Trusts

Trustees must also act with honesty and prudence at all times. If they attempt to make personal gains while exercising their investment p...

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The general power of investment does not apply to pension trusts, authorised unit trusts or some charitable trusts

The rule relating to restrictions imposed by the trust deed does not apply to trusts established prior to 3 August 1961. This ensures that older investment restrictions overcome by the Trustee Investment Act 1961 are not invoked

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Rule against variation

Trusts are normally irrevocable once established - that is, trust property cannot be recovered (returned to the settlor) unless the trust is worded to the contrary.

A trust cannot usually be varied once created unless it is established as power of appointment or discretionary trust. In these situations, beneficiaries can be varied if they fall within classes specified in the trust.

Permitted variations

There are certain circumstances where the general rule relating to the revocation or variance...

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The above provisions will involve applying to the court for consent, which could prove costly and there is no guarantee of being permitted to make the requested variation.

Finally, under the rule in Saunders v Vautier (1841) , if all possible beneficiaries are over 18, of sound mind, and in agreement with each other, they can demand a trust’s property from the trustees and, in doing so, put an end to the trust.

A charitable trust must be of a charitable nature, for the public benefit and wholly and exclusively charitable. Prior to the Charities Act 2006 (the provisions of which have now been encompassed in the Charities Act 2011), they were divided into four main categories:

Relief of poverty

Advancement of education

Advancement of religion

Other purposes beneficial to the community, e.g. hospitals, animal protection, etc

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Outright gifts to charities are exempt from inheritance tax, either during lifetime or on death. Furthermore, if 10% or more of the net estate is left to charity by a will, then the 40% rate of IHT payable on the taxable portion of the estate is reduced to 36%.

Gifts to charitable trusts may qualify for income tax relief under the gift aid system or payroll giving scheme.

The Scottish equivalent of a settlor is a truster

A life interest is a life rent and a life tenant is called a life renter

A remainderman is called a fiar

An appointment of new trustees is called an assumption of new trustees

Statute

Trust law in Scotland ...

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The minority of any person living at the death of the granter

The minority of any person living at the creation of the trust

Since 1 August 1995, the requirement to have two signatures on Scottish deeds has been revoked. It is now sufficient to have just one signature.

There could be advantages in creating overseas trusts (from a tax perspective) where the settlor or beneficiaries are non-UK domiciled or resident.

Not all countries recognise trusts. If an overseas trust is to be created, it may wise to do so in a country where the legal system is similar to that in the UK, e.g. the Channel Islands, Gibraltar, the Cayman Islands, etc.

Creating a trust with foreign resident trustees will usually be treated as a transfer of value for IHT purposes. Whether it is classed as a chargeable transfer will depend upon various conditions, such as:

Whether any general IHT exemptions can apply

The property may be excluded pr...

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After 6 April 2017, an individual will be deemed domiciled for IHT purposes if they have been resident in the UK for at least 15 years out of the previous 20, ending in the tax year in question (it was previously 17 out of 20).

The new rules also state that if an individual changed their domicile from UK to a domicile of their choice elsewhere, they will be deemed domiciled if they have been resident in the UK in at least one out of the two previous tax years (the ‘residence condition’).

There will therefore be no change for long-term residents who created trusts while they were non-UK domiciled and subsequently become deemed domiciled, but for a UK domicile who created trusts after becoming domiciled elsewhere, the assets settled into those trusts will not be excluded property if the settlor meets the ‘residence condition’.