Chapter 1 Flashcards
What is common law?
A legal concept where law Id developed by judges rather than legislation
Why are trusts created
- For legal and admin reasons. Beneficiaries under 18 or flexibility amongst beneficiaries, ie some not yet born
- For protection, disabled person
- Tax planning reasons
What are the three certainties of a valid trust?
1) words, intention to create a trust
2) subject matter, the property being transferred
3) objects, the beneficiaries of the trust
What is a trust
A way of transferring property for the benefit of other people without giving them full control over it.
The legal definition of a trust
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.
Are the assets of the trust part of the trustees estate?
No
Who’s name are the trust assets held in?
The trustees
What’s powers do the trustees have?
To manage, employ or dispose of assets in line with the terms of the trust
Who has the legal ownership of the trust property?
The trustees
The beneficiaries are the beneficial owners
Can a trust hold an NISA?
No
What are the different types of asset in legal terms?
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)
What’s the difference between contract law of trust law?
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
Can a person be a trustee and a settlor?
Yes
What’s a protector?
Relevant for off shore
Has powers to veto decisions made by trustees or remove them
They are not usually a trustee
How many trustees are needed if the trust includes land?
Minimum of 2 unless one trustee is a trust corporation maximum number of 4
Criteria for being a trustee
Aged 18
Of sound mind
Ok to be bankrupt
Benefits of appointing a corporation as trustee
A company will not die
Professional expertise
Down side is there will be a charge
Duties of trustees
•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
What must trustees take account of with standard investment criteria
The suitably of the investment to the trust and the need for diversification
Who must agree to make any trust changes
All trustees must agree unless wording says differently
Section 31 of trustee act 1925 states…
Trustees have power to apply trust income to any infant beneficiaries for maintanence or education
Section 32 of trustee act 1925 states…
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
Can trustees invest in property?
Yes they can buy leasehold or freehold for beneficiary to live in or rent out
Initial trustees can be appointed in what ways?
By a trust deed
Created by a will, executors will be the trustees
Created by laws of intestate, the administrators will be the trustees
What are the reasons to replace a trustee ?
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
Who can remove a trustee
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
How can A trustee retire
By the use of a deed of retirement
trust Corporation with at least two trustees remain
Trustees consent to the deed
What happens on the death of a Trustee
- 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
Under the trusty act 2000 trustees can appoint agents with any of their powers ?except for what
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
What will happen if trustees abuse their duties
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
What are the consequences of trustee breaching trust
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
What does an absolute interest give the beneficiary
Full equitable ownership to income and capital that cannot be taken away
What is the life interest beneficially entitled to
Income from the trust but no capital
They are called a life tenant
What do the remaindermen of the trust receive
Full entitlement to income or capital after the death of the life tenant
Also known as a reversionary interest
What is a contingent beneficiary
Their interest depends on the occurrence of an event
Can minor beneficiaries demand for their shares
No
When can beneficiaries bring a trust to an end
All the beneficiaries are ascertained
there is no possibility of further beneficiaries
They are full age and capacity
All the beneficiaries agree
How is an express trust created
Buy some written method such as a deed or are will
How is an implied trust created
Implied from the actions and intentions of the parties
What is a purpose trust
Not for individuals as beneficiaries but to maintain a building
What is a successive trust
To provide for a succession of events passed down through the family
A succession of interests
What is a constructive trust
One in posed by law
What is a resulting trust
It is where there is a failure in the trust on which the property is held
Who benefits from a bear or absolute trust
They become the legal ownership of the Trustee
For the benefit of the beneficiary or beneficiaries absolutely
Who are the beneficiaries of a discretionary trust
discretionary trust became relevant property trust and Finance act 22nd of March 2006
There is normally wording such as “for my children or grandchildren and no one named beneficiary”
What event will create a potential liability for a charge to inheritance tax within a relevant property trust/ post 2006 discretionary trust
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
When might a relevant property trust suffer a charge to I HT
When property is transferred out of the trust or on a 10 year anniversary
Does an immediate post death interest trust qualify as a relevant property trust
No it will not even though it it creates a successive interest
There will be no IHT Exit or periodic charges
What are the benefits of a power of appointment trust/flexible trust
It can cater for changing family circumstances Replacement beneficiaries must come from the class of potential beneficiaries
What are the aims of an accumulation and maintenance trust
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
List The uses of a trust
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
Who inherits a deceased share of the property held in the joint tenancy
The surviving joint tenant
Can a person be a trustee and a beneficiary
Yes
Who are the legal owners of trust property
The trustees
What is a person who puts assets into trust called
There Settlor
Who can be a trustee
Anyone aged 18 and of sound mind
Can be a trust corporation
No max limit other than land trusts (4)
Can I TRUSTe be replaced if they refuse to act
Yes
What happens to a trust when I sold trusteed dies
The sole trustee’s legal personal representatives take over as trustees
Once they have obtained probate or letters of Administration
What is the penalty for a trustee committing a breach of trust
They have to compensate the beneficiary for any loss caused by the breach
What is an implied trust
One that is treated as an existing because of the actions of the parties
What is a discretionary trust
A trustworthy distribution of income and capital is entirely at the discretion of the trustees
Give three common reasons for creating a trust
Tax planning and mitigation
For charitable purposes
To provide for families
Can the interest of a joint tenancy left in a will
No, as this interest will pass automatically to the other joint tenant
The secular creates the trust which in turn creates a legal obligation on what?
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
What must A settlor be?
Over 18
of sound mind
It’s the person who transfers the assets into the trust
What can a beneficiary have from an absolute interest trust?
Both income and capital
What does the beneficiary of a life interest get?
Income for life
What it a remainderman?
The people who benefit from the property after the life interest has died
What the the reversionary interest have?
The have a future interest in the trust property
What does a contingent interest have?
A benefit on the occurrence of an event
List the types of trust
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
List the use of trust
- 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.
Where does the trustee act 2000 apply?
Only England and Wales
Scotland and Ireland have separate acts.
Where does the trustee act 1925 cover?
England
Scotland has another one
What three things must a trust have?
Trustee
Property
Beneficiary
What investment cannot be held in a trust?
ISA
What is “reality” untrustworthy property
Freehold interest in land
What is personality trust property?
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
Is a trust covered under contract law?
No as there is no agreement between parties as they may not know about it.
They may be no consideration.
