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Changes to a 100-year-old law will bring Trusts into the 21st century

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Lindsay MacEwen is a senior associate in Harper Macleod’s private client team. She is accredited by the Law Society of Scotland as a specialist in Trusts Law.

Lindsay MacEwen
Lindsay MacEwen

The use of trusts as a way of protecting and managing assets dates back to the 17th century. In their simplest form, trusts allow for specific assets to be transferred to someone else – a trustee – to be used for a particular purpose and to benefit particular people – the beneficiaries.

The use of trusts is wide and varied. There are different types of trust available allowing them to be used in various circumstances. A common use is to protect assets for the future for young family and vulnerable individuals. They are also often used for commercial purposes including business protection and succession planning. They can be set up for inheritance tax planning and for charitable purposes. The list goes on.

However, for anyone who is familiar with the of trusts, you’d be forgiven for thinking they are unnecessarily complicated, given the laws which govern them are more than 100 years old. This is why the Scottish Government is trying to modernise trusts and bring them into the 21st century.

The Trusts (Scotland) Act 1921 has been amended several times since it was first introduced, but it is widely felt that it is in need of modernisation with one Act to bring together the various pieces and changes within one clear and coherent statute, making Scottish trusts more accessible and up to date.

The Trusts and Succession (Scotland) Bill is currently working its way through the Scottish Parliament’s legislative process, with the main area of change focusing on how trusts are manged and administered. Part of the Bill also includes a provision the Scots law of intestate succession – this is when someone dies without having made a will.

At present, entitlement under the rules of intestacy is surprisingly complicated.

The first element is the prior rights of a spouse or civil partner, which rank above all other entitlements after debts are paid. These rights are restricted to specific financial limits for each of the type of assets held in your estate.

The second element is the legal rights of spouses or civil partners, and/or children. This is an entitlement to a specific sum of the remaining ‘moveable’ estate assets. Moveable estate being assets such as cash, investments, personal possessions and an interest in a business, but not land and property.

Finally, the remaining value of the estate passes completely to a family member, in accordance with a pre-defined priority list set out in the legislation. To date, this list has prioritised children/grandchildren, followed by parents and siblings. Where neither of these categories exist, the spouse or civil partner will inherit the remaining estate assets.

The proposal of the Bill aims to revise the priority list mentioned in this final element. The proposal is that a spouse or civil partner should inherit immediately after children and grandchildren i.e., de-prioritising parents and siblings. For some, this may bring the law closer to their own expectations of how their estate ought to pass. However, for others, such as those with estranged marriages or civil partnerships, this may allow distribution which would be contrary to their preferences and action should be taken to their wills and update where appropriate.

Although there is no set deadline as to when the changes to trusts will be fully made, there are expectations they will be made in the current parliamentary calendar which runs until next summer.

Contact us for more information on trusts, wills, and succession and estate planning.

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