Law of Trusts

• <S: >A trustee has a fiduciary duty to act solely in the interests of the beneficiaries.
• Variation/termination of Private trusts must be done by agreement of all beneficiaries
• Miller’s Trs v Miller (1890) 18 R 301: partial or complete termination of a private trust at the request of a single beneficiary, where that beneficiary is the only person with an interest
• Two catches to the rule that beneficiaries can agree to termination/variation:

  • Beneficiaries who are underage (under 16) cannot consent, and under common law, nobody can consent for them
  • One or more beneficiaries may be as yet non-existent (T(S)A 1961 s.1; Phillips, Petr 1964 SC 141 - court can consent on behalf)
• Variation of private trusts by the court:

  • Can be varied by the court in two respects:

  1. To enlarge admin powers of the trustees (T(S) 1921, s.5; also applies to public trusts)

  2. Permit the trustees to make an advance of capital (T(S) 1921, s.16); neither is common in practice
• Termination of a private trust by failure of purposes:

  • Resulting trusts: remaining trust property is deemed to be held on a bare trust for the truster, this is a ‘resulting trust’
• Public trusts:

  • In some cases, variation can be done by trustees; in others, the court must be involved, and in some cases the regulatory body for charities, OSCR
  • Non-Charitable public trusts can be varied under the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990, ss.9-11
  • Court can vary trust purposes or provide for trust assets to be transferred to another trust if the purposes of the trust have been fulfilled as far as possible
• Any variation must have regard to the ‘spirit’ of the trust deed:

  • The new scheme must enable the resources of the trust to be applied to better effect consistently with the spirit of the trust’s constitutive document, having regard to changes in social and economic conditions since the time when the trust was constituted (LR(MP)(S)A 1990, s.9)
• Variation of charitable trusts under the Charities and Trustee Investment (Scotland) Act 2005:

  • Trustees can propose variation to OSCR, which can then approve the proposal
  • OSCR can petition the court to approve a variation without trustees’ consent
  • Conditions for reorganisation are similar to those in the LR(MP)(S)A 1990
• Cy près procedure for charitable trusts:

  • If a charitable trust is unworkable, the court has the power to modify its provisions to make it workable
  • Two main types: Initial failure and Supervening failure
  • The court makes a cy près scheme supposed to be as near to the original intention of the truster as possible, consistent with workability
• Termination of private trusts must be unanimously agreed
• A trust is created when the settlor transfers property to another person (trustee) with an intention that they hold it on behalf of someone else.
• What is the difference between trust 'purposes' and trust 'powers'? Trust purposes reflect the intention behind the trust; Trust powers are the 'means' to which a trustee uses to exercise their responsibilities and obligations
• What is a discretionary trust? Discretionary trusts feature some element of discretion by the trustee in how assets are distributed to a beneficiary. For example, by choosing how long until they recieve the assets or the frequency and rate within a period.
• What is the professional standard of care for a trustee? (New Bill) s.27 - Professionals will be held to a higher standard than that of other trustees; 'such care and diligence as reasonably expected from someone of that profession'; subject to the previous point, this must be in line with that of 'any person of ordinary prudence in managing the affairs of another person
• Describe a trustee sine qua non They have veto power over the other trustees, 'ultimate say'; essentially the lead trustee who is effectively a tiebreaker and can veto the majority
• Real subrogation (duties and rights attached to a trust do not change even upon sale): Assets within a trust can be replaced, eg. Land → Money → Stock = Remains trust asset
• The difference between a vested and unvested legacy depends on whether right of ownership has been specified and whether any suspensive conditions have been satisfied
• How are inter vivos trusts created?

  By a living truster; via declaration + vesting of property in trustees
• How do declarations of trust work?

  They are signed by the truster, delivered to the trustee; identify some trust property (often nominal, main assets can be vested later)
• Involuntary trusts

  implied by statute under specified circumstances (Conveyancing and Feudal Reform (Scotland) Act 1970, s.27)
• Constructive trusts

  an involuntary trust arising by common law eg. fiduciary (other than trustee) holding title to assets
• The difference between an involuntary/constructive trust and an implied trust is that the latter is 'implied-in-fact', not by statute or common law
• What are trust purposes?

  The intentions behind a trust
• Causes of unworkability in relation to use of a cy pres scheme:

  • Changes in the law
  • Changes in social or economic conditions
• Trustees are only entitled to be reimbursed for reasonable expenses; As a default rule, trustees are not entitled to be paid for their time
• Trust deed may provide for payment. If a client wishes to appoint a solicitor as a trustee, the latter will usually insist that the trust deed provide for renumeration and likewise with trustees of a commercial trust.
• A trustee in sequestration is entitled to renumeration by statute
• Trustees are free to resign unless they are the sole trustee, in which case new trustee must be appointed before resignation OR unless they are remunerated.
• A trust is said to have lapsed if there is no trustee remaining in office eg. if sole trustee dies, or of a body corporate, is dissolved.

  ‘Lapsed’ does not mean trust thereby comes to an end.
• The two types of investment duties of a trustee is that they must make a wise choice of investment within their powers and must not invest in a way outside their powers.
• Trustees must keep accounts — Form unimportant unless it is a charitable trust (which must be given to OSCR); no time limit specified
• Trustees powers are determined by the trust deed; set of default powers implied by common law or statute

  • Court can grant these if excluded by trust deed
• Trustees have a presumptive power to sell any trust asset.

  • Sale of trust assets only constitutes a breach of trust if limited by trust deed
• A quorum is a majority of trustees; This is the minimum number for a decision to be valid among trustees.
• All trustees must be consulted within the course of decision-making; lack of consultation invalidates decisions eg. appointment of additional trustees agreed by 2/3 trustees without consultation of the third.
• New law provides a mechanism to remove trustees without capacity
• Trustees removed due to incapacity can challenge this decision
• (New law) A trustee can be removed who purports to carry out their duties in a way which is/may be inconsistent with their fiduciary duty
• New law expands on grounds for removal of trustees eg. incapable, untraceable, convicted of an offence of dishonesty