Commission seeks views on trustee law
16 Dec 04
Scottish Law Commission's latest discussion paper seeks to simplify the law
The Scottish Law Commission today publishes Discussion Paper no 126 on Trustees and Trust Administration.
This third paper in a wide-ranging review by the Commission puts forward suggestions to clarify the law and bring it up to date rather than to alter trusteeship and the administration of trusts fundamentally.
There is uncertainty as to whether trustees require to meet in order to make effective, binding decisions. The Commission proposes that, unless the trust deed provides otherwise, the requirements should be that all trustees are given prior notice of the matters to be decided and an opportunity to put forward their views at a meeting or by any other means of communication.
The Commission proposes a new statutory provision empowering trustees to appoint and pay agents. Trustees are not able to delegate their discretionary functions to agents, but the line between the non-delegable making of decisions and delegating the carrying out of such decisions is not always easy to draw in practice. Views are sought as to whether a new legislative formula could produce greater certainty.
Scots law regards parting with the ownership of trust property as a breach of trust for which the trustees would be liable if any losses occurred. The Commission considers that trustees should be permitted to use nominees, for example to hold title to shares, and should not be liable provided they selected and monitored the nominee carefully.
With a view to simplifying legislation and trust deeds and providing the flexibility required over the lifetime of a trust the Commission suggests that trustees should have all the administrative powers in relation to trust property that individuals have in relation to their own property. The current Charities and Trustee Investment (Scotland) Bill adopts this approach for investments. The power would have to be exercised in accordance with the terms and purposes of the trust, the trustees' duty of care and their fiduciary position as trustees. Alternatively the list of powers in current legislation could be greatly extended.
Currently trustees can be removed only by the court, unless the trust deed provides otherwise. The Commission proposes to allow the other trustees to remove a trustee who has been imprisoned, convicted of a crime of dishonesty or certified as being mentally incapable. Entitling beneficiaries to remove trustees or the automatic disqualification of trustees in certain circumstances is not favoured.
An application has to be made to the court for the appointment of new trustees if the sole trustee dies or becomes mentally incapable. While not in general favouring giving beneficiaries power to appoint new trustees, the paper asks whether an exception might be made in the above circumstances.
Trustees may not be certain as to facts relevant to the distribution of the trust estate, for example, whether a person predeceased the testator without issue. The Commission suggests that the court may authorise the trustees to distribute without any liability should the footing on which the order was made turn out to be incorrect. The true beneficiaries would however remain able to recover the estate from those to whom it had been distributed.
Most trust litigation in Scotland is heard in the Court of Session. The Commission considers that litigants should have a choice, for most applications, of using the Court of Session or the sheriff court with which the trust has its closest and most real connection, or for the place where any of the trustees resides.
Finally, the Commission proposes that a new statutory power to advance capital should be introduced and that it should be exercisable by the trustees rather than the courts.