trust law

• Truster


  Provides the property, which she transfers property to a Trustee (T)
• Trustee (T)


  The legal owner of property, although her role is to look after the property on behalf of the Beneficiary (B)
• Beneficiary (B)


  Has the corresponding right to compel trustee to administer the trust
• The use of the trust has expanded considerably compared to when the T(S)A was introduced in 1921
• Areas where the trust is now used


  • Succession
  • Family
  • Tax
  • Charity
  • Insolvency
  • Financial services
  • Commercial law
• Examples of trust uses


  • Protection of assets for children or incapable or vulnerable beneficiaries
  • Preservation of family wealth
  • Tax, to preserve the nil-rate band (until more recent Labour legislation)
  • Charities
  • Commercial reasons: pensions, life policies and other products (£500bn held in trusts)
• The trust consists of three parties: Truster, Trustee, and Beneficiary
• Truster


  Prima facie the truster has no further interest after the creation of the trust, although she can appoint herself as trustee. If purpose fails, property reverts to truster
• Trustee


  Has a fundamental obligation to only use trust to fulfil its purpose. This relates to the concept of fiduciary ownership
• Beneficiary


  Has the corresponding right to compel trustee to administer the trust. This is a personal right, although it remains a challenging point
• Rights of the Beneficiary


  • Personal right to compel the trustee to administer the trust
  • Right to interdict trustee from breach
  • Right to recover in damages
  • Right to petition the court to change the administration of the trust
• Beneficiaries can terminate the trust if every possible beneficiary desires and consents to a particular course being adopted, and none of them being placed under any restraint or disability by the trust deed itself</b>
• Beneficiaries can compel the trustee to sue third parties
• Insolvency protection (asset partitioning)


  Through a trust, one can create different rights in the same asset; the trust fund is not available to ordinary creditors
• The beneficiary's interest is difficult to explain, as it is a personal right rather than a property-like interest
• Patrimony theory


  Defines the patrimony as a legal universality brought together not by the relationship between persons but by a purpose. It helps explain why the trust fund is not available to creditors, and why the beneficiary has a beneficial (property-like) interest in the property
• Key aspects of the patrimony theory


  • The trustee has two patrimonies: a general patrimony and a trust patrimony
  • The trustee's personal creditors cannot attach assets in the trust patrimony
  • The beneficiaries' personal rights have third party effect
  • The theory explains real subrogation - where trust assets can be replaced without affecting the identity of the fund
• The patrimony theory has found support in the Scottish courts, such as in the case of O'Boyle's Trustee v Brennan [2020] CSIH 3
• Types of trusts based on their classification


  • Voluntary
  • Inter Vivos
  • Mortis Causa
  • Involuntary
  • Constructive Trusts
  • Resulting Trusts
  • Statutory Trusts
• Mortis Causa Trusts


  Trusts which take effect upon death. They are set up in a will, but only come into effect when the truster dies. The truster can change their mind before they die, and it can take time for the trust property to be transferred to the executor or trustee.
• Theories of creation for Inter Vivos Trusts

  • Conventional view: 1) The truster must make a declaration of trust which is communicated to the trustees, 2) The truster must transfer ownership of the trust fund to the trustees
  • Alternative view (Kenneth Reid): The trust is created by the declaration of trust which is communicated to the trustees. The transfer of ownership is only necessary to protect the property from the truster's creditors.
• The Scottish Law Commission notes that there is uncertainty in the law regarding the creation of inter vivos trusts, with the conventional view usually followed but the alternative approach being consistent with mortis causa trusts
• The Scottish Law Commission's 2014 report took the view that the current law on the creation of inter vivos trusts is reasonably clear - a trust exists as an abstract entity, and takes practical effect once property is made over to the trustees
• In other jurisdictions, such as England and Quebec, the transfer of property is often required for the creation of a trust, while in Japan the law is similar to the Scottish Law Commission's view
• Trust


  A legal relationship in which property is vested in one person, the trustee, who is under a fiduciary obligation to apply the property to some extent for another person's benefit, the obligation being a qualification of the trustee's proprietary right and preferable to all claims of the trustee or his creditors
• The TS(S)A does not define the trust or the role of the trustee, again illustrating the supplemental nature of the Act
• Trustee's role


  Trustee Powers + Trustee Duties
• Trustee Powers


  • Other than as owner of the property, trustee's additional powers are regulated by the trust deed
  • Trustees have, in relation to the trust property, all the powers of a natural person beneficially entitled to the property
  • Trustees are given very broad powers under s18, which are essentially those which they would have if they owned the trust property for their own benefit rather than for the benefit of the beneficiaries
• The past approach to trustee powers is quite different from the current approach
• A trust will have no practical effect unless there is trust property, appropriately vested in the trustees
• A "trust" may continue to exist as an abstract entity during periods when there is no property in it, and the trust takes practical effect once again when property is made over to the trustees
• Jurisdictions where transfer of property is required for a trust


  • England
  • Quebec
• In Japan, the law takes a position similar to SLC's 2014 report, in that transfer is not required but a trust has little practical effect without transfer
• In China, there does not seem to be an explicit requirement requiring transfer
• The Scots trust exists in the context of an international trust scholarship, and as a small jurisdiction, the Trust Bill is explicitly anchored in international comparisons
• Truster-as-Trustee Trusts


  Also known as self-declared trusts in England, another form of inter vivos trust
• Requirements for Truster-as-Trustee Trusts


  1. There must be a declaration of trust

  2. The declaration must be communicated to the beneficiary under the trust
• Truster-as-trustee trusts must be in writing - Requirements of Writing (Scotland) Act 1995, s1(2)(a)(iii)
• Truster-as-trustee trusts

  Inherently exposed to fraud against truster's creditors, which explains the need for safeguards
• Truster-as-trustee trusts are accepted in England, but comparatively they cause certain difficulties (there is strong feeling that they may be open to fraud)