Commentary on Sections Part 1 – Trusts Alteration of trust purposes
103.Section 65 of the Act creates a new court power by which the purposes of a trust may be varied in certain circumstances. It applies to trusts, within the meaning given by section 81(1), but does not apply to commercial trusts or public trusts (see subsections (1) and (2)).
104.In partial implementation of recommendations 95 and 98(2), the section permits trust purposes to be altered by the court where there has been a material change in circumstances. The court may only adjust the purposes to the extent it considers necessary to offset or counter the effect of the change in circumstances. The section also enables the truster to prevent the court’s power from being exercised for a period of up to 25 years (or, in the case of an inter vivos trust, the lifetime of the truster (if longer)) by making express provision in the trust deed to that effect. The broad aim is to provide a mechanism to counterbalance, where appropriate, the freedom which trusters are to have (under section 45 of the Act) to set up a trust of any duration.
105.The power is exercisable by the Court of Session, on application by any of a broad range of persons specified in subsection (9). The application may be opposed by any other person so specified (subsection (3)).
106.For an inter vivos trust, the court must be satisfied that there has been a material change in circumstances since the trust was set up, or that such a change is reasonably in prospect. However, subsection (4) provides that the trust deed may provide that no application may be made to the court (either or both) during the lifetime of the truster or up to 25 years from the date of the creation of the trust(18). By subsection (5), where a truster attempts to prevent alteration for a period longer than 25 years, this is to be read as preventing the alteration until the later of the death of the truster or 25 years from the creation of the trust.
107.In the case of a testamentary trust, the court must again be satisfied that there has been a material change in circumstances since the testamentary writing (i.e. the will or codicil) was executed, or that such a change must be reasonably in prospect. Further, the testator must have died (which is an express statement of what is already implicit, since the trust only comes into existence at that point and cannot therefore be altered before then) before an application may be made. Subsection (6) provides that the deed constituting the trust may prevent applications for alteration by the court for a period of up to 25 years from the date of death of the testator.
108.Subsection (7) provides a further special rule for certain testamentary trusts, namely, where there was a material change in circumstances between execution of the testamentary writing and death. If, in that situation, the testator was either incapable during the period between the change and death (i.e. was not regarded in law as being able to alter the will) or, during that period, was unaware of the change and its effect on the trust (or could not reasonably be supposed to have been so aware) then the court has discretion to determine that any exclusionary period (of up to 25 years) provided for in the trust deed is to run not from death of the testator but from the date of the change of circumstances or, if the court thinks fit, the commencement of the testator’s incapacity or unawareness.
109.For example, Sam made a will in year 0, with provision for a trust for family members which could not be altered for 20 years, but began to suffer from dementia to the extent that testamentary capacity was lost by the end of year 1. The result was that Sam was unable to change the will in the light of major family changes in year 3; Sam then died in year 10. From that point (but not before), the court may be petitioned for a determination that the 20 year period he specified during which the trust is unchallengeable should not begin to run in year 10 on death but either in year 3, from the date of the material change, or even in year 1, upon the loss of capacity. If, in the will, Sam had specified a period of say, 5 or 10 years, then the effect of subsection (7) is that the court power will be available either immediately following death or soon after death. But that subsection only applies where the testator could not reasonably have been expected to take steps of their own to alter their will in the light of material changes before their death.
110.Subsection (8) provides that where a truster attempts to prevent alteration of the trust purposes for a period longer than 25 years, that is to be read as preventing the alteration of the trust for 25 years from the date of death of the truster.
111.Subsection (10)(a) lists some of the factors to which the court is to have regard when deciding whether and, if so, to what extent, to exercise its power under subsection (1). They include: the intentions or probable intentions of the truster; whether the beneficiaries consent to the proposed alteration; and the fairness of that alteration. Paragraphs (b) and (c) set out some of the options which the court has in making the order: it may order that the trust be brought completely (or partially) to an end, with the beneficiaries taking their entitlements, or that the date on which trust property would otherwise vest is to be brought forward or delayed.
112.Subsection (11) states, in effect, that the court power under this section may not be ousted by the truster (except as specifically provided for in the section) and will apply regardless of any contrary provision in the deed.
113.Subsection (12) provides some examples of what is meant by “change in circumstances”. Changes in the nature or amount of the trust property are included, as are changes in the personal or financial circumstances of a member of the truster’s family or a beneficiary; equally, changes in the tax regime are expressly included, as that is likely to be a reason, in some cases, for trustees to apply to the court under this section. Some such changes cannot, by their nature, be predicted in advance but those which can be reasonably foreseen may be used as the basis for a court application (by paragraph (a) of subsections (3) and (6)). Subsection (13) sets out factors which indicate whether a trust is a commercial one and, hence, whether it will be excluded from the scope of this section by subsection (1). There are some examples of commercial trusts in subsection (14), such as life assurance policies, unit trusts, and trusts linked to a partnership agreement.
114.Subsection (15) implements recommendation 98(2) and provides that the section applies to any trust, including those created before the provision comes into force.
115.Subsection (15) also makes clear that this section is in addition to the specific power in section 67 by which the court may remove (with or without replacement) an office from the trust deed where the holder of that office is to be an ex officio trustee.