Isle of Man consults on planned trust law reform
The Trust and Trustees Bill 2022 is also intended to modernise the jurisdiction's trusts legislation to accommodate the modern demands made of a trust. There is now a growing consensus that Manx trust legislation needs updating to create a landscape that is 'clearer, more competitive and more reflective of common practice in the sector', says Isle of Man treasury Policy Advisor Joanne Coole.
STEP played a major part in many of the proposals incorporated in the draft Bill. Some of the original proposals were subject to much debate between internal and external stakeholders and agreement could not always be reached. The draft Bill includes those proposals on which a degree of consensus has been achieved.
‘STEP is delighted that the treasury has recognised the need to modernise and update its trust law in line with international standards,’ says Emily Deane TEP, Technical Counsel & Head of Government Affairs at STEP. ‘The improvements will enable practitioners to plan with more clarity and efficiency.’
The main amendments include Clause 4, relating to the trustees' duties to disclose trust information as currently set out in the Trustee Act 2001. This clause recognises the ability of a settlor to validly restrict a beneficiary's access to trust information in the trust deed while ensuring that beneficiaries are able to access the information that they require in order to hold the trustees to account. It enables a trustee to refuse to disclose information in specific circumstances, even if the terms of the trust give that person a positive right to receive that information, although the ultimate power regarding disclosure remains with a court.
Clause 5 of the Bill clarifies the question of whether a trustee can validly enter into a contract with themselves in their capacity as trustee of two separate trusts. The treasury proposes that statutory recognition is introduced in respect of contracts entered into by trustees with themselves in their capacity as trustee of another trust.
Clause 6 deals with trustee liability, proposing that trustees' personal liability be statutorily limited to the assets of the trust, thereby codifying existing practice and case law. Third parties dealing with trustees will be protected by a section stating that this new limitation of liability is subject to the third party in question being aware that they are dealing with the trustee in their capacity as a trustee before entering into a contract. This is similar to provisions in Guernsey, Jersey and the US.
Clause 7 deals with appointments, providing that powers of appointment are to be considered 'exclusive' powers unless the trust instrument expressly provides otherwise. The effect of this is that a power to appoint trust property between two or more objects of a trust is not invalidly exercised on the grounds that any object is excluded or takes illusory shares.
Clauses 11, 12 and 13 concern the Hastings-Bass rule and the court's power to declare a trustee's exercise of a power void on grounds of mistake. They will restore the legal position in the Isle of Man before the Supreme Court of the United Kingdom's 2013 ruling in the Pitt and Futter cases, which restricted the court's power to void a trustee decision to situations where the trustees have breached their fiduciary duty. This will remove ‘substantial uncertainty’ for Manx trustees, according to the consultation document.
Other amendments include Clause 14, which shortens the time limits on litigation for breach of trust from six years to three and Clause 15, which abolishes the apportionment rule for new trusts.
Comments on the text can be submitted until 9 May 2022.
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