Time for reform?

In designing a cover image for a new textbook on trusts, one might consider what would prove a suitable illustration for the topic. Most publishers tend to use a generic bundle of dusty, forlorn papers or a fountain pen signing the end of a long, complicated deed. The author’s favourite came from an earlier edition of Gretton and Steven’s Property, Trusts and Succession, aimed at Scots law students, with its illustration of McCaig’s Tower in Oban, depicting the subject of a famous Scots trust case. Broadly speaking, however, the general idea of trusts being a bit antiquated, paper‑based and unexciting seems to prevail.

As in English and Welsh law, the existence and usage of trusts was well established in Scotland by the 17th century. As a legal form, or a legal relationship, they presented a hugely useful workaround for holding or protecting assets in countless situations. There were various minor statutory provisions regulating aspects of trusts in the 18th and 19th centuries, and eventually the Trusts (Scotland) Act 1867 was enacted. This would be updated half a century later in the Trusts (Scotland) Act 1921 (the Act), which was enacted on 19 August 1921. Here, the legislators set out the definition of a trust, requirements for its creation, the powers and duties of trustees, and some limitations on trusts. Although there have been amendments and supplementary legislation enacted since then, the Act remains the basis of current Scots trust law.

Of course, the main reasons for opting to use a trust 100 years ago are not the same as now. Trusts were often used to protect landed estates on succession. They were also used to alleviate the restrictive property rights of women in that era. It is a testament to their versatility that trust use has expanded to meet evolving societal and economic needs since then. They now cover a wider range of private, charitable and commercial purposes than ever could have been envisaged at the outset.

Old law v modern practice

The importance and value of trust funds in Scotland can hardly be overstated. In its 2014 Report on Trust Law (the Report),[1] the Scottish Law Commission (the Commission) noted that an estimated GBP500 billion of property is held in trust in Scotland. Beyond the private family or charitable trusts that might spring to mind, trusts are the legal basis of pensions, life policies and other financial products. The public may not be particularly aware of them, but most will have some form of asset (e.g., pension funds) being held and managed in a trust on their behalf.

Is this century‑old legislation up to the task of handling modern trusts or does it struggle to cover all the permutations? It is certainly not easy for law students or non‑specialists to get to grips with trust law. The Act must now be read in conjunction with the Trusts (Scotland) Act 1961, the Law Reform (MP) (Scotland) Act 1990 and the Charities and Trustee Investment (Scotland) Act 2005, as well as relevant taxation legislation, making the law quite inaccessible to lay trustees and beneficiaries. Trust law often also interacts with other areas of law such as insolvency, divorce law, succession, banking and commercial land development.

Not only is the law difficult to track across all these various strands, the legislation sometimes fails to adequately cater for common practical situations. The rules on removal and replacement of trustees are limited and restrictive. For example, if a trustee loses legal capacity, they remain a trustee until an application to remove them is approved by the court. The rules on quoracy and presence of trustees do not fit well with the pandemic‑driven shift to virtual meetings (although, of course, there may be jurisdictional issues to consider if trustees are in another country). The legislation also fails to deal with many aspects of decision‑making, rights to information, delegation of powers and the extent of liability for breach of trust.

Scottish practitioners drafting trusts are likely to include various provisions that make up for current gaps and deficiencies in legislation. Trust deeds get ever longer as it becomes standard practice to build in additional powers and protections for trustees and beneficiaries. It would be helpful to have clearer and more practical statutory rules on the appointment, resignation and removal of trustees, as well as provision for the advancement of capital. English and Welsh law currently allows the court to rectify defective actions of trustees, following Hastings‑Bass.[2] The Commission has suggested putting this principle onto a statutory footing to simplify the procedure. This would enhance protection for beneficiaries in Scotland.

An attractive trust jurisdiction

In the Report, the Commission went as far as suggesting that Scotland may be in danger of trust assets being relocated to more advantageous locations, because the regime compares unfavourably with other jurisdictions. Indeed, countries such as New Zealand have modernised their trust laws with international investment in mind, with the Trusts Act 2019 coming into force on 30 January 2021.

The Report also suggested that, to enable a more attractive trust proposition, a trust law Bill should remove some of the restrictions in the present law, including the duration of trusts. It also suggested new powers for the court to vary trusts to take account of material changes in circumstances, an extensive power that would be unique to Scotland. The Commission also proposed the simplification of court procedures to encourage the use of these powers.

So, should the 100th anniversary of the Act be celebrated? It has done pretty well, given how far it has been stretched. However, a general restatement of Scottish trust law, including some of the improvements suggested above, would allow more nimble and creative commercial solutions and eliminate the current competitive disadvantage in Scots law. Modernisation of Scottish trust law is now necessary, both to keep up with other jurisdictions and to support and drive post‑pandemic economic recovery in Scotland.

Another centenary

Modernisation of trusts is trending beyond Scotland, as English and Welsh trust law nears its own centenary event in 2025, if the Trustee Act 1925 is still on the books. Noting that the law has never been comprehensively reviewed, the Law Commission of England and Wales is set to begin a modernisation project, Modernising Trust Law for a Global Britain, ‘to help ensure Britain’s trusts services are competitive in the global market’. The scope will cover technical problems and limitations, but consideration of taxation policy will be excluded.

There is much to be gained from the comparative study of trusts and trust‑like structures to see what is effective and efficient in trust practice. The Commission draws heavily from other jurisdictions in their work and this approach should be commended. As a professional community, STEP offers a chance to share and learn from practitioners worldwide, and we have an important role in advocating for improvements to trust laws.

Law reform might seem a bit academic and theoretical compared to day‑to‑day practice but it is a real chance to make trusts work better. Scottish readers are strongly encouraged to use this centenary to try to get trusts pushed up the Scottish parliament’s agenda and take every opportunity to remind policymakers and the public of the utility and value of trusts.