Reserved Instrument Activities

Trusts Discussion
1

I’ve been looking back at a discussion in February 2024 regarding this, but I’m still not entirely clear about what is and isn’t reserved. AI isn’t helping; in fact, it’s adding to the confusion! I’m not a Solicitor but I am a Registered Trust & Estate Practitioner, and I’m trying to understand what I can and can’t do in my one-man-band business. One AI-assisted Internet search came up with the suggestion that, whilst a trust of land is caught, a trust of cash/investments isn’t. Copilot, Microsoft’s AI has now said, "On a literal reading of Schedule 2, paragraph 5 of the Legal Services Act 2007, the definition of a reserved instrument activity does indeed refer to:

“preparing any other instrument relating to real or personal estate for the purposes of the law of England and Wales…” [legalservi…ard.org.uk], [legislation.gov.uk]

and “instrument” excludes wills, powers of attorney, certain agreements not intended to be deeds, and simple stock transfers without trusts or limitations. [lsbstaticw…indows.net], [legalservi…ard.org.uk]

If that wording were read completely in isolation, it could appear to capture the drafting of trust deeds concerning cash and investments, because a trust deed is an instrument concerning personal property.

However, the reason many practitioners say that drafting trust deeds is not itself a reserved activity is that the scope of “reserved instrument activities” has long been understood, in practice and regulatory guidance, to be focused on conveyancing and certain instruments affecting property transactions rather than every deed relating to personal property. The statutory wording is broader than the activity that has traditionally been treated as reserved.

The crucial point is that there is a distinction between:

  1. What the text appears to say when read literally, and
  2. What activities regulators and the courts have treated as falling within the reserved legal activities regime.

I would therefore be cautious about accepting the blanket statement:

“The drafting of deeds is reserved no matter what assets the deed relates to.”

The legislation does not actually say “all deeds are reserved”. Rather, it reserves the preparation of specified instruments, and then defines “instrument” in a particular way. [legislation.gov.uk], [lsbstaticw…indows.net]

Equally, I would be cautious about the opposite blanket statement:

“Anyone can draft a trust deed because it only contains cash or investments.”

The legislation does contain the “real or personal estate” wording that you’ve identified. [legislation.gov.uk], [legalservi…ard.org.uk]

My assessment is that you’ve identified a genuine legal ambiguity. The statutory wording does provide ammunition for the argument that a deed creating or declaring trusts of investments could fall within paragraph 5(c), yet the mainstream regulatory understanding of reserved instrument activities has historically been much narrower than “all trust deeds”.

For a compliance-sensitive business, the safest approach is not to rely solely on the LSB summary page but to obtain (or review) a specialist opinion on the scope of paragraph 5(c) and any relevant case law or regulatory guidance. The question is really not “is it a deed?” but “is this type of instrument one that the reserved instrument activity provisions have been interpreted as covering?”

So, in short:

  • You are correct that the statutory wording is not limited to land and expressly refers to personal estate. [legislation.gov.uk], [legalservi…ard.org.uk]
  • The statement that the legislation only applies to land is too simplistic. [legislation.gov.uk], [legalservi…ard.org.uk]
  • It does not automatically follow that every trust deed of cash or investments is a reserved legal activity. That requires a deeper analysis of how paragraph 5 has been interpreted and applied in practice.

This is one of those areas where the statutory text and the commonly repeated summary of the law do not sit entirely comfortably together."

I want to be able to provide a holistic service to my clients based on 55-years of experience, but not at the risk of breaking the law!

2

My understanding is that the prohibition relates to the drafting of all lifetime trusts, whatever the nature of the trust property, but does not extend to the drafting of any will trust. This is utterly obtuse since just as much skill is required for drafting a complex will trust, but the clients will of course still have remedies in contract or tort despite there being no regulatory breach of statute (which in itself must cause a vestigial loss).

I practised from 1991 to 2019 as a chartered tax adviser while remaining on the Roll as a non-practising solicitor. Having drafted thousands of trusts prior to that I nevertheless observed the rules and arranged for a practising solicitor to settle my lifetime trust drafts. Nonsense on stilts but I did not want to hazard my livelihood by a tussle with the Minotaur of the Cube. The breadth of what I actually did personally required much negotiation with PI insurers whose imagination is not their strong suit.

I also, in the interests of my clients, assumed that my advice to them was not covered by legal professional advice privilege, which severely hampered my former direct operations in what was then known as “back duty” advisory work. I had to do it thereafter indirectly as a consultant to a regulated firm.

I had also to keep away thereafter from formally and directly conducting activities of probate and litigation, again having to arrange these indirectly. My expertise in these areas counted for nothing. You must surely bump up also against the probate restriction.

Jack Harper

3

Thanks, Jack. I know you contributed to the 2024 discussion along similar lines. :nerd_face: