Clause 69 - Protection of trustees and personal representatives

Adoption and Children Bill – in a Public Bill Committee at 11:00 am on 6 December 2001.

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Question proposed, That the clause stand part of the Bill.

Photo of Tim Loughton Tim Loughton Shadow Spokesperson (Health)

Now that we have departed from the choppy waters of aristocratic sperm, it will be interesting to see how the Lords deal with those clauses. We are now on the safer—as far as the Hansard reporters are concerned—territory of trustees.

I would like the Parliamentary Secretary to elucidate the clause. I speak with a vested, but non-pecuniary interest as someone who acts as a trustee for various funds. Subsection (1) exempts trustees from inquiring in the course of their duties, which would normally be to distribute the assets of a trust fund or administer the distribution of income, about the adoptive state of—I presume—a potential beneficiary of the trust.

I would like the Parliamentary Secretary to explain that. A trust may be set up with the explicit intention that its assets should be passed on only to blood relatives. For example, grandparents may set up a trust for their grandchildren, but they may want only the natural-born children of their children to inherit from it. If, after the grandparents' death, an additional child was adopted by the second generation and the trustees were unaware of that, could that adopted child be a beneficiary of the distribution of the trust's assets in the same way as the blood relatives? If it were later discovered by the trustees that they had effectively breached the terms of the trust because an adopted child had become a beneficiary, would there be no comeback on that? It would be useful to clarify that for trustees. I admit that it would be unusual for there to be exclusions or exemptions for adopted children in a trust's documents, but it is not inconceivable.

Photo of Rosie Winterton Rosie Winterton Parliamentary Secretary (Lord Chancellor's Department)

Let me go back a bit. The idea of the clause, which replicates section 45 of the Adoption Act 1976, is to provide protection for trustees or personal representatives who might distribute property in ignorance of the making or revocation of an adoption order. It is not the same as the hon. Gentleman's example, but imagine that a will is made to distribute property among grandchildren, where the person who made the will dies and an adopted child then comes into the equation. If that will simply stated, ''All my grandchildren shall inherit a portion of my estate,'' the adopted grandchild would acquire the same rights as the other children. However, the trustees of the estate might distribute the money to the natural children and the adopted child without realising that the adoption order had been revoked because a mistake had been made or fraud had been committed in the documents. The clause covers such a situation. The hon. Gentleman would be protected if he were a trustee of an estate and mistakenly distributed money to the wrong children because he did not realise that the order had been revoked.

Photo of Tim Loughton Tim Loughton Shadow Spokesperson (Health)

I think I see where the Parliamentary Secretary is coming from. However, will adoption law or trust law prevail? The trustees will not be guilty of wrongdoing because breaching a trust is not a criminal offence, although disaffected beneficiaries could bring a civil action. There is no comeback on the beneficiaries in trust law as regards the terms of a trust that specifies that non-adopted children can be the only beneficiaries.

The previous clause dealt with inheriting property and the equal treatment of the children. After the trust is distributed among the children, it may transpire that one of them is adopted and should not, therefore, qualify under trust law. Which body of law takes precedence in such a case? The issue is slightly complicated, and the circumstances are highly hypothetical. Can natural-born beneficiaries sue so that the share of the trust that is erroneously paid out to the adopted child is handed back? I hope that the Parliamentary Secretary gets my point.

Photo of Rosie Winterton Rosie Winterton Parliamentary Secretary (Lord Chancellor's Department)

I think that I get the hon. Gentleman's point, but I am not an expert on trust law, although I might become one—as if by magic. It is important to return to the terms of the trust and of any instrument that is drawn up.

Photo of Elfyn Llwyd Elfyn Llwyd Shadow PC Spokesperson (Home Affairs), Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Defence)

I hope that I can assist the Parliamentary Secretary. Subsection (2) gives the trustee immunity in civil and criminal law. Subsection (3) allows any disaffected person the right to the equitable remedy of tracing. That is the issue in a nutshell.

Photo of Rosie Winterton Rosie Winterton Parliamentary Secretary (Lord Chancellor's Department)

I am extremely grateful to the hon. Gentleman. That was almost what I was about to say. Any money that was incorrectly distributed would have to be handed back. The clause protects trustees who may distribute the estate in ignorance, although it would be an entirely different matter if they participated in an attempt to commit fraud. The clause is aimed at trustees who distribute money without realising that the adoption order has changed.

The terms of any trustee document would prevail in terms of the inheritance. If a document stated that that the beneficiaries should be a specific number of children—perhaps named children—and left out the adopted children, that would be a different matter.

Photo of Henry Bellingham Henry Bellingham Conservative, North West Norfolk 11:15, 6 December 2001

I understand that the clause is intended to cover every eventuality, but surely a trustee or personal representative would know that a potential beneficiary had been adopted. Trustees have wide-ranging fiduciary duties. I should declare an interest, as I am one of several trustees of a trust with four or five beneficiaries. It is our job to ensure that the professional people investing in the funds and the solicitors running the trusts do so to a high standard. We are unpaid and act as trustees because we have respect for and like the family in question. It would be extraordinary beyond belief if I did not know all the circumstances affecting beneficiaries as part of my due diligence as a trustee. The clause surprises me.

The clause may indeed cover every eventuality, as the Parliamentary Secretary says, but are there any other circumstances in which trustees or personal representatives would not be under such a duty? As part of trustees' due diligence requirement, it is their duty to be aware of such eventualities. In what circumstances does she imagine that trustees or personal representatives would not know about those unforeseen factors?

Finally, will the Parliamentary Secretary also tell us whether ''follow the property'', in subsection (3), is another legalistic definition of tracing, mentioned by the hon. Member for Meirionnydd Nant Conwy (Mr. Llwyd)?

Photo of Rosie Winterton Rosie Winterton Parliamentary Secretary (Lord Chancellor's Department)

The hon. Gentleman is right to say that the clause applies to exceptional circumstances. I accept that he, as a trustee, has a large knowledge of the law, but the clause ensures that trustees do not have to undertake unduly extensive inquiries, which might be quite difficult in cases of fraud, for example, if a relative challenged an adoption. As I said, the provisions have been carried over from the 1976 Act to give trustees some protection, so trustees will not have to make unduly searching inquiries in exceptional cases such as fraud. In the personal case he has described, the hon. Gentleman obviously knows the family and their background well, but in some instances trustees are professionals who do not have intimate knowledge of the family. The answer to his question about tracing is yes.

Photo of Elfyn Llwyd Elfyn Llwyd Shadow PC Spokesperson (Home Affairs), Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Communities and Local Government), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Defence)

May I raise a matter that seems, on reflection, to be slightly odd? I understand subsection (3) with respect to tracing, but if the property is sold

''into the hands of another person'' under the clauses in question the disaffected person cannot recover at all. The trustee is immune—full stop. If the property is sold on in good faith, the disaffected person has, it seems to me, no right of action. Perhaps the Minister would reflect on that. I do not expect an immediate answer, but it would be interesting to know.

Photo of Rosie Winterton Rosie Winterton Parliamentary Secretary (Lord Chancellor's Department)

I am extremely happy to reflect on that. Perhaps I could write to the hon. Gentleman and any other members of the Committee who would like to hear from me on that point.

Question put and agreed to.

Clause 69 ordered to stand part of the Bill.