Private Purpose Trusts: Good for Scotland?

On 22 November 2022 the Scottish Government introduced the Trusts and Succession (Scotland) Bill (hereinafter ‘the Bill’) whose overall aim is to modernise the law of trusts in Scotland and to attract international trust business. Among other things the Bill proposes to introduce a regulatory framework for private purpose trusts in Scotland which is contained in Chapter 6. Private purpose trusts are trusts which are not created for the benefit of one or more beneficiaries, but for the furtherance of a private purpose that is non-charitable. In seeking to introduce private purpose trusts, Scotland looked for inspiration offshore, notably the STAR legislation of the Cayman Islands and Guernsey trust law. The Scottish proposal, however, has arguably gone a step further by proposing a scheme that is even more flexible and user-friendly than that offered by the offshore models.

This paper explores whether this radical break with the past is to be welcomed. It examines the extent to which the proposed regulatory scheme addresses practical as well as conceptual objections commonly raised against private purpose trusts, but also their workability and compatibility with Scots trust law.

The paper argues that the core objections against the admissibility of private purpose trusts have not been satisfactorily overcome by the Bill and that the conceptual and theoretical but also ethical concerns that such trusts raise have not been given sufficient attention. In particular, Chapter 6 of the Bill raises serious concerns about the enforceability of private purpose trusts in Scotland which could potentially be used to make beneficial ownership disappear. This is especially problematic given that in Scotland, trusts can be constituted for whatever duration the truster elects and according to the Bill, private purpose trusts will be very difficult to terminate. Further, Chapter 6 leaves a number of questions unanswered and some of its provisions raise terminological and conceptual questions that are bound to create confusion and uncertainty. Finally, the scope of the proposed legal framework for private purpose trusts is unclear and its provisions could potentially affect a wide range of private trusts, and, in particular, the rights of beneficiaries under such trusts.

Thus, even though the Trusts and Succession (Scotland) Bill is an important piece of legislation for Scotland and has many positive features, Chapter 6 is best dropped, especially given that it is far from certain whether it will lead to new business for Scotland. While it may well be the case that certain types of trusts currently operating in Scotland could be classified as private purpose trusts, the proposed framework runs the risk of opening up Scotland to, and offering a statutory validation of, all manner of private purpose trusts with far-reaching consequences.