This blog post provides an update on what happened at Stages 1 and 2 of the Trusts and Succession (Scotland) Bill (‘the Bill’). This is in advance of Stage 3 consideration of the Bill on 20 December.
Background to the Bill
This technical piece of legislation is a Scottish Government Bill, introduced on 22 November 2022. It originated in the work of the Scottish Law Commission (‘the Commission’). This is the statutory body which makes recommendations for law reform to Scottish Ministers.
What the Bill does
Part 1 of the Bill, making up most of the Bill and split into eight chapters, would substantially reform the law relating to trusts.
A trust is a legal device for managing assets, enabling assets to be owned by trustees, while others (the beneficiaries) gain advantage from those assets in practice.
Trust law is important because trusts are used extensively, for a wide variety of purposes. For example, they are used in commerce, including in the financial services sector; they are used by charities and other public interest bodies; and they are used by families.
Part 2 of the Bill covers succession law, sometimes called inheritance law. This is the law which says who inherits when someone dies and in what order. This has proved a tricky area to reform in practice. Accordingly, Part 2’s handful of provisions are limited to issues on which there was stakeholder agreement.
A SPICe Briefing, published in advance of Stage 1 consideration of the Bill, looks at Part 1 and 2 of the Bill in detail.
Stage 1
The Delegated Powers and Law Reform Committee (‘the Committee’) was the lead committee for Stages 1 and 2 of the Bill.
The Committee’s Stage 1 consideration took place in May and June 2023 and its Stage 1 report was published on 15 September. The Scottish Government’s response to the Committee’s report, dated 26 September, accepted some key policy recommendations from the Committee.
The Stage 1 debate was held on 28 September, where the general principles of the Bill were agreed to.
Stage 2
Stage 2 consideration took place on 14 November. There were a range of government amendments lodged and agreed to, many of which were based on the Committee’s earlier recommendations.
Jeremy Balfour MSP also lodged amendments on a variety of topics, and some of these amendments were also agreed to.
The remainder of this blog post sets out in more detail what happened at Stage 2. It focuses on the main policy issues, rather than an exhaustive coverage of Stage 2. The description is of government amendments agreed to, unless otherwise stated.
The main amendments at Stage 2
Removal of certain professionals as trustees
Amendment 6 related to a situation which arose when the law firm, McClures, went out of business.
Solicitors of the firm had acted as professional trustees for their clients’ trusts, that is, they provided these services as part of their business. After the firm folded, the Scottish Government said that the trustees were only willing to resign from the trusts in exchange for payment.
Consequently, under the (amended) section 7 of the Bill, trustees can now remove a trustee without going to court in an extra set of circumstances (compared to the Bill as introduced). These are where the trustee in question is no longer, or entitled to practise as, a member of a regulated profession (that is, a solicitor; accountant; financial adviser; or teacher).
Unlawful killers
New sections 6A and 73A of the Bill, inserted at Stage 2, deal with those convicted of, or being prosecuted for, murder or culpable homicide. They clarify that such individuals are unfit to be the executor of the victim’s estate and, as such, can be removed from this role by the court (amendments 5, 38 and 39). A recent, high-profile case had highlighted some legal uncertainty on this issue.
Incapable adults
A new section 75A of the Bill, inserted by amendment 43, and important in the context of Part 1 of the Bill, covers the definition of incapable.
This is incapable in the sense of an adult who, by reason of a disability or other condition, cannot manage their own affairs. Beneficiaries might be incapable (one reason for setting up a trust) and beneficiaries and trustees may later become incapable, for example, if they suffer from dementia in old age.
The new provision will make it easier to change the definition of incapable in future to respond to any wider changes in capacity law. This is important in the context of the final report of the Scottish Mental Health Law Review, which recommended significant reforms, and to which the Government responded earlier in the year.
In the meantime, amendment 4 usefully clarified that the guardian of an incapable adult could consent to their removal as a trustee.
