Chamber and committees

Over a quarter of solicitors do not respond when the SLCC requests their files, so we are working with the SLCC to see how we can strengthen the bill to ensure that the SLCC gets the information that it needs.

Amendments 18 and 21 are my response to the committee’s request for the Government to review the stage 1 evidence on the trustees’ duty to provide information, with a particular focus on potential beneficiaries. Stakeholders questioned whether the duties that will be imposed on trustees should cover potential beneficiaries who might never stand to benefit from trust property, and would therefore be too onerous.

When it comes to information rights, there is a balance to be struck between the rights of those who might benefit from the trust property as a whole and the rights of individual potential beneficiaries. I recognise that requiring trustees to inform potential beneficiaries about their position under a trust could lead to costs being incurred on the trust property, but against that, those who benefit or might benefit from the trust property have a fundamental role in holding the trustees accountable. They cannot do that if they are not properly informed.

Officials have explored the matter further with stakeholders and with the Scottish Law Commission. Amendments 18 and 21 deal with the problem of vexatious requests for information about trusts made by people who are technically potential beneficiaries but who have no real chance of becoming a beneficiary under the trust.

The shift in the balance of trustees’ information duties will ultimately help beneficiaries and potential beneficiaries who are likely to benefit from the trust property. First, it will not affect their right to trust information and, secondly, it will reduce the likelihood of costs that relate to vexatious requests for information being incurred against a trust property.

I move amendment 18.

Amendment 18 agreed to.

Amendments 19 to 21 moved—[Siobhian Brown]—and agreed to.

Section 26, as amended, agreed to.

Sections 27 to 29 agreed to.

Section 30—Provision purporting to limit liability for, or indemnify for, breach of fiduciary duty

Amendment 54 moved—[Jeremy Balfour].

As I have said, if Mr Balfour’s amendments were to be agreed to, trusts would incur more cost in removing a trustee, and the amendments might also make that process more difficult. I am comfortable with the definition in the 2000 act.

Amendment 4 agreed to.

Section 6 agreed to.

After section 6

Under the current law, it is usually the case that trustees are personally liable to pay litigation expenses to successful opponents but have a right of relief against the trust estate. Section 65 sets out the new default position, which is that

“a trustee does not incur personal liability”

and will only do so where certain grounds exist and the court exercises its discretion to make an order for expenses against the trustee personally under one of those grounds.

Amendments 33 to 37 respond to concerns about the impact of section 65(2) of the bill, which were raised by the Law Society and STEP among others. The amendments remove section 65(2) and as a whole the section as amended makes a significant shift away from the likelihood that a trustee would incur personal liability for litigation expenses when compared with what we understand is current practice.

Section 65(3) allows the court wide discretion to deal with litigation expenses and allows the court to take into account all the circumstances when deciding how to exercise its discretion. Amendment 35 adds to the list of circumstances in which the court may exercise its discretion to find a trustee personally liable for expenses of litigation the scenario where

“the trust property is ... insufficient to meet the expenses incurred”

in litigating. That ensures that those who may wish to do so cannot abuse trusts to raise vexatious litigation and easily avoid the legal costs of doing so.

Trustees would be able, by application under a new subsection, to ask the court to determine liability before expenses are incurred, so that the trustees would be proceeding with any litigation with their eyes open.

Section 65, as already discussed, is of general application to any litigation to which trustees may be party. Under the section as introduced, the court can impose personal liability on trustees for litigation expenses in certain circumstances, including where the trust property is insufficient to meet the expenses or the trustee has brought about the litigation by breach of duty.

That is, however, limited to the Court of Session and therefore the provision restricts itself to setting out a statutory regime for how litigation expenses incurred in the Court of Session shall be determined. That is not the policy intention, however, and I have listened to evidence from stakeholders, such as the Sheriffs and Summary Sheriffs Association, who have pointed out that litigation will also take place in the sheriff courts, not just at the Court of Session.

Accordingly, amendment 40 clarifies the position so that the power that is conferred on the courts by section 65 can be exercised by the Court of Session and by the appropriate sheriff court. I ask members to support my amendments in this group.

I move amendment 33.

