The Children (Scotland) Act and private client matters

Written by Perry McEwan, Solicitor, Thorntons

As a Private Client professional in Scotland you might be thinking, but why is the 1995 Act important to me in my role? But it is…

The Children (Scotland) Act 1995 – Section 9 & 10

Many people are familiar with the Children (Scotland) Act 1995 which covers several aspects in relation to the welfare, protection, and rights of a child who is under the age of sixteen years and who is habitually resident in Scotland. However, what is perhaps not so familiar is section 9 and 10 of the Act. These sections are of particular importance to the Private Client sector, alongside, of course, the Family Law sector in Scotland.

Section 9 and 10 of the Act are arguably not as well-known in the Private Client sector as, plainly speaking, it’s not an area that comes up all too often in our day-to-day practice. These sections are also not covered in Currie: The Confirmation of Executors in Scotland, 9th edn (2011).

As a Private Client professional in Scotland you might be thinking, but why is the 1995 Act important to me in my role? Well, it can sometimes happen that substantial amounts of property or money fall into the ownership or entitlement of a child through inheritance. Section 9 of the Act includes provision for the administration of any such funds and/or property owned by or due to a child until they reach the age of 16, at which time they are then legally capable of administering their own finances.

Prior to the enactment of section 9, the child’s parent/guardian had the right to administer any such property on behalf of the child and this was subject to the provisions of the Judicial Factors Act 1849, with the result that the parent/guardian was under the supervision of the Accountant of Court and was obliged to lodge an inventory and to submit annual accounts.

Perhaps unsurprisingly, this was regularly ignored by parents/guardians, particularly where the sums involved were modest and so the Scottish Law Commission suggested a scheme whereby the law impose the obligations of Judicial Factors on parents/guardians in only certain cases. Those such proposals are now given effect to in the sections covered in this article.

Section 9 - Safeguarding of Child’s Property

Generally speaking, section 9 applies where (a) property is owned by or due to a child (b) the property is held by a person other than a parent/guardian of the child and (c) the property would be required to be transferred to a parent who holds parental responsibilities in relation to the child or to a guardian for administration on behalf of the child.

It is important to note that a mother of a child automatically has parental responsibilities in relation to their child.  A father only automatically obtains parental responsibilities firstly, if he was married to the child’s mothers at the date of the child’s conception or at any time thereafter or secondly, if the father is not married to the mother, he will obtain parental responsibilities if he is presumed to be the father because he was registered as the child’s father on the Birth Certificate.

The most common situation in which this section arises is with inheritance, awards of damages and awards under the Criminal Injuries Scheme.

This section applies only when the holder of the property or money is required to pay it over to a parent/guardian, but it is important to note that not all property due to a child is required to be transferred. A child who earns money is normally entitled to have their earnings paid direct to them i.e., working in a café at 14 years old.

Subsection 2

Again, generally speaking, in terms of subsection 2 of the Act, if the person holding the property on behalf of the child is an Executor or Trustee, then if the value of the property exceeds £20,000 he must apply to the Accountant of Court for a direction as to the administration of the property. However, if the value of the property is between £5000 - £20,000 then he may, at his own discretion, apply to the Accountant of Court for direction. So, we can imply that it would be incompetent to apply for directions where the sum involved is less than £5000.

Under the previous law, parents/guardians were treated as Judicial Factors no matter how modest the sums involved were, and the law, as mentioned, was frequently ignored with parents seldom submitting annual accounts. One may assume this is because the value of most children’s property compared with the expense of fulfilling such an obligation was likely to be disproportionate. Therefore, the aim of section 9 is to ensure that the Accountant of Court becomes involved only where large amounts of money are involved.

Subsection 3

In terms of subsection 3, if the person holding the property is a person other than an Executor or Trustee (for example a pension provider), then they can apply to the Accountant of Court at their discretion for a direction as to the administration of the property so long as the value of the property is not less than £5000. As stated, it is likely that most cases of a child becoming due amounts in excess of £5000 will be as a result of inheritance.

Subsection 4

Finally in terms of subsection 4, if a parent/guardian has been appointed a Trustee under a Trust deed to administer the property concerned, then subsections 2 and 3 shall not apply. Therefore, if the property or funds which are due to be transferred to the child are the subject to a Trust Deed and the nominated Trustees are willing to act, then the property or funds will be held according to Trust law as opposed to the 1995 Act. As a result, there is no obligation to make an application for directions to the Accountant of Court.

Application to the Account of Court

When an application comes in to the Accountant of Court, the Accountant of Court may; (1) apply to the Court for the appointment of a Judicial Factor (2) direct that all or part of the property concerned be transferred to himself or (3) direct that all or part of the property concerned be transferred to the parent/guardian to then be administered on behalf of the child.

The Accountant of Court must respond in one of the listed ways above. If he is to do the first option listed, the Court is not obliged to grant it, nor to grant it in the terms in which the accountant seeks. If the Court does make an appointment of a Judicial Factor, then it must direct that the appropriate property be transferred to the factor.  If he instead chooses for the property concerned to be transferred to himself, then it shall be upon him to invest, administer or otherwise deal with the property on behalf of the child. If the property is to be transferred to a parent/guardian, then the parent/guardian must administer it on behalf of the child by exercising the responsibility and right of legal representation.

Section 10 – Obligation and Rights of Person Administering Child’s Property

Moving onto section 10, a person acting as a child’s legal representative in relation to the administration of the child’s property shall firstly be required to act as a reasonable and prudent person, which is of course an objective test; secondly they shall be entitled to do anything which the child, if of full age and capacity, could do in relation to that property and thirdly on ceasing to act as legal representative, they shall be liable to account to the child for their intromissions with the child’s property.

The previous law imposed a duty on all parents/guardians who administered the estate of a child to account to the child for their intromissions with the funds. The Scottish Law Commission felt that it was inappropriate to impose this duty on everyone, given that most parents/guardians will at some time have to manage very small sums on behalf of their children. This present section attempts to balance the need to ensure that parents/guardians can be called to account in appropriate cases only.

Conclusion

In short, section 9 makes it compulsory for an executor-dative administering an intestate estate to inform the Accountant of Court if a child is to inherit more than £20,000 from the estate and so it does deal predominately with intestate estate to which a child is to inherit it but it could also apply even where there is a Will but it fails to make any provision for an under 16’s inheritance being held in a Trust.