3 - Legal Concepts Flashcards
Power of Attorney
Nature
How long does it last?
Can be a general power or specific to one or more areas.
Ordinary power of attorney only grants power while the individual is mentally capable of handling their own affairs (gets cancelled on mental incapacity).
Automatically revoked on death, bankruptcy, a specified expiry date or request of the individual.
Power of Attorney
Mental Capacity Act
Nature of powers, multiple attorneys
New type of PoA introduced
It’s requirements (age)
The Mental Capacity Act says powers can be general or restricted, there can be individual or joint attorneys.
PoAs do not cover individuals attitude to health care provision (eg treatments they might receive).
The act introduced Lasting Power of Attorney (LPA) where donor gives power to make decisions about:
- Personal health and welfare;
- Property and financial affairs.
Donor must be over 18 with capacity, attorney must be over 18 and not bankrupt. NB Medical decisions made while donor had capacity are still valid after they lose capacity.
Contract Law
Relevance to Finance
Requirements
It is relevant because packaged investments are essentially contacts in the same way as other trades and businesses have contracts.
Contracts require:
- Offer and acceptance, with both parties understsanding the terms of the contract.
- Intention to create a legally binding contract, with both parties having the power to contract.
- Consideration, both parties must pay or stand to pay something to the other.
Contract Law
Additional requirements for insurance contracts
Utmost Good Faith
Both sides have a duty to disclose facts material to the risk being proposed (separate rules for consumers and commercial insurance). Consumers must take reasonable care not to make a misrepresentation.
Insurable Interest
Requires proposer of a life contract to have some financial interest (arising through a legal or equitable obligation).
Agency
Relevance to IFAs and Insurance Contracts
Facts disclose to IFA by client
- An IFA is the agent of their client and owes a duty of care to the client.
- They owe no duty of care to the insurer, although they must comply with FCA rules.
- The client is responsible for the acts of the IFA.
As a consquence if a fact is disclosed by the client to the IFA, who doesn’t disclose it to the insurer, the insurance contract is void.
Home Ownership
Requirements in order to buy freehold/extend leasehold
Must have lived in the property full time for at least 2 years.
Lease must have been for at least 21 years.
Home Ownership
2 methods of joint ownership
Joint Tenancy means each has an equal share and neither can sell without the other’s agreement. If one dies the survivor inherits the whole property without the need for a will or probate.
Tenancy in Common means each owners shares are held separately. Shares don’t need to be equal and if one dies the laws of intestacy decide what happens. Each can sell their share or transfer it freely.
Home Ownership
Government Schemes
Shared Ownership
Operated by Housing Associations locally.
Purchaser buys a share (usually 25%, 50% or 75%) and pays rent to the housing association on the remaining share.
Usually the terms allow the purchaser to increase their share in the property towards 100% (this is called ‘staircasing’).
Home Ownership
Government Schemes
Help to Buy: Equity Loan
Government lends up to 20% (40% in London) of the cost of a new-buid, so the borrower needs a 5% cash deposit and 75% (55%) mortgage.
No interest is paid on the 20% (40%) loan for the first 5 years.
Home Ownership
Government Schemes
Help to Buy: Mortgage Guarantee
This is an offer to lenders for the goverment to guarantee mortgage loans, allowing lenders to offer high loan-to-value (80-95%) to borrowers.
Insolvency and Bankruptcy
Bankruptcy Procedure
Starting the procedure
Begun by the presentation of a petition for bankruptcy by a creditor or creditors jointly, which is only considered if they owe at least £5k.
Need to demonstrate inability to pay, requiring a statutory demand not being complied with for 3 weeks or a court order not being enforced (eg unsuccessful bailiffs).
Insolvency and Bankruptcy
Bankruptcy Procedure
Once started
The official receiver takes control of the debtor’s property and may call a meeting of creditors, who can appoint an insolvency practitioner as trustee in bankruptcy.
The trustee’s function is to realise and distribute the bankrupt’s estate. Any property owned when made bankrupt, or subsequently acquired, passes to the trustee.
Insolvency and Bankruptcy
Bankruptcy Procedure
What can they keep?
Allowed to retain:
- the ‘tools of their trade’,
- a vehicle if required for work,
- clothing, furniture and bedding belonging to themselves and their family.
Insolvency and Bankruptcy
Bankruptcy Procedure
Priority of money raised
Trustee is responsible for raising cash to cover (in this order):
- Costs of the bankruptcy,
- Preferential debts (eg accrued holiday pay, wages and pension contributions of employees)
- Unsecured creditors
Insolvency and Bankruptcy
Bankruptcy Procedure
Effects of Bankruptcy
Continues normally for 12 months, although culpable bankruptcy may stay for longer.
Disqualified from:
- Acting as company director
- Obtaining credit over £500 without disclosing undischarged bankruptcy
- Professional disqualifications (such as accountancy, financial services and banking)
Insolvency and Bankruptcy
Corporate Insolvency
Process
2 alternatives
Liquidiation is the name of the process. A liquidator is appointed who collects assets, pays debts and distributes surplus between members.
Company is then dissolved and removed from the Register of Companies.
Alternatives are administration (attempt to rescue as a going concern) and voluntary arrangements.
Laws of Succession
Process if a valid will exists
Required steps
The executors named in the will must administer the estate, collect any debts, pay taxes and distribute assets as required in the will.
They must ‘prove’ the will in the Probate Registry to obtain Grant of Probate to enable them to administer the estate.
They must complete an HMRC account showing all assets and gifts in the last 7 years to allow IHT to be calculated.
Laws of Succession
3 formalities in creating a will
- Writing
- Signature
- Attestation
Laws of Succession
Revocation of Wills
Spouse as executor?
Civil Partnerships
Revoked by:
- Making a later will
- Deliberately destroying a will with intent to revoke
- Marriage - fully revokes will, unless the will anticipated the marriage
- Divorce - partially revokes will, anything not going to the spouse is still ok
Spouse can be executor, but their appointment is cancelled in the case of divorce.
Civil partnerships treated the same as marriage.
Laws of Succession
Intestacy Laws
- If you have a spouse but no issue (kids/grandkids) spouse is the sole beneficiary.
- Spouse & issue - Spouse takes chattels plus statutory legacy of £250k plus half of balance. Remainder split amongst surviving issue on reaching 18 or marrying before then.
- No spouse - All taken by issue.
- No relatives - The crown or Duchy or Lancaster/Cornwall if resident of Lancaster/Cornwall.
Laws of Succession
Personal Representatives
The executors and administrators are known as personal representatives.
They are personally liable for the payment of all debts and taxes fro the estate, therefore need to ensure there are sufficient funds before making any distribution of the assets.
Trusts
List of types of trust
- Express
- Implied
- Resulting
- Bare or absolute (a simple transfer of property)
- Settlements (they are successive, AKA trust)
- Successive
- Power of appointment
- Interest in possession
- Discretionary
- Will
- Statutory
- Pension Scheme
Trusts
Level of care expected by trustees
Expected to exercise the diligence that a prudent businessman would exercise in managing his own affairs.