Amendment 33 agreed to.

Amendments 34 to 37 moved—[Siobhian Brown]—and agreed to.

Section 65, as amended, agreed to.

Sections 66 to 72 agreed to.

After section 72

I am happy to move on.

Amendment 25 agreed to.

Amendments 26 to 30 moved—[Siobhian Brown]—and agreed to.

Section 61, as amended, agreed to.

Sections 62 and 63 agreed to.

Section 64—Application in respect of defective exercise of fiduciary power etc

Amendment 31 moved—[Siobhian Brown]—and agreed to.

Section 64, as amended, agreed to.

After section 64

Amendment 32 moved—[Siobhian Brown]—and agreed to.

Section 65—Expenses of litigation

Good morning. Amendments 1, 2, 3, 44 and 45, which are in my name, form a package that is aimed at increasing the safeguards in relation to sole trustees, which the committee raised a particular concern about after hearing evidence directly from trustees. Amendments 1 and 2 will prevent resignation by a sole capable trustee unless they first assume an additional trustee or unless a judicial factor is appointed to administer the trust. That will prevent a sole capable trustee from resigning their role and leaving only an incapable sole trustee.

Section 5 as introduced contains the default rule that trustees will have the power to resign office, subject to some exceptions. The power of resignation is more expansive than existing powers under legislation, but the section has no procedural requirements for trustee resignation, such as a requirement for intimation to co-trustees.

Amendment 3 makes it clear that trustees must intimate their resignation to co-trustees. That will prevent one person from being left as a sole trustee without their knowledge. The amendment sets out that trustees will require to intimate their resignation to all other trustees who are traceable or to any judicial factor and that the resignation will be effective from the date of intimation.

Amendments 44 and 45 make necessary consequential adjustments.

Trusts are used in a wide variety of circumstances, and it is important that the general law on trusts does not hinder the flexibility of trusts to provide a solution to a wide range of problems. Ultimately, whether a sole trustee is appointed is a matter for the truster, who determines how a trust is to be administered. There may be valid reasons for the choice of appointing a sole trustee, and the person who is best placed to decide that is the truster. Appointment of a sole trustee carries potential future difficulties for the administration of a trust, but the matter is best left to an informed truster.

Taken together, the amendments give trusts added protection when a truster has chosen to use a sole trustee or circumstances have led to there being a sole trustee. The amendments address the concerns that the committee raised in its stage 1 report.

Amendment 6 responds to significant practical difficulties that co-trustees may have in removing a trustee who was appointed as a trustee in their professional capacity and is no longer a member of their profession but does not meet the criteria set out in section 7(1) of the bill as introduced. The matter came to light following the failure of McClure Solicitors, where the Scottish Government has heard that trustees appointed in a professional capacity will agree to resign office only in exchange for payment of a sum of money. The sum may be just short of the legal costs that the trust property would likely incur if a court application to remove a trustee was raised.

Together, that potentially leaves co-trustees and beneficiaries in a difficult position, and the administration of a trust may grind to a halt with all the difficulties that that may cause. The bill introduces an important distinction between lay and professional trustees. I believe that it is important that trustees who are appointed in their professional capacity are held to a different and higher standard than lay trustees. Although the bill cannot resolve wider issues caused by the collapse of McClure Solicitors, we can learn lessons about how failure impacts trusts and their management.

Amendment 6 adds to section 7 of the bill on removal of trustees by co-trustees in narrowly defined cases. As provided for by new subsection (1A) to be inserted, a trustee who is a member of a regulated profession and has been appointed or assumed for the trust as a professional trustee—a class of trustee provided for in section 27(2) of the bill—that is, a person who in the course of business provides professional services in relation to managing the affairs of a trust, may be removed from office by their co-trustees in the circumstances set out in new subsection (1B).

New subsection (1B) sets out that such a trustee may be removed where they are no longer a member of a regulated profession—for example, that could be through retirement or removal from the roll—or are no longer able to practice. That also covers situations where a person may remain a member but does not have a practising certificate or is suspended from practice, since different regulatory regimes may approach that differently.

