Navigating New Rules on Changing Trustees

Table of Contents

• Trust and Succession (Scotland) Act 2024

• Removal of Trustees

• Truster Power of Appointment

• Enforcement

Trusts and Succession (Scotland) Act 2024

The Trusts and Succession (Scotland) Act 2024 received Royal Assent on 30th January 2024, representing the first significant reform to the law of Trusts since its predecessor, the Trusts (Scotland) Act 1921, was brought into force. This Act addresses the antiquated language of the old statute whilst simultaneously offering legal solutions to problems Trusts face in the present day.

In March 2023, during the Scottish Parliament’s legislative consultation stage, Jones Whyte was asked to provide our input on the draft provisions of the Bill. In particular, we strongly advocated for the introduction of wider powers of removal for Trustees as well as conferring a power on the Truster to appoint new Trustees to their Trust. Such powers allow for the better management of Trust funds going forward.

Removal of Trustees

The Act introduces new measures to allow current Trustees to be removed from office without the need to involve a court action. Under the 1921 Act, a Trustee can be removed with reference to the terms of the Trust Deed itself, failing which it is possible to request the court to remove a Trustee who is ‘insane’, incapable of acting or who has been absent from the UK for at least a continuous period of 6 months.

In contrast, section 9(1) of the new Trust Act allows a Trustee to be removed by a majority of the other Trustees if certain factual conditions are met. These include a Trustee who has become incapable of acting, a Trustee who has been imprisoned or a Trustee who has been convicted for an offence which involves dishonesty. This power will not be available if the Trust Deed provides otherwise.

More significantly, however, is the provision for the removal of professional Trustees. Any Trustee who was of a regulated profession when appointed to office and whose appointment was for the purpose of providing their expertise to the management of the Trust may be removed by a majority of their co-Trustees if that person has ceased to work or otherwise is no longer entitled to practise within that profession. Examples of regulated professions include solicitors, accountants and financial advisers.

Therefore, even if the Trust did not originally envisage problems arising with the originally assumed Trustees, or even consider it necessary to contain certain powers of removal, the 2024 Act offers a potential solution in this regard.

Truster Power of Appointment

When setting up a Trust, the person responsible for granting this is referred to as the ‘Truster’ (or Settlor). Normally, once the Trust has been established, the Truster ceases to be involved in the Trust’s affairs with the Trustees becoming responsible for dealing with the management of the Trust. Of course, should anything happen to the Trustees which prevent decisions about the Trust from being made, it may be beneficial to permit the Truster to intervene.

Under section 2 of the 2024 Act, the Truster will now have a power to appoint a new Trustee in the event that there are no traceable or capable Trustees currently acting, subject to the terms of the Trust Deed. Any appointment made under this section will result in the automatic replacement of the previously appointed Trustees. Similarly, no assistance from the court is needed to rely upon this power.

Section 2 does not, however, negate the need for careful Trust planning. A Truster who has passed away or is mentally incapacitated will not be able to exercise this power. It is therefore crucial that regular reviews of a Trust are carried out to mitigate any potential deadlock from arising.

Enforcement

While these powers represent a much welcomed change to the law of Trusts, further regulations must be passed by Scottish Ministers before Trustees and Trusters alike will be able to rely on these provisions. It is currently unknown as to when this will occur.

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FAQ’s

What is a Trust?

A Trust is a formal arrangement that manages Trust assets for a designated group of individuals. You appoint Trustees to oversee the Trust and beneficiaries to receive its benefits.

Assets held in a Trust can generate income, such as rental income from properties, dividends from shares, and interests from money. The Trust may retain this income or distribute it to the beneficiaries.

While assets are held in a Trust, their value may rise or fall; it is the Trustees’ job to manage this in the beneficiaries’ best interests. Trusts must therefore occasionally pay tax, thereby incurring tax liability.

How can the Trustee of a Trust be changed?

It is possible to request the court to change Trustees, taking into consideration various factors and circumstances. For example, they may not be fulfilling their duties, have been imprisoned, or have been absent from the UK for at least a continuous period of 6 months.

How do I remove a Trustee from existing Trusts?

A Trustee can be dismissed by the majority of their co-Trustees. However, the outgoing trustee in question has the right to seek approval and contest their removal.