- Edited by:
- David Way and Mark Bridges
- Bloomsbury Professional
- Publication Date:
- January 2023
Creation of trusts
Trusts in Scotland
Scots law has long recognized the legal concept of a trust. The full legal estate in the trust property is vested in the trustees and held by them for the purposes set out in the trust deed. The beneficiary’s right is a personal right against the trustees to have the trust implemented according to its terms. If the trust property is not wholly disposed of by the trust purposes, any undisposed of part remains vested in the settlor of the trust.
In order for the trust to be properly constituted a patrimonial benefit must be conferred on a third party or on the public or any section of the public. Accordingly Scottish trusts can be broadly classified into private and public trusts. In both cases the trust purposes must be stated with sufficient certainty. In the case of private trusts the directions to the trustees must be sufficiently certain to allow them to be carried out (Hood v Macdonald's Trustees 1949 SC 24). Where beneficiaries are to be selected from a class, the power of selection must be expressly or impliedly conferred (Dick v Ferguson (1758) Mor 7446).
A trust for the public benefit is a valid trust. A trust object is for the public benefit if it is one which is not immoral or contrary to public order, and which a certain section of opinion may regard as being of public benefit (Sutherland's Trustees v Vershoyle 1968 SLT 43). Charitable trusts are the most common example of public trusts in Scotland and a trust may be valid as a public trust without also being ‘charitable’ for the purposes of tax law or Scottish charity legislation (see para S2.22 above).
Constitution of trusts
Trusts may be created inter vivos or by testamentary disposition.
Any person of full age and capacity can create a trust. A person has full legal capacity from the age of 16, and from that age can create a lifetime trust (Age of Legal Capacity Act 1991, s 1(1)(b)). However a person who enters into a transaction between the ages of 16 and 18 may apply to the court while he is under the age of 21 to have the transaction set aside on the grounds that it was a prejudicial transaction (s 3). This is capable of applying to a trust created by a person between the ages of 16 and 18 if it could be shown to be prejudicial.
A person has testamentary capacity from the age of 12 and so may validly create a testamentary trust from that age (s 2(2)). The provisions allowing transactions to be set aside while a person is under the age of 21 do not apply to testamentary writings (s 3(3)(a)).
A lifetime trust may be constituted in writing or orally. A trust whereby a person declares himself to be sole trustee of his own property must be in writing subscribed by the settlor (Requirements of Writing (Scotland) Act 1995, s 1(2)(a)(iii)). If in addition such a trust is to be self-evidencing as to the subscription by the grantor and the date and place of signing, it must be attested (s 3).
A testamentary trust must be in writing subscribed by the testator (Requirements of Writing (Scotland Act) 1995, s 1(2)(c)) and must be attested if it is to be self-evidencing as to subscription by the testator (s 3).
It is essential to the creation of an irrevocable trust that there is delivery or some equivalent of delivery of the trust property. There may be actual delivery such as, in the case of heritable property, a delivered and recorded disposition in favour of the trustees; or a duly intimated deed of assignation of moveable property. It has been accepted that registration in the Books of Council and Session is in general equivalent to delivery (Drummond v Mathieson 1912 1 SLT 455). In a leading case it was held that an irrevocable trust was validly created where the settlor wrote to an insurance company stating that the endowment policy she had taken out was to be held upon trust for the benefit of named beneficiaries. The terms of the policy were intimated to one of the beneficiaries. It was held that intimation to that beneficiary was the equivalent of delivery or transfer of the trust fund and was sufficient to create an irrevocable trust in favour of all the beneficiaries (Allan’s Trustees v Inland Revenue 1971 SLT 62).
Accumulation periods and liferents
The periods for which the income of a trust may be accumulated are set out in section 5 of the Trusts (Scotland) Act 1961. Any direction to accumulate income for a longer period, whether express or implied, is void. The periods are:
- the life of the grantor;
- a term of 21 years from the grantor's death;
- the duration of the minority or respective minorities of any person or persons living or in utero at the grantor's death;
- the duration of the minority or respective minorities of any person or persons who, under the terms of the will or other deed directing the accumulation, would for the time being, if of full age, be entitled to the income directed to be accumulated;
- a term of 21 years from the date of the making of the settlement or other dispositions; and
- the duration of the minority or respective minorities of any person or persons living or in utero at the date of the making of the settlement or other dispositions.
The periods are alternative and not cumulative.
Scots law has no rule against perpetuities as such. However, there are restrictions on the creations of successive liferents. Where a deed creates a liferent interest and a person of full age who was not living or in utero at the date of the deed becomes entitled to that interest, the interest is enlarged into a full right of ownership and the trustees must transfer the property in which the interest subsists to that person. If the person is not of full age when becoming entitled to the liferent interest, the property will belong to the person from the date on which the person concerned reaches full age (Law Reform (Miscellaneous Provisions) (Scotland) Act 1968, s 18). This applies to deeds executed on or after 25 November 1968. For these purposes a person reaches full age at the age of 18.
Private international law
Foreign trusts can give rise to complex questions of private international law. A detailed consideration of this aspect is outside the scope of this chapter.
