Chapter 3 Flashcards
- How would you define a sole trader?
A. A self-employed person who is personally liable for the debts of their business
B. An individual who works on their own and doesn’t employ any staff
C. An individual who provides services through a contract of employment
D. A small business with one person solely responsible for controlling the business
A - A sole trader is classed as a self-employed person and is personally liable for the debts of their
business. They may employ another person and may provide services to other companies (by
means of a contract of services rather than contract of employment).
- Which business structure would suit D&J Woodcock, a small professional firm that is
concerned about the risk of large liability claims?
A. Sole trader
B. Partnership
C. Limited liability partnership
D. Public limited company
C - A limited liability partnership is a separate legal entity to the partners and therefore the partners
are not liable for the debts of the business. Therefore, if a business has concerns about large liability claims, the partners would not be liable. The other answers are false as public limited companies are larger firms and partners within a partnership and sole traders would be liable for the debts of their business.
- What is the difference between an Enduring Power of Attorney and a Lasting Power of Attorney?
A. A lasting power of attorney cannot be used to make gifts
B. A lasting power of attorney allows the attorney to make decisions regarding the donor’s welfare as well as financial matters
C. Under an enduring power of attorney, power is only given in respect of the
donor’s health and welfare
D. Under an enduring power of attorney, the attorney has to be over 18
B- An enduring power of attorney cannot relate to health or welfare decisions, unlike a lasting power of attorney, which can be set up to give the attorney power to make
decisions about the donor’s welfare and financial matters. Substantial and unusual gifts cannot be made under either of these types of power of attorney, and for both, the attorney must be
over 18.
- Who would be deemed as having a restricted capacity to contract?
i) Someone under the age of 18
ii) Someone with a mental health condition
iii) Someone deemed to have limited experience
iv) Someone who is drunk
A. i only
B. i and ii only
C. i and iii only
D. i, ii and iv only
D - For a contract to exist between two parties, they must clearly understand the nature of the
contract, which may restrict some people with mental health issues or people who are intoxicated and unaware of their actions. Special legal rules apply to contracts with minors due to their lack of experience and hence restrict their capacity to enter into a
contract. A lack of experience would not restrict your capacity to contract; therefore, the answer is d).
- Which of the following might prove the MOST difficult in obtaining a mortgage against?
A. A freehold house
B. A freehold flat
C. A leasehold house with 15 years left on the lease after the mortgage would have been paid off
D. A leasehold house with 40 years left on the lease after the mortgage would have been paid off
C - The shorter the term on a lease, the more difficult it can be to obtain a mortgage. A leasehold house with 15 years left on the lease after the mortgage would have been paid off is a very short
lease. Most lenders would require a lease with at least 40 years
remaining on it after the mortgage has been paid off.
- Unfortunately, your client Jenny has recently been made bankrupt. Under the Enterprise Act 2002, can you remind her how long does bankruptcy normally last?
A. 6 months
B. 12 months
C. 3 years
D. 5 years
B - The Enterprise Act 2002 made significant reform to bankruptcy laws. Under the Act,
bankruptcy normally lasts for 12 months.
- The appointment of a spouse as executor to their partner’s will is cancelled by:
A. reaching the age of majority
B. bankruptcy
C. absence from the UK for 6 months
D. subsequent divorce
D - The part of the will relating to the spouse is revoked on divorce. So, the appointment of the spouse as an executor will be cancelled and any gift to the spouse will not take effect. It is advisable to make a new will following a divorce
- Your former client, Linda, has died without leaving a valid will. Her family would like to know who issues the Grant of Representation?
A. The administrators
B. The executors
C. The personal representatives
D. The Probate Registry
D - A Grant of Representation is issued by the Probate Registry it gives the legal authority to administer the estate.
- Keith wants to know why it is that assets held under trust are outside of someone’s estate for IHT purposes?
A. Because the trustees have to account for IHT on the estate and trust assets separately
B. Assets held under trust belong to the trust not the individual, so are separate from the
estate
C. Due to the different rates of IHT applicable on trust assets and assets from the
estate
D. Due to the legislative requirements in obtaining probate e.g. Grant of Probate or Letters of Administration
B - When a trust is set up, the assets no longer belong to the settlor (the individual gifting the asset); they are owned by the trust and therefore, if no interest in the asset is maintained by the settlor, it will fall outside the estate for IHT. Answers a), c) and d) are incorrect.
