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JO2 Trusts > Chapter 1 > Flashcards

Chapter 1 Flashcards

0
Q

What is common law?

A

A legal concept where law Id developed by judges rather than legislation

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1
Q

Why are trusts created

A
  • For legal and admin reasons. Beneficiaries under 18 or flexibility amongst beneficiaries, ie some not yet born
  • For protection, disabled person
  • Tax planning reasons
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2
Q

What are the three certainties of a valid trust?

A

1) words, intention to create a trust
2) subject matter, the property being transferred
3) objects, the beneficiaries of the trust

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3
Q

What is a trust

A

A way of transferring property for the benefit of other people without giving them full control over it.

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4
Q

The legal definition of a trust

A

Where an individual transfers a legal obligation to

  • the trustees , a binding person
  • to deal with property over which they have control
  • for the benefit of certain people.
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5
Q

Are the assets of the trust part of the trustees estate?

A

No

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6
Q

Who’s name are the trust assets held in?

A

The trustees

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7
Q

What’s powers do the trustees have?

A

To manage, employ or dispose of assets in line with the terms of the trust

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8
Q

Who has the legal ownership of the trust property?

A

The trustees

The beneficiaries are the beneficial owners

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9
Q

Can a trust hold an NISA?

A

No

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10
Q

What are the different types of asset in legal terms?

A

Reality- freehold in land
Personality- divided into
1)chattels real, leasehold on land
2) chattels personal- choses in action(intangible assets) choses in possession (tangible assets)

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11
Q

What’s the difference between contract law of trust law?

A

1) there’s no agreement between settlor and beneficiaries so no consideration needed
2) beneficiaries need not know about the trust- no offer or acceptance
3) trusts originated from equitable law not common law
4) trust law developed over the centuries

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12
Q

Can a person be a trustee and a settlor?

A

Yes

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13
Q

What’s a protector?

A

Relevant for off shore
Has powers to veto decisions made by trustees or remove them
They are not usually a trustee

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14
Q

How many trustees are needed if the trust includes land?

A

Minimum of 2 unless one trustee is a trust corporation maximum number of 4

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15
Q

Criteria for being a trustee

A

Aged 18
Of sound mind
Ok to be bankrupt

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16
Q

Benefits of appointing a corporation as trustee

A

A company will not die
Professional expertise
Down side is there will be a charge

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17
Q

Duties of trustees

A 
•adhere to trust terms/deed
•protect the assets/property
•act with due diligence and integrity
•not profit from their role as trustee
• be registered as legal owners on any documents
•do everything for the benefit of the beneficiaries 
•Have statutory duty of care
•retain proper accounts of the trust property
•invest cash wisely 
•Obtain proper advice
•Monitor investments
•Keep records
•avoid conflict of interest 
Use utmost diligence 
Avoid conflict of interest
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18
Q

What must trustees take account of with standard investment criteria

A

The suitably of the investment to the trust and the need for diversification

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19
Q

Who must agree to make any trust changes

A

All trustees must agree unless wording says differently

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20
Q

Section 31 of trustee act 1925 states…

A

Trustees have power to apply trust income to any infant beneficiaries for maintanence or education

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21
Q

Section 32 of trustee act 1925 states…

A

Gives powers to apply half the monies for the advance of the beneficiarie.
They would need to take this off if they later got absolute entitlement to make it fair

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22
Q

Can trustees invest in property?

A

Yes they can buy leasehold or freehold for beneficiary to live in or rent out

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23
Q

Initial trustees can be appointed in what ways?

A

By a trust deed
Created by a will, executors will be the trustees
Created by laws of intestate, the administrators will be the trustees

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24
Q

What are the reasons to replace a trustee ?

A 
Died
Outside uk for 1yr plus
Old trustee wants to be discharged
Refuses to act
Unfit/ incapable of acting
Is an infant
The power to appoint rests with the remaining trustees
The court can appoint new trustee if all above fail
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25
Q

Who can remove a trustee

A

An appointed named in the deed
There must be sufficient trustees left
No more than four if the trust property includes land
If no Appointer then all beneficiaries can appoint new trustees

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26
Q

How can A trustee retire

A

By the use of a deed of retirement
trust Corporation with at least two trustees remain
Trustees consent to the deed

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27
Q

What happens on the death of a Trustee

A
  • The trust continues but cannot give a goods receipt for the proceeds of the sale of land with one Trustee
  • If last surviving trustee dies legal personal representatives can act until another appointment is made
  • I trust is not made void by the death of all the trustees
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28
Q

Under the trusty act 2000 trustees can appoint agents with any of their powers ?except for what

A

Powers over distribution of trust assets
How fees are dealt with
Appointment of new trustees
The delegation of trustee powers
Delegation must not be for more than one year
Written notice must be given to all the trustees within seven days

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29
Q

What will happen if trustees abuse their duties

A

The law will hold them liable for any loss
Failure to act can amount to a breach of duty
A trustee is only accountable for their own actions not any of the trustees

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30
Q

What are the consequences of trustee breaching trust

A

Court injunction preventing the Trustee from taking action
Court can order the trustee to make restitution to the beneficiary
Order the return of any trust property wrongly transferred

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31
Q

What does an absolute interest give the beneficiary

A

Full equitable ownership to income and capital that cannot be taken away

32
Q

What is the life interest beneficially entitled to

A

Income from the trust but no capital

They are called a life tenant

33
Q

What do the remaindermen of the trust receive

A

Full entitlement to income or capital after the death of the life tenant
Also known as a reversionary interest

34
Q

What is a contingent beneficiary

A

Their interest depends on the occurrence of an event

35
Q

Can minor beneficiaries demand for their shares

A

No

36
Q

When can beneficiaries bring a trust to an end

A

All the beneficiaries are ascertained
there is no possibility of further beneficiaries
They are full age and capacity
All the beneficiaries agree