Moving on to Jeremy Balfour’s amendments 52 and 53, under section 22 of the Trusts (Scotland) Act 1921, the court has the power to appoint new trustees. The Court of Session also has the common-law power to appoint new trustees. The Scottish Law Commission consulted on those powers and felt that the current law could be simplified. It recommended a statutory provision, which is section 1 of the bill. I understand that there has been some concern that the use of “expedient” in section 1 is a lower standard than the current common-law position under which the court may appoint a new trustee only where necessary. However, I note that necessity is not always a requirement of the current statutory power.

The court’s power of appointment can be exercised only if such appointment is shown to be expedient for the administration of the trust or where there is no capable or traceable trustee. That should be sufficient to avoid any significant risk of unnecessary or vexatious applications under that section, and also broad enough to allow courts to usefully intervene where trusts find themselves in administrative difficulty.

Moving on to amendment 53, although I understand that the member has taken an interest in the use of sole trustees and wants to see more protection for them, my view is that amendment 53 has the potential to make the law more uncertain and create unintended effects for sole trusteeships. For example, it is not clear whether such acceptance should apply where a trustee is appointed or assumed under sections 1, 2, or 3 of the bill or how the general conveyance of the trust property to them, under section 4, would operate in relation to the amendment. In addition, the amendment does not take into account situations through which an existing trustee becomes a sole trustee, for instance, through the resignation or death of co-trustees.

The position at common law on acceptance is well settled. No one can be compelled to be a trustee and acceptance does not have to be in writing. The fact of taking on the administration is enough to indicate acceptance. I remind the committee that the bill is not an attempt to codify the law of trust, but is instead meant to clarify the law and resolve issues that arise in practice. I am not aware of any stakeholder suggesting that acceptance of office was a significant practical issue for trustees or sole trustees. The amendment could cause the kind of uncertainty that we are trying to clear up. However, if the committee were to agree to the amendment, I would need to carefully consider how that interacts with the other sections in the bill where trustees can be appointed, with a view to possibly making amendments for stage 3.

If the member presses amendments 52 and 53 to a vote, I ask committee members to reject them, as they do not arise from the committee’s recommendations at stage 1. I ask committee members to support my amendments 1, 2, 3, 6, 44 and 45 in the group.

Amendment 4, in my name, will add a new section confirming that a resignation power may be exercised on an incapable trustee’s behalf by a guardian. If such a trustee is a sole trustee, or where there is no other trustee who is both capable and traceable, the guardian’s power of resignation cannot be exercised unless an additional trustee is assumed or appointed, or a judicial factor is appointed to administer the trust. The power of the guardian to appoint a new trustee is restricted to the power to appoint only one trustee. That is consistent with our wider policy position that administration of the trust should lie with the trustees, insofar as that is reasonably practical.

Amendments 4, 7, 10, 13 to 17, 19, 20, 26, 27 and 41 address an issue that was highlighted by the Scottish Parliament information centre in its research briefing paper. At several points the bill makes provision for representation of the interests of beneficiaries who are aged under 16. For instance, section 10 provides for the guardian of a child beneficiary to be able to consent to the discharge of a trustee on behalf of that child beneficiary. The definition of “guardian” in section 74, however, does not refer to those parental rights in relation to a child beneficiary. The amendments will resolve that issue and cover the various avenues by which a person might obtain parental responsibilities and parental rights in relation to a minor beneficiary or a potential beneficiary. The categories of person are restricted to those having the specific responsibility or right to act as a beneficiary’s legal representative, and include persons who hold parental rights in relation to a beneficiary or potential beneficiary under the equivalent legislation in England, Wales and Northern Ireland.

On amendment 43, the bill uses a familiar definition of “incapable”, which is similar but not identical to the definition of “incapable” that is found in the Adults with Incapacity (Scotland Act) 2000. Stakeholders and the committee have rightly pointed out that significant and far-reaching changes to mental health legislation have been recommended, so it is clearly undesirable for the meaning of “incapable” in trust law to differ from the usual widely understood definition while those recommended changes are explored. I see merit in ensuring that the bill does not diverge from general law on capacity, and in ensuring that it will keep pace with any changes in that area. Amendment 43, which is in my name, will therefore align the definition of “incapable” that is used in the bill with that in wider incapacity legislation.

