Chamber and committees

Good morning, convener and committee. Thank you for giving me the opportunity to speak to you about the Trusts and Succession (Scotland) Bill, which is the second Scottish Law Commission bill to be introduced this session.

Trusts are an important legal structure in Scotland. In modern society, they are used as solutions in an incredibly wide variety of situations, as the committee has heard in its evidence. They are used extensively by charities and pension funds; in commercial transactions to set funds aside to deal with future liabilities; in individual estate planning; and to protect and administer assets on behalf of vulnerable people such as children, and adults with incapacity and disabilities.

Scots law, however, has not kept up to date with the increasing variety of situations in which trusts are used. The bill aims to modernise the law of trusts and take forward all the substantive recommendations on reform that are contained in the Scottish Law Commission’s report on trusts.

Given the versatility of trusts and the uses to which they are put, the policy aim is to make sure that the law of trusts is clear and coherent and can respond appropriately to modern conditions. The huge variety of uses to which trusts are put also presents a challenge, as the bill must work equally as well for large-scale commercial or charitable trusts as it does for small-scale family trusts.

As for some of the key changes that the bill makes, it updates the powers and duties of trustees, including introducing a non-judicial method for removing trustees; restates trustees’ power of investments; sets out trustees’ duty of care and duty to provide information to beneficiaries; and confers a number of important powers on the court, including a new power to alter trust purposes after the 25-year period has elapsed.

There are also two provisions on succession law, one of which is technical and is intended to clear up potential confusion in the drafting of a section in the Succession (Scotland) Act 2016. The other, more substantive provision makes changes to the order of intestate succession so that the spouse or civil partner of a person who has no children and who dies without leaving a will inherits the entire estate of the deceased. That important change reflects what many people expect to happen already, but which is not actually reflected in the current law.

The committee has heard from a number of stakeholders who have welcomed and have been positive about the bill. I am aware that points of detail have been raised, which I am sure that we will come on to discuss. I would like to say at this stage that I am willing to work with the committee on some of the issues that have been raised with you, and I am happy to take any questions.

That is an area on which I am willing to work with the committee. Trustees are given broad investment powers that do not prohibit taking into account environmental concerns, as stakeholders have recognised. Trustees are presently required to consider the suitability of a proposed investment for the trust. That is not an instruction to maximise financial return at all costs. I am aware that the committee has heard that trustees of trusts whose purposes are the eradication of poverty would not consider it suitable to invest in tobacco, alcohol or gambling for example. Ultimately, the investment policy that the trustees should adopt must reflect the purposes of the trust as set out by the truster in the trust deed.

As I have said, the role and fundamental duty of the trustees is to implement the trust’s purposes and care is needed to ensure that the trustees, when making investment decisions, are not instructed to take into account their personal values.

I have heard the views of a wide range of stakeholders that express provision would be helpful to make clear that, when assessing the suitability of an investment for a trust, financial returns are not the only consideration that may be taken into account. For example, the environmental and social impacts could also be relevant considerations. I will consider further what could be done on the issue, and look forward to working with the committee and the SLC on the matter as the bill continues its passage through Parliament.

The trusters who set up public and charitable trusts almost invariably want the benefits to be provided immediately, so I do not think that that exclusion will create any practical difficulties. The Scottish Law Commission was impressed by the evidence of Dr Patrick Ford from the charity law research unit at the University of Dundee, who pointed out that there was a risk that a trust might direct long-term accumulations for the fulfilment of grand charitable purposes that would not materialise for many years, and that such accumulations could fall foul of the charity tests that are set out in sections 7 and 8 of the Charities and Trustee Investment (Scotland) Act 2005 and the definition of charitable purposes that is applicable for United Kingdom tax purposes and the Charities Act 2006. If there was no statutory limit to accumulation, OSCR would be left to consider every direction or power to accumulate on its own merits under the 2005 act charity test, and HM Revenue and Customs would have to do the same under UK tax legislation.

I am not convinced at the moment, but I am happy to take any recommendations that the committee would like to put forward.

I will bring in Michael Paparakis to respond to that.

I am willing to work with the committee on this issue. Under the Recognition of Trusts Act 1987, a truster may determine which law governs a trust that they set up. The proposed example power in the bill would make it clear that the truster may confer their power to determine the law that governs a trust on to a protector. That may be relevant when no applicable law has been chosen by the truster and would prevent the need to rely on the default statutory provisions that narrate how the law governing a trust is to be determined where there is no expense provision.

I have listened to the evidence on the issue, which appears to be causing the committee some concern, and I will work with the committee in the coming months try to reach agreement.

Currently, it is usual for trustees to be personally liable for litigation expenses in order that successful opponents have the right of relief against the trust estate. Section 65 clarifies that the starting point is that a trustee does not incur personal liability and will only do so when certain grounds exist, as set out in sections 65(2) and 65(3) and the court exercises its discretion to make an order for expenses against the trustee personally on one of those grounds.

Section 65 achieves what the Law Society seemed to be asking for by making the default position that trustees are not personally liable for expenses. There are some exceptions to that default position, but they are subject to the court’s discretion, which is widely drawn. That ensures that trustees of underfunded trusts who unnecessarily litigate are not given an unfair advantage in litigation proceedings.

My officials might want to add something further.

My understanding is that it will be sent to the SLC, but Michael Paparakis might have more to say on that.

You have raised some valid points and I am happy to take that into consideration.

I am happy to take that issue away and to look at providing more information to the committee on how we can raise more awareness around the different types of trusts.