may be governed by English law include:-
- Assuming Scots law applies by default
Without checking the express terms of the trust deed, or (if silent), considering the location of assets and key parties, advisers may wrongly apply Scottish principles. - Misapplying trustee powers and duties
English legislation typically grants trustees different powers to those conferred by Scots law. Advisers must be aware of these distinctions. - Appointing and discharging trustees incorrectly
In each jurisdiction, the statutory powers provided by law which relate to appointing and removing trustees are different and it is therefore essential the correct procedures are followed. If trustees are not properly appointed or discharged, a situation can arise whereby all actions taken are invalidated which can lead to severe consequences for compliance and tax purposes, but also for the personal interests of beneficiaries.
Best practice for Scottish lawyers
To mitigate these risks, Scottish lawyers should adopt a proactive approach when dealing with trusts that may have English law elements:
- Review the trust deed thoroughly
Identify and consider governing law clauses, key trust provisions, and any references to English legal concepts. - Identify any cross-border elements
Consider whether the residence of trustees, the location of trust assets, and the jurisdiction of any related entities, and whether the residence of key parties may mean that you have other laws overlapping with Scots trust law. If so, be mindful of the need to consider the interplay and consult appropriately qualified advisers in the relevant jurisdictions concerned.
Engage English legal advisers where appropriate
If the circumstances mean there are touchpoints with England and Wales (or indeed other jurisdictions), be mindful of the need to consider the interplay of the legal and (and sometimes tax) rules. Consult appropriately qualified advisers in the relevant jurisdictions concerned as early as possible.
In a UK-wide legal environment, Scottish lawyers must be alert to the possibility that the law of England and Wales may govern certain trusts — even when they arise in the context of Scottish work and clients.
Further, even where the trust law is that of Scotland, it is important to be aware that the law of England and Wales may govern the assets held within the settlement. By recognising the signs early and seeking appropriate English legal advice, Scottish advisers can protect their clients and themselves.
Trust law is complex enough without jurisdictional confusion. A careful, informed approach ensures that cross-border trusts are handled with the precision they demand. For more information on instances where English law may apply, please get in touch with our English personal law team.
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