37
Q

How is an express trust created

A

Buy some written method such as a deed or are will

38
Q

How is an implied trust created

A

Implied from the actions and intentions of the parties

39
Q

What is a purpose trust

A

Not for individuals as beneficiaries but to maintain a building

40
Q

What is a successive trust

A

To provide for a succession of events passed down through the family
A succession of interests

41
Q

What is a constructive trust

A

One in posed by law

42
Q

What is a resulting trust

A

It is where there is a failure in the trust on which the property is held

43
Q

Who benefits from a bear or absolute trust

A

They become the legal ownership of the Trustee

For the benefit of the beneficiary or beneficiaries absolutely

44
Q

Who are the beneficiaries of a discretionary trust

discretionary trust became relevant property trust and Finance act 22nd of March 2006

A

There is normally wording such as “for my children or grandchildren and no one named beneficiary”

45
Q

What event will create a potential liability for a charge to inheritance tax within a relevant property trust/ post 2006 discretionary trust

A 
When relevant property is transferred out of the trust
When a 10 year anniversary occurs
Exceptions to this are-
IIP's before March 2006
Created via a will trust
Set aside for a disabled person
Set aside for a bereaved minor 
put into an 18 to 25 trust
46
Q

When might a relevant property trust suffer a charge to I HT

A

When property is transferred out of the trust or on a 10 year anniversary

47
Q

Does an immediate post death interest trust qualify as a relevant property trust

A

No it will not even though it it creates a successive interest
There will be no IHT Exit or periodic charges

48
Q

What are the benefits of a power of appointment trust/flexible trust

A 
It can cater for changing family circumstances
Replacement beneficiaries must come from the class of potential beneficiaries
49
Q

What are the aims of an accumulation and maintenance trust

A

They are type of discretionary trust
No I HT advantages since Finance act 2006
Beneficiaries become legally entitled to capital or income before the age of 25
The trust must not last longer than 25 years
The trustees have the power to apply income for maintenance or education

50
Q

List The uses of a trust

A

Tax planning and mitigation
Intestacy
Will planning
To provide a pension
To provide for families
To assist a charity
To give property to those who legally cannot hold it
To provide for disabled or vulnerable people
To gain protection from creditors and business protection
To create ownership of land joint tenants tenants-in-common

51
Q

Who inherits a deceased share of the property held in the joint tenancy

A

The surviving joint tenant

52
Q

Can a person be a trustee and a beneficiary

A

Yes

53
Q

Who are the legal owners of trust property

A

The trustees

54
Q

What is a person who puts assets into trust called

A

There Settlor

55
Q

Who can be a trustee

A

Anyone aged 18 and of sound mind
Can be a trust corporation
No max limit other than land trusts (4)

56
Q

Can I TRUSTe be replaced if they refuse to act

A

Yes

57
Q

What happens to a trust when I sold trusteed dies

A

The sole trustee’s legal personal representatives take over as trustees
Once they have obtained probate or letters of Administration

58
Q

What is the penalty for a trustee committing a breach of trust

A

They have to compensate the beneficiary for any loss caused by the breach

59
Q

What is an implied trust

A

One that is treated as an existing because of the actions of the parties

60
Q

What is a discretionary trust

A

A trustworthy distribution of income and capital is entirely at the discretion of the trustees

61
Q

Give three common reasons for creating a trust

A

Tax planning and mitigation
For charitable purposes
To provide for families

62
Q

Can the interest of a joint tenancy left in a will

A

No, as this interest will pass automatically to the other joint tenant

63
Q

The secular creates the trust which in turn creates a legal obligation on what?

A

1- the trustees, binding them.
2- to deal with property over which they have control.
3-for the benefit of certain other people, the beneficiaries

64
Q

What must A settlor be?

A

Over 18
of sound mind
It’s the person who transfers the assets into the trust

65
Q

What can a beneficiary have from an absolute interest trust?

A

Both income and capital

66
Q

What does the beneficiary of a life interest get?

A

Income for life

67
Q

What it a remainderman?

A

The people who benefit from the property after the life interest has died

68
Q

What the the reversionary interest have?

A

The have a future interest in the trust property

69
Q

What does a contingent interest have?

A

A benefit on the occurrence of an event

70
Q

List the types of trust

A

Express- creates in a will
Implied- by actions of the settlor
Presumptive- assets bought in the name of another
Purpose- for a specific purpose- i.e. To maintain a property.
Successive- trust for a succession of interests that happen one after each other.
Constructive- imposed by law
Resulting- created when a trust fails

71
Q

List the use of trust

A
  • Tax planning
  • Distribution of estate on intestacy
  • Will planning
  • Protection and certainty
  • Pension planning
  • Provide for family and minors
  • Help charity
  • For ownership of land.
72
Q

Where does the trustee act 2000 apply?

A

Only England and Wales

Scotland and Ireland have separate acts.

73
Q

Where does the trustee act 1925 cover?

A

England

Scotland has another one

74
Q

What three things must a trust have?

A

Trustee
Property
Beneficiary

75
Q

What investment cannot be held in a trust?

A

ISA

76
Q

What is “reality” untrustworthy property

A

Freehold interest in land

77
Q

What is personality trust property?

A

Other assets -
Chattels real- leasehold interest on land
Chose in action- intangible asserts- life insurance assets and reversionary interests etc.
Chose in possession- tangible- art, jewellery, furniture

78
Q

Is a trust covered under contract law?

A

No as there is no agreement between parties as they may not know about it.
They may be no consideration.

JO2 Trusts (9 decks)

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