3) Rules covering the investment of assets and admin of trusts

Question 1

State the factors the trustees should consider when investing cash held in a bare trust (8)

Answer 1

• Trust provisions
• Age of beneficiaries/timescale
• Income/capital requirements
• Tax position of beneficiaries
• Parental settlement rules may apply if beneficiaries are minors
• Attitude to risk/capacity for loss
• Standard investment criteria
• Ethical preferences
• Economic conditions
  _ Consider obtaining advice
• Investment charges

Question 2

List the 5 categories of beneficiary who may benefit from a trust being varied in accordance with provisions of the Variation of Trusts Act 1958 (5)

Answer 2

• Any beneficiaries who cannot consent because they are minors
• Beneficiaries who cannot consent because they are mentally incapable
• Any contingent beneficiaries
• Any unborn beneficiaries
• Any people with a discretionary interest under a protective trust

Question 3

Describe the actions trustees should take in accordance with their investment powers under the Trustee Act 2000 (8)

Answer 3

• • Assess the suitability of the investment to the trust/standard investment criteria
• Ensure investments are suitability diversified
• Keep investments under review
• Vary them if appropriate
  Obtain and consider proper advice unless the trustees have necessary skills/ or the cost of advice is disproportionate
• Trustees must invest money properly/ as if the money was their own
• Keep proper accounts

Question 4

Explain the IHT advantages of electing to be treated as UK-domiciled (5)

Answer 4

• The spouse exemption for transfers is unlimited
• Rather than being restricted to £325,000
• The individual will be entitled to inherit the whole of the spouses estate IHT free
• The transferable NRB and RNRB will be available on 2nd death

Question 5

What are the main requirements of an excluded property trust (EPT) (3)

Answer 5

• When the trust is created the individual should be classed as a non UK-domicile and also when additions are made
• The assets must usually be non UK assets which are held outside of the UK/ never been held in the UK
  No further assets should be transferred once/if the individual becomes deemed UK domicile

Question 6

What are the main benefits of placing foreign investments into an EPT (5)

Answer 6

• The transfer into the trust is not a transfer of value for IHT purposes
• The trust would not be subject to periodic or exit charges
• The individual and settlors spouse/children can be a beneficiary (with no gift with reservation)
• The trust assets will be outside of the estate for IHT purposes

Question 7

List 6 non-taxable trusts that are excluded from the new Trust Registration Service (6)

Answer 7

• Trusts holding life insurance policies that pay out on death/terminal illness/CIC/disability
• Compensation/ personal injury trust
• Trusts holding assets of a UK registered UK pension scheme
• Will trusts (up to 2 years after death)
• Trusts created by legislation/intestacy/ court order
• 18-25 trusts
• Trusts for disabled beneficiaries
• Charitable trusts
• Co-ownership trusts/ couples who own their home jointly with no-one else
• Financial/commercial trusts