Recognition of Trusts Act 1987
The question of the recognition of a foreign trust is governed by the Recognition of Trusts Act 1987 (‘the 1987 Act’). The 1987 Act gives effect to the Hague Convention on the Law Applicable to Trusts and on their Recognition of 1984. The provisions of the Convention are set out in the Schedule to the Act.
Article 6 of the Convention provides that the law which governs a trust is that chosen by the settlor, expressly or by implication from the terms of the trust instrument. Where no applicable law has been chosen, the trust is to be governed by the law with which it is most closely connected with reference to a number of specified connecting factors (art 7).
The applicable law as determined in accordance with these provisions governs the validity of the trust, its construction, effects and administration. In particular it governs matters such as the appointment, resignation and removal of trustees, the rights and duties of trustees including the right to delegate powers, the powers of investment, restrictions on the duration of the trust and on the power to accumulate trust income, the relationships between the trustees and the beneficiaries and the variation and termination of the trust (art 8).
As stated above, it is open to the settlor, upon creating the trust, to choose the law applicable to it. A domiciled Scot may establish a foreign trust (Morrison v Vallance's Trustees 1906 14 SLT 372). The effect of these provisions is that where a trust has been created in accordance with the applicable law as determined under the 1987 Act, it will be recognized as a trust and effect given to it accordingly (art 11; Morrison v Vallance's Trustees).
The 1987 Act does not apply to preliminary matters such as form and capacity, or the validity of the transfer of an asset to the trust (art 4).
The 1987 Act does not prevent mandatory rules of law applicable by the conflicts rules of the forum from applying (art 15). This includes, amongst other things, rules relating to testate and intestate succession rights. Thus, for example, a Scots domiciled testator could not exclude the legal rights of his surviving spouse and children by creating a testamentary trust under the law of a jurisdiction other than Scotland.
Capacity to create a trust
In the case of moveable property, capacity to make a trust appears to depend on the law of the settlor’s domicile (Black v Black’s Trustees 1958 SLT Notes 32). In the case of immoveable property, the lex situs governs matters such as whether the person had the requisite capacity to convey the property to the trust, whether a trust of immoveable property is permissible at all and whether the specific trusts declared are essentially valid (Brown’s Trustees v Gregson 1920 SC (HL) 87).
Corporate trustees and executors
There is no prohibition on the appointment of corporate trustees and executors and they are widely used in Scotland. One obvious advantage is that a corporate trustee is perpetual and not subject to disabilities which render it unable to act. A corporate trustee may act alone or with any other person, subject to any express or implied term in the trust instrument or will to the contrary.
Corporate trustees and executors have the same rights and powers, and are subject to the same duties and obligations, as individuals who are acting as trustees or executors.
Choice of law in succession
As has been seen, in cases of intestacy, succession to moveable property is governed by the law of the deceased’s last domicile; and to immoveable property, by the law of the place where the property is situated.
A testator may choose the law applicable to his will, and this will be given effect to so far as it is consistent with the law of his domicile. Where a testator has property in different jurisdictions, he may choose to make separate wills under the local laws of the jurisdictions concerned in respect of the different items of property. By doing so, however, he cannot defeat the legal rights conferred on his surviving spouse and children.
The EU Succession Regulation (EU 650/2012) came into effect for deaths on and post-17 August 2015 throughout the EU, with the exception of the UK, Ireland and Denmark, and determines the jurisdiction and succession law applying to an individual’s estate where there are connections with more than one Member State.
Although the UK and therefore Scotland has not adopted the Regulation, it will nevertheless have an impact on Scottish UK nationals who are resident in another EU Member State or who own property in another Member State. There is debate as to whether the UK is to be regarded as a third state or a Member State for the purposes of the Regulation. However, once the UK leaves the EU (which is expected to be sometime in 2019) it will then be clear that the UK is a third state.
Scottish recognition of foreign court orders
Reciprocal recognition of grants in Scotland, England & Wales, and Northern Ireland
A grant of confirmation to the estate of a person dying domiciled in Scotland is automatically treated as a valid grant of representation for the purposes of the law of England and Wales, and the law of Northern Ireland (Administration of Estates Act 1971, s 1(1) and s 2(2)). A grant of representation in England and Wales to the estate of a person dying domiciled there, or in Northern Ireland to the estate of a person dying domiciled there, is automatically given effect to in relation to property in Scotland as if it were a grant of confirmation (s 3).
Foreign court orders
A grant of probate or other grant of representation issued by a foreign court does not give the executor the right to administer the estate in Scotland. It is necessary to obtain Scottish confirmation to any estate in Scotland, in addition to any grant taken out elsewhere. The court will require evidence of the executor’s right to administer the Scottish assets under the law of the deceased’s domicile. This can be by production of the foreign grant of representation (that may require to be authenticated) or by obtaining an opinion from someone qualified to advise on the law of the relevant jurisdiction.
An exception to this is where the grant has been obtained in a Commonwealth country. Under the Colonial Probates Act 1892 a grant of probate or letters of administration made in any one of a number of designated countries can be resealed by the Sheriff Court in Edinburgh, and will then be treated as the equivalent of a Scottish grant of confirmation. The court has discretion whether to reseal and must be satisfied that there is sufficient security to cover the property in Scotland. Grants for the Isle of Man, Jersey and Guernsey cannot be resealed, and Scottish confirmation must be obtained.