However, bearing in mind the recommendations for reform of incapacity legislation and the committee’s recommendations on the bill, I think that it is sensible that ministers be able to amend the definition in line with any future changes. Any such changes would be subject to the affirmative procedure. Clearly, the precise nature of changes that might be made in the future cannot be anticipated at this stage, so conferring such a power on ministers will help to ensure flexibility to allow trust law to keep pace with our understanding of incapacity.

At the same time, it is made clear that a person without legal capacity includes a child. The term “legal capacity” is used twice in the bill when discussing supervisors and protectors; I believe that it is helpful to set out what we mean by “legal incapacity” in the bill. Amendment 43 makes it clear that legal incapacity includes the non-age of an appointed supervisor or protector.

Some types of trust, for instance testamentary trusts, can be drafted well in advance of when we expect them to take effect. An individual may appoint their child as a protector in expectation that when they die the child will be at an age to enable them to assume the role. However, the early death of a truster could frustrate those intentions.

I will move on to Jeremy Balfour’s amendments. I understand that amendment 46 is in response to concerns that have been raised about having to assess the capacity of a fellow trustee. I disagree that that will place an unfair burden on trustees. Stakeholders have noted that it is helpful for the administration of smaller trusts to have, in clear-cut cases, a mechanism to remove trustees that does not involve going to court.

First, trusteeship is by its very nature burdensome. It comes with duties as well as powers, which should be recognised by individuals when they agree to take on the role.

Secondly, I point out to the committee that, although trustees have the power to remove an incapable trustee, they do not need to exercise it. In less-certain cases, trustees will have the option to go to court to remove a trustee and so do not have to take the legal decision themselves. The Scottish Law Commission also recognised that in its report. In cases where there is any doubt, the appropriate route is to seek removal by the court. In other words, the power in section 7 is just one tool in the trustees’ toolbox.

Finally, as I set out in my letter to the committee last week, I intend to use the explanatory notes to make it clear that a trustee who considers themselves to have been unfairly removed by their co-trustees on any of the grounds that are mentioned in section 7 can raise legal proceedings to challenge that decision. That is the ultimate safeguard—that any trustee who thinks that they have been removed unfairly can challenge their removal in court.

This is about finding the right balance between ensuring that trusts can be managed effectively and avoiding the need to go to court and spend trust funds in order to do so—for instance, in every case of trustees wishing to remove by majority an incapacitated co-trustee. I believe that the balance in section 7 is right and that there are enough safeguards in place to prevent abuse of the power.

Jeremy Balfour’s amendment 46 would tilt the balance too far in the opposite direction, so the very real problem of incapable trustees continuing to hold office because trusts cannot afford a court application to remove them would continue, with all the problems and issues that that causes for administration of trusts.

I thank Jeremy Balfour for amendment 59, which seeks to amend section 55 of the bill. My view, however, is that the amendment is unnecessary. It is clear to me that the section as drafted will achieve exactly what the amendment is seeking to clarify. Section 55(4) states that

“Approval on behalf of a person who is incapable may be given by any person authorised to give it”.

That is clear. If a guardian does not have powers relating to the matter, they cannot authorise any approval on behalf of the incapable adult, for the purposes of section 55.

I am concerned that, by agreeing to amendment 59, Parliament would inadvertently give the impression that section 55 means something else, or would create uncertainty as to what is meant. I am willing to use the explanatory notes to set out the view in more detail, so I urge Jeremy Balfour not to move amendment 59. If he does, I ask the committee to reject it.

Amendments 49, 50 and 51 in Jeremy Balfour’s name would introduce a presumption that a trustee is capable and that it would be for the court to determine otherwise. In addition, they would confer on Scottish Ministers a power to define “incapable” by regulations that would be subject to affirmative procedure. The presumption would apply only in certain circumstances, including where a truster appoints a new trustee under section 2 of the bill and, under section 12, where an incapable trustee cannot make a decision. Those provisions were considered carefully by the SLC: as drafted, the amendments would make the administration of trusts much more difficult than it needs to be.

