Trusts have been used in many aspects of Scottish life for centuries and are traditionally used as a way of managing assets, including money, investments or property, for others. Although there is a perception that trusts are only for the wealthy, many of us have had some involvement with a trust in one form or another, perhaps without realising it.
For example, many people have life assurance policies which are written in trust. More common are pensions, which in the vast majority of cases, are held within a trust structure. Executors of a deceased person are, technically speaking, trustees, and subject to the rules regulating trusts. Additionally, Wills commonly set up formal trusts so that trustees can look after assets due to young children, or beneficiaries who might be vulnerable in other ways, for example because of a disability.
In modern Scotland trusts play a significant role in everyday life for many of us, yet the main law that deals with trusts is now over 100 years old and urgently in need of reform. The last major piece of Scottish legislation dealing with trust law, the Trusts (Scotland) Act 1921, celebrated its 100th birthday in August 2021. The 1921 Act is inaccessible to many lay trustees, and the requirement for legal advice and, often, court action to resolve common issues is off-putting, meaning Scotland is at a disadvantage compared to other nations.
The Trusts and Succession (Scotland) Bill which is currently making its way through the Scottish Parliament has therefore been warmly welcomed by the legal profession. The Bill is undergoing careful scrutiny and will be subject to further adjustment before becoming law, hopefully in the course of 2024.
However, the provisions of the Bill are not merely of a technical nature and only of interest to lawyers. The Bill significantly reforms Scottish trust law and will affect anyone who sets up a trust, and anyone involved in the running of a trust as a trustee, as well as beneficiaries.
Some of the main innovations of the new law include:
- Dealing with trustees who have lost decision-making capacity. The law will provide greater flexibility to deal with incapable trustees without hindering the ongoing administration of the trust;
- Powers of investment. In general terms, trustees are obliged to maximise the trust fund for the benefit of the beneficiaries. However, in terms of the new Bill, trustees are specifically permitted to take non-financial considerations (e.g. ethical or environmental considerations) into account when deciding how best to invest the trust fund.
- Beneficiaries’ right to information. The current law is unclear as to what rights beneficiaries have to obtain information on a trust from the trustees. The new Bill includes a statutory duty to provide certain details to beneficiaries in particular circumstances.
- Rules on the accumulation of income. Broadly speaking, current law provides that after 21 years have elapsed, any income generated in a trust must be paid out to the beneficiaries. The new Bill removes any such restrictions, allowing trustees to accumulate income for as long as they feel is appropriate.
An overhaul of Scotland’s trust law is long overdue, and the new Bill will go a long way to consolidate much of it in one place and bring it materially up to date. The Bill is wide ranging and ambitious, and there are many more aspects of trust law that are being reformed in addition to those described above, it is important to be aware of these changes and their implications before they become law in 2024.
*This article originally featured in The Scotsman on 27 November 2023.
The Trusts and Succession (Scotland) Bill passed its final stage in the Scottish Parliament on 20 December 2023 and is expected to receive Royal Assent early 2024.