Commission consults again on trusts

Fifth discussion paper aims to clarify nature and creation of trusts

News, 26 October 2006

The Scottish Law Commission today publishes its Discussion Paper no 133, The Nature and the Constitution of Trusts, the fifth paper in its trust law review programme.

The paper puts forward proposals to clarify the juridical nature of a trust and to establish when a trust is created.

The Commission suggests that trust law should be given a firm theoretical foundation and its development helped in other areas, such as the liability of trustees to third parties, by enacting in statute the "separate patrimony" theory of trust property.

The Commission sees this theory as the most convincing way of explaining the fact that trust property is ring-fenced from the trustee's personal creditors - that the trustee holds the trust property in a separate patrimony, distinct from his or her own private patrimony, with personal creditors being able to claim against only the private patrimony.

It prefers this model to that of thinking of a trust as a legal person, like a company, which would itself own the property, as this would result in more complex relationships between the trust, the trustees and the beneficiaries than the present law.

Constitution of a trust

The present law, says the Commission, does not provide a clear-cut answer as to when a trust is created: when the trustees receive the deed and agree to act, or when the trust property is made over to them; and whether the position is different for a trust that takes effect on the truster's death.

The Commission proposes a statutory rule that a trust is created once the truster has delivered the trust deed to the trustees and at least one of them has agreed to act. However, property that is to become trust property should continue to be secure from the claims of the truster's personal creditors only after it has been made over to the trustees.

On the other hand a trust taking effect after the truster's death would come into effect on the death, and the property would, as at present, continue to be liable for the deceased truster's debts.

The Commission also asks whether all trusts should in future have to be registered in an existing register of deeds or in a new Trust Register.

The discussion paper can be viewed on the Commission's website www.scotlawcom.gov.uk .