To give an example, under section 12, a decision is binding on the trustees as a whole,

“if made by a majority of those ... able to make it.”

It goes on to provide that incapable trustees are not eligible to take part and may not be counted when calculating the majority. Amendment 50 would have the practical effect of ensuring that incapable trustees do count towards calculating the majority, which is a recipe for administrative deadlock. To resolve that issue, trusts would have to apply to the court and the beneficiaries would ultimately bear the legal costs.

Under the bill as introduced, any trustee who considered themselves to have been unfairly replaced or excluded from decision making by the co-trustees can raise legal proceedings to challenge that decision. There are, therefore, already sufficient safeguards in place.

I ask the committee to reject Jeremy Balfour's amendments, which were not recommended by the committee at stage 1.

I move amendment 4.

Where an intestate deceased person was in a cohabiting relationship at the time of death, the survivor can make an application to the court for financial provision. In doing so, they must adhere to a strict time limit, which is six months from the date of death. In evidence that the committee took from a number of stakeholders about the effect of that time limit, it was suggested that the period was unduly short. I see merit in the suggestion to extend the time limit to 12 months, and I am happy to support it.

However, as the Law Society of Scotland pointed out in its stage 1 briefing, other issues encountered by those who attempt to apply for financial provision on the death of a cohabitee might require to be addressed. If the committee were to agree to amendment 48, I would therefore propose not to commence the provision until we had had an opportunity to consider those other issues and address them, if necessary.

As the committee knows, the SLC recently reported on financial provision on the breakdown of a cohabiting relationship otherwise than by death and, in that report, recommended a new definition of the term “cohabitant”. The Scottish Government has committed to considering a longer-term programme of implementation of SLC reports over the parliamentary session, and the list of those reports includes those on moveable transactions, trusts and judicial factors, as well as the report on cohabitation.

On 6 September, I wrote to the SLC, setting out that detailed work on the report on cohabitation was about to begin. Separately, I also said that I am considering a consultation on the recommendations that were made in that report, which would provide an opportunity to seek views on any proposed changes to the law on financial provision for cohabitees on intestacy. I say in response to Mr Balfour’s comments that I will write to the committee about the consultation ahead of stage 3.

I urge members to support amendment 48.

There is a bit of confusion, in that that is to do with charity law and, at the moment, only 12 per cent of charities are trusts. There are serious concerns from OSCR, which is why we will not support amendment 47.

Section 61 is about the alteration of trust purposes, and attempts to balance the truster’s wishes against the wishes of beneficiaries by allowing for a period of 25 years or the lifetime of the truster, whichever is longer, before an application can be made to court. A 25-year time limit was chosen by the SLC because the section is predominantly intended to deal with long-term trusts and the problems that can arise in relation to them; 25 years is an easily workable default rule, which it considers represents a short generation. The committee heard from stakeholders that the provision is welcome, but recommended that applications to court should be made in exceptional circumstances.

I have re-considered the provision after further consultation between my officials and the Law Society, STEP and the SLC. I believe that allowing the court to decide applications on the evidence is sufficient protection to do away with the default time limit altogether.

If amendments 25, 28, 29 and 30 are agreed to, section 61 would no longer stipulate a default time period during which the purposes of a trust cannot be altered. In effect, it would reverse the position set out when the bill was introduced, setting out a maximum time period of 25 years or the lifetime of the truster, whichever is longer, during which the truster may by trust deed exclude the jurisdiction of the court under section 61.

The amendments ensure flexibility for trusters who may wish to exclude the jurisdiction of the courts for a short time and protect against the risk that those unhappy with the terms of a trust may mount an early application before any material change of circumstances has occurred.

Adding a caveat that would allow relevant persons to raise an application in exceptional circumstances would not be in line with the general policy underpinning the section, which is about the problems caused by long-term trusts, and it would be relatively difficult to legislate for what is meant by “exceptional circumstances”. Any caveat might be abused by persons disappointed by the distribution of the trust property, who could raise, or threaten to raise, court proceedings. Ultimately, the legal expenses of defending such an action would come from trust property and would be at the expense of existing beneficiaries.

I move amendment 25.