Jeremy Balfour MSP also lodged amendment 46, one effect of which would have been to make it harder for trustees to act together to remove an incapable trustee outside a court process. This was disagreed to.
Ethical, social and environmental investments
A new section 17A of the Bill, inserted at Stage 2, covers trustees’ powers to invest. It makes it clear that, unless the legal document creating the trust says otherwise, ethical, social and environmental considerations are relevant when trustees are choosing between otherwise comparable and suitable investments (amendment 11).
Jeremy Balfour MSP also lodged amendment 47 relating to the sale of land and buildings by one charitable trust to another. This amendment was disagreed to. The Minister for Victims and Community Safety, Siobhian Brown MSP, expressed concern here about unintended and unforeseen consequences for the charitable sector (Official Report, cols 23 and 24).
Trustees’ duties to provide information
Sections 25 and 26 of the Bill contain new duties on trustees to provide information to beneficiaries and potential beneficiaries about the trust, including on request.
The provisions were amended (via amendments 18 and 21) to somewhat narrow their scope. The aim was to stop a person having a right to information where that person is a) technically a potential beneficiary; but b) has a very limited chance of becoming a beneficiary in practice.
The duration of a trust
Section 41 of the Bill contains technical provisions affecting how long trusts last in practice. It does not apply to charitable trusts, which are also charities and subject to charities legislation.
Amendment 58, in the name of Jeremy Balfour MSP, would have included charitable trusts in the scope of section 41. Here, the Minister said that the Government and OSCR, the charities regulator, had “serious concerns” about unintended consequences for these trusts (Official Report, col 29). The amendment was disagreed to.
The protector’s possible powers
Section 49 of the Bill confirms it is competent under Scots law to appoint a protector to a trust. A protector is an individual who oversees the work of the trustees. Protectors were originally used for offshore trusts.
At Stage 1, some academic stakeholders had significant concerns about one of the example powers for the protector listed in the Bill. Amendment 24 simply removed that list in its entirety.
Altering the trust purposes
For certain trusts, mainly trusts used by families, section 61 of the Bill allows those with an interest in the trust to apply to the court to change its trust purposes, that is, what the trust is aiming to do. This power is available where there is a material change of circumstances.
Section 61 in the Bill as introduced also allowed for a (default) period of twenty-five years before an application can be made to court. Section 61, as amended, does not have this time-related requirement (amendments 25, 28-30).
Expenses of litigation
Section 65 of the Bill relates to the situation where the trustees become involved in litigation on behalf of the trust and, specifically, who pays the legal bills of both sides in that dispute.
On occasion, trust assets may be insufficient to cover legal expenses. Section 65, as amended, aims to make it much less likely (compared to the original provision) that trustees will end up liable, out of their own personal funds, for legal expenses in that situation (amendments 33-37).
Which court?
Under section 74 of the Bill, the Court of Session in Edinburgh remains the main court where disputes about trust law will be resolved. There are some more limited powers in the Bill for the local sheriff courts.
Scottish Ministers will now have a new power, exercisable with the consent of the Lord President of the Court of Session. This gives Ministers the flexibility to make, by secondary legislation, future changes to the balance of the different courts’ powers (amendment 42).
Cohabitant’s share of a deceased person’s estate
Amendment 48, in the name of Jeremy Balfour MSP, and supported by the Scottish Government, was agreed to. It inserted section 72A of the Bill, on inheritance law. It covers the situation where someone, not married to or in a civil partnership with their partner, dies without leaving a will.
At present, in this situation, the court has discretion to award a cohabitant a share of their deceased partner’s estate. The cohabitant has six months to make a claim. This time period is regarded by many solicitors as too short for the grieving person to be able to fully consider whether to lodge a claim.
In a move likely to be welcomed by the legal profession, section 72A would increase this time period to twelve months.
Sarah Harvie-Clark, Senior Researcher (Civil Law), SPICe