2) How trusts are created

Question 1

Explain how a trust is established in a Will (5)

Answer 1

• A trust may be expressly stated in a Will
• Or arise because the Will leaves a gift to a minor
• The executors of the Will are the trustees
• Unless other trustees are specifically named in the Will
• The trust will come into force after the testator has died
• Assuming the Will has not been revoked by the testator before death

Question 2

When would a trust established in a Will would need to be registered with the Trust Registration Service (TRS) (3)

Answer 2

• The trust will need to be registered 2 years
• After the death of the testator
• if the trust still exists/has not been wound up
• Or earlier if the trust accepts the additional assets
• Or if it becomes a taxable trust

Question 3

Explain the IHT treatment of a pre 22 March 2006 IIP trust when the beneficiary has transitional serial interest (TSI) (4)

Answer 3

• The trust is not relevant property
• No periodic
• Or exit charges
• The trust fund is included in the estate of the beneficiary for IHT purposes

Question 4

State when a transfer of value would occur for IHT purposes when the interest in possession changes on a pre- 22 March 2006 IIP trust, which is not subject to TSA (3)

Answer 4

• Death of an absolute beneficiary
• Death of a life tenant
• An appointment under a flexible trust

Question 5

Explain the CGT treatment if existing OEICs are transferred into a discretionary trust (8)

Answer 5

• Individual will be treated as having made a disposal for CGT
• At the market value
• on the date the OEICs were transferred into the trust
• He would be liable to tax at 20%
• On any gain in excess of his annual exempt amount
• Unless he claims Holdover Relief
• Which will defer the gain
• Until the trustees sell the OEICs

Question 6

What information should be included in a trust deed (5)

Answer 6

• The trust property/assets
• Names of the beneficiaries
• Names of the trustees
• Rights of the beneficiaries
• Power of the trustees
• Name of the settlor

Question 7

Define an implied trust, a successive trust, a constructive trust (6)

Answer 7

• An implied trust is NOT created expressly/written but is implied from actions/intentions
• A successive trust is where property is held in trust for succession of interests taking effect one after the other
• Constructive trust is one that is imposed by law regardless of the intentions of those involved

Question 8

Describe the main features of an accumulation and maintenance trust set up prior to 22nd March 2006 that has remained unaltered (7)

Answer 8

• No immediate interest i possession/discretionary trust at outset
• Beneficiaries had to acquire an absolute interest or IIP on or before a specified age, not exceeding 25
  Income can be accumulated or can be used for the maintenance/education/benefit of the beneficiaries
• No periodic or exit charges
• Transfer in/creation was a PET/ not relevant property
• Preferential IHT treatment only applied for trusts of less than 25years or where all the beneficiaries were grandchildren of a common grandparent