Trusts - Head 6

Uses and Effects of Trusts

Joint property

Gillespie v City of Glasgow Bank (1879) 6 R (HL) 104, at 111 per Lord Blackburn

the nature of the case require that is should be jointly. They cannot take it pro indiviso, each have a portion of it, and yet manage the whole as one body for the benefit of those who are beneficially interested…”

Trusts and Succession (Scotland) Act 2024, s 4

“(1)The appointment under section 1(1)(a), or assumption under section 3, of an additional trustee operates as a general conveyance of the trust property in favour, jointly, of the additional trustee and the existing trustees.

joint property

• When a trustee takes up or leaves office they simultaneously will take or lose their joint ownership interest in the trust property

• Efficient because it minimises transaction costs and formalities that would be required by conveyancing

Bankruptcy (Scotland) Act 2016, s 88(1)(c)

1. The following property of the debtor does not vest in the trustee in the sequestration – 

(c) property held on trust by the debtor for any other person

Bankruptcy (Scotland) Act 2016, s 78

insolvency of the beneficiary

The whole estate of the debtor vests for the benefit of the creditors in the trustee in sequestration, by virtue of the trustee’s appointment, as at the date of sequestration

so creditors/insolvency trustee only get what the beneficiary had as an interest: no more than that

‘Alimentary trusts’: beneficiary’s interest limited and inalienable, so not subject to creditor’s claims.

ankruptcy (Scotland) Act 2016, ss 6 & 228

insolvency of the trust

The estate belonging to any of the following (or held for or jointly by, as the case may be, the trustees, partners or members of any of the following) may be sequestrated –

(a) a trust in respect of debts incurred by it.

S 6(3): trust will be sequestrated upon application of majority of trustees with concurrence of creditor; or on petition by creditors alone.

insolvency of trust, trustee liability

old law - Lumsden v Buchanan (1865) 3 M (HL) 89, at 95-96 per Lord Cranworth.

• No one can be easily identified as a trustee. So when contracting with a third party, they can be expected to think that they’re just contracting with a normal (i.e not trustee) person

• If the trustee did not bring this to the attention to the third party, explicitly 

• They can be held liable in the contract 

  • The third party isn’t a psychic. 

• Normally, this didn’t cause any issues since the right of relief allowed trustees to claim back the personally incurred expenses made for trust benefit.

insovency of trust, trustees laibility to third parties

Trusts and Succession (Sco) Act 2024

S 38

• S 38(1)-(2): third party entering into a contract with a trustee who is aware of the trustee’s status (need not be told expressly by the trustee) – the third party can enforce rights against the trust property only except in so far as the contract otherwise provides.

  BUT

  S 38(3)-(4): if the trustee has a right of relief/reimbursement from the trust then the third party can choose whether to enforce claim against trustee’s private property or directly against the trust property (liability being joint and several).

Trusts and Succession (Sco) Act 2024 - s.43

S 43: where a trustee transfers property to a third party in breach of trust, if the third party paid for it (onerous transaction) then they receive a good title regardless of whether or not they are in good faith (though the trustees remain potentially liable for the breach of trust; the third party is protected).

BUT

The third party's title protection under s 43 is only for onerous transactions; if the trustees gave the property away as a breach of trust then the third party receives a merely voidable title. 

Gratuitous alienations - insolvency of truster

• Bankruptcy (Scotland) Act 2016, s 98

• Truster has given away their property into the trust, 

  • Basically a gift

• Law says that if you become insolvent within a certain period after you give away property, the insolvency practitioner can pool that property back

• 2 or 5 years depending on the relationship between the debtor and third parties who they transferred to.

confidentiality

• Trusts (leaving aside charitable trusts for the moment) have fewer general or public reporting regulation that some other forms of legal entities (e.g. companies etc)

• Often allows more scope for secrecy and confidentiality for the truster’s plans and intentions for the trust estate

• Discretionary trusts can be set up with a ‘letter of wishes’ which is an effective way of created facilitated or guided discretion in a confidential manner. Cf information rights under T(S)A 2024, s 30.

• Outlines what the truster may have had in mind about how the trustees exercise their discretion

  Beneficiaries cannot generally access this letter

  The legislation presumes the trustees will not disclose certain information.