Trusts Reform Series: Part 4
This article is Part 4 in our five-part series addressing the issues you may be facing with the introduction of the Trusts Act 2019 (Act) early next year.
While the Act applies to all express trusts, whether created before or after the Act comes into force,1 it nevertheless recognises that not all express trusts should be treated the same, such as trusts used for commercial purposes. For such "specified commercial trusts":
These exclusions recognise the reality that specified commercial trusts are pervasive and are used to give effect to transactions between sophisticated commercial parties, in contrast to a family trust where there may be concerns about vulnerability or a lack of understanding.
This article reviews the concept of the "specified commercial trust" and the implications for such trusts once the Act comes into force.
What is a "specified commercial trust"?
The Act defines a "specified commercial trust" as, broadly:2
- a trust created to facilitate one or more commercial transactions and where each beneficiary has become a beneficiary by entering into a commercial transaction of the type the trust was intended to facilitate;
- a "wholesale trust", which is established in connection with a wholesale offer of financial products, wholesale lending or borrowing or wholesale broking services and where the beneficiary falls within one of seven categories; or
- a "security trust", where the trustee holds security for the benefit of one or more counterparties.
All specified commercial trusts
The Act recognises that some of its provisions are not appropriate for certain types of trust. Relevantly, the following provisions are excluded for all specified commercial trusts:3
- the requirement for a paid adviser to ensure the settlor is aware of the meaning and effect of any modification or exclusion of default duties; and
- the requirement for a paid adviser to ensure the settlor is aware of the meaning and effect of any liability exclusion or indemnity clause.
Existing specified commercial trusts
The Act differentiates between specified commercial trusts in existence before 30 January 2021 and specified commercial trusts created after the commencement of the Act.
For specified commercial trusts created before, or created under terms agreed to and in effect before, the commencement of the Act, the following provisions of the Act will not apply:4
- the trustee's obligations to keep and give trust information;
- the exercise of trustee powers and functions by others;
- the provisions regarding special trust advisers;
- certain of the trustees' indemnity provisions;
- the termination or variation of the trust by unanimous consent of beneficiaries;
- the beneficiary's right to a share of the trust property; and
- the investigation of condition and accounts of certain trust property.
These exclusions apply to all existing specified commercial trusts, which reduces the need to amend the trust deeds of these existing trusts.
New specified commercial trusts
For specified commercial trusts created after 30 January 2021, other than the specific exclusions that apply to all specified commercial trusts, all provisions of the Act will apply.
However, the terms of a new specified commercial trust may also modify or exclude the application of the provisions that do not apply to existing specified commercial trusts (set out above).
See the summary table below:
Type of specified commercial trust
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Position
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All specified commercial trusts (i.e. whether those trusts are created before or after 30 January 2021).
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Sections 39 and 43 requiring a paid adviser to ensure the settlor is aware of meaning and effect of any modification or exclusion of default duties and liability exclusion and indemnity clauses, respectively, do not apply.
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Existing specified commercial trusts (i.e. those trusts created before, or created under terms agreed to and in effect before, 30 January 2021).
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The following sections do not apply:
- sections 45 to 55;
- sections 67 to 76;
- sections 81 to 85;
- sections 121 to 123; and
- sections 153 to 158.
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New specified commercial trusts specified commercial trusts (i.e. those trusts created after 30 January 2021).
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The following sections do apply unless modified or excluded by the terms of the trust:
- sections 45 to 55;
- sections 67 to 76;
- sections 81 to 85;
- sections 121 to 123; and
- sections 153 to 158.
See also the provisions in Schedule 2.
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Next steps
While the Act allows for provisions to be modified or excluded by implication, it would be timely for both existing and new trust deeds for specified commercial trusts to be reviewed to ensure that the trust will be able to operate as intended once the Act comes into force on 30 January 2021.
Please contact any of our experts listed below if you would like to discuss the impact of the Act on specified commercial trusts, or any aspect of the Trusts Act 2019.
You can view the other articles in this series here.
This article is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice. If you require any advice or further information on the subject matter of this newsletter, please contact the partner/solicitor in the firm who normally advises you, or alternatively contact one of the partners listed below.