Chapter 3 (9 exam questions): Legal concepts and considerations relevant to financial advice

Question 1

What is a sole trader?

Answer 1

An individual who solely controls their own business.

They are self-employed and are personally liable for any debts and liabilities accrued by the business

HMRC see the business and person as the same thing

Question 2

What tax do sole traders pay?

Answer 2

Soletraders pay income tax and CGT

Income tax on profits of the business

CGT on any capital gains made by the business, for example when selling business assets.

Sole trader pay Class 2 NICs at a flat rate. This gives the individual entitlement to various state benefits, such as the single-tier state pension. Paid via HMRC self-assessment

Class 4 which is earnings related is also payable by Sole traders.

Question 3

Typically, soletraders only pay class 2 and 4 NICs. Do they ever pay class 1 ( what the employed pay )

Answer 3

If the sole trader employs people they will then pay EMPLOYER Class 1 NICs because they will need to deduct income tax and employee Class 1 NICs from the employee’s salary.

Question 4

Can sole traders employ people?

Answer 4

Yes, but they are typically on there own responsible for all areas of their business

Question 5

What is a partnership?

Who are partnerships taxed?

Answer 5

The same as sole traders except their is more than 1 individual liable and responsible for the business.

The partnership is NOT a separate legal entity to the business, they are deemed as being the same entity. Each partner is ‘jointly and severally liable’ for the business’ debt.

Each partner is self-employed.

Each partner pays income tax, NICs and capital gains tax, on their share of the business profits. (The tax treatment and deadlines are the same as sole traders)

Question 6

Why were Limited Liability Partnerships introduced?

Answer 6

All partners in a partnership are ‘jointly and severally liable’ for the business debt.
Because of this, many partners went AWOL, leaving others to pay the debts of the business. Therefore, the limited liability partnership or LLP was introduced

LLP were introduced by The Limited Liability Partnership Act 2000 in 2001

Question 7

What are limited liability partnerships?

Answer 7

The same as a traditional partnership in terms of tax treatment, profit sharing, and that each partner is self employed, EXCEPT the partners are not liable for the business debts.

The business is its own separate legal entity but is run by the partners

The ONLY liability each partner has is the amount they invest in the LLP

Question 8

Compare a limited company to a limited liability Partnership

Question 9

What are limited companies?

Where must companies register?

Companies must have a Memorandum and Articles of Association. What is this?

Answer 9

Limited companies are their own separate legal entity.

The company is liable for its own debts and can only use its own assets to meet its liabilities… nothing else (ie, shareholders and employees can not be made liable)

Companies are registered at Companies House.

Companies must have a Memorandum and Articles of Association. which show who holds what company positions and responsibilities

Question 10

Can employees of a limited company ever be liable for a limited companies debts?

Answer 10

Typically no because limited companies are their own separate legal entity.

However, employees can be liable for the debts if they are proven to have acted unlawfully, for example continuing to trade an insolvent firm

Question 11

Who owns limited companies?

Who runs and manages the limited company?

Answer 11

The business owners are the shareholders

The business is run by its directors, who are company employees.

Directors and shareholders can be the same person

Question 12

Can a limited company have 0 directors?

Answer 12

No, there must be a minimum of at least 1 director

They manage and run the company

Question 13

How are limited companies taxed since they are their own separate legal entity?

Answer 13

As the company is a separate legal entity, its profits and capital gains are liable to Corporation Tax

(This obvs differs to partnerships and soletraders, where the business is the same legal entity and therefore its pays CPT and Income Tax)

The company also pays EMPLOYER class 1 NICs

Question 14

Private limited companies benefit from Business Relief.

What is this?

Answer 14

Business relief is where shares qualify for 100% inheritance tax (IHT) relief, if they have been owned by the deceased for at least 2 years at the point of death.

This can prove very helpful and people often retain a shareholding in a company to benefit from this

Question 15

What is the difference between a company with a LTD designation and a PLC designation?

Answer 15

LTD = Limited Company. Privately-owned

PLC =Publicly-limited company. Publicly owned.
(shares become available on the stock market for purchase to the public)

Question 16

If a company ‘floats’ on the stock exchange, what does this mean?

Answer 16

It becomes a publicly-owned company (PLC)

Question 17

For a privately owned limited company (LTD) to be become a publicly owned limited company (PLC), what must the company do?

Answer 17

Have at least 25% of its shares on the stock market available to the public for purchase.

ie, at least 25% of the company must be owned by the public

Question 18

Tell me some key differences between PLCs (publicly-owned limited companies) compared to LTDs (privately owned limited companies)

Answer 18

PLCs = Must have at least 2 directors and at least 2 shareholders. LTDs only require at least 1 director.

PLCs = A company secretary must exist, who is a member of a professional body. This is not required for LTD’s

PLCs= there must be an annual general meeting (AGM) of the shareholders with an annual report.

Any takeovers and mergers of PLCs are controlled by the Takeover Panel. This is an independent body which supervises and regulates takeovers with the aim of ensuring shareholder fair treatment.

Question 19

For an IVA to be agreed, what percentage of creditor must agree to it

Answer 19

75% of creditors need to agree to the IVA. The IVA will be reviewed annually by an insolvency practitioner.

Question 20

If I were to a say a company has gone bankrupt is that the correct term?

Answer 20

No

Individuals go bankrupt

Companies become insolvent

Question 21

What is the Insolvency Act 1986 and the Enterprise Act 2002?

Answer 21

They are two key pieces of legislation in respect of bankruptcy

Question 22

When a debtor is declared bankrupt their assets pass to the ‘official receiver’ order in which creditors are paid is

Question 23

What is the difference between the official receiver and the insolvency practiser

Answer 23

An official receiver is appointed after the court accepts the bankruptcy petition (where the creditor requests the person is made bankrupt)

The official receiver then takes control of the assets and calculates the individuals total assets/liabilities etc. They do the admin work.

The official receiver then appoints an insolvency practitioner is made ‘trustee in bankruptcy’ who then sells the assets until liabilities are met.

Question 24

Once the insolvency practitioner has been appointed as the ‘trustee in bankruptcy’ by the official receiver, they will proceed to sell the assets to meet the liabilities of the creditors. How do they know what creditors need paying first?

Answer 24

The insolvency act 1986 specifies an order for liabilities to be repaid:

1st to be repaid:
Bankruptcy costs – all the fees of the official receiver, trustee in bankruptcy, the courts.

2nd to be repaid:
All preferential creditors – such as missed wages, accrued holiday pay, pension contributions and any secured borrowing i.e. mortgages.

NOTE: STAGE 1 AND 2 ARE SWAPPED FOR COMPANIES GOING INTO LIQUIDATION

3rd to be repaid: Unsecured creditors –all other creditors not classed as preferential

Question 25

What are culpable bankrupts?

Answer 25

Culpable bankrupts are those who have had the 12 month period extended because they continued to trade even though they knew they would go bankrupt

Question 26

How much can undischarged bankrupts borrow? and what about discharged bankrupts

Answer 26

UD Bankrupt= NO D Bankrupt = yes but they must declare to the creditor if they are looking to borrow more than £500

Question 27

If a company is going through liquidation’ what does this mean? If a company is 'winding up' or being 'wound-up' what does this mean?

Answer 27

Both mean the same thing Where a company ceases trading, so that its assets can be distributed to creditors and members and once everyone who can be paid has been paid, the company is dissolved. It will also be removed from the Companies House register. This happened to Toys R Us, Debenhams etc

Question 28

Company insolvency is a major event and can result in some creditors not receiving their monies Therefore, it is important to explore other options before, just like it is for individuals like using debt relief orders instead of bankruptcy for example. What other options are available for companies?

Answer 28

Company Voluntary Arrangements (CVA) - an agreement is reached with creditors, who accept an agreed lower amount back. (Its the equivalent to an IVA) Administration - if the company is 'saveable'. Where an administrator is brought in to run the company If neither a CVA nor Administration is viable, then having the company wound up may be only option

Question 29

There are three parties involved in a life contract: What are they?

Answer 29

The proposer/the applicant/the policyholder - (They are also known as the ‘assured’, once the policy is in force). They are the individual/company applying for the cover and will pay the premiums. The life assured - The person(s) whose death will result in the policy paying out. This could be the same as the assured, or it could be a different individual. The life office - The insurance company who assesses the risk, and the premium required

Question 30

What is an 'invitation to treat' in relation to financial contracts, such as insurance contracts

Answer 30

A company’s advert, brochure, etc that is selling their product to the consumer It is NOT the offer of contract. An offer is one of the requirements for a contract to be legally binding. The 'offer' in this case is the contract that must be signed by the applicant. The offer and 'invitation to treat' are commonly confused as being the same thing

Question 31

What is a consideration in relation to contract law?

Answer 31

A consideration is anything of value (such as an item or service), which each party to a legally-binding contract must agree to exchange if the contract is to be valid. For example, in an insurance contract, the consideration for the life company will be the insurance (service) and for the applicant the premiums they pay If only one party offers consideration, the agreement is not a legal- binding contract.’

Question 32

If only 1 of the 2 parties in a contract offer a consideration, will the contract still be valid?

Answer 32

Contracts are not legally binding/valid unless both parties offer a consideration In other words, both parties must stand to lose or gain something For example, In a protection policy, the policyholder pays the premiums, and the life office guarantees to pay the sum assured in the event of a valid claim. There is therefore consideration on both their parts

Question 33

Life assurance contracts have extra legal requirements to be deemed a valid and therefore legally binding contract. These are: Both parties show 'Utmost good faith' The applicant has an 'Insurable Interest' Explain what both of these are

Answer 33

Utmost good faith = Applicant must present all material facts and take care not to misrepresent The life company must disclose all material facts about how their policy works such as what it does/does not cover and also must not misrepresent 'Insurable interest' = The policyholder must have a financial interest ('insurable interest') in the life assured. The life assured cannot be someone who's death will not financially disadvantage the policyholder. For instance, a stranger, or a friend you haven't spoken to in years

Question 34

There are six situations where insurable interest is automatic. What is insurable interest firstly and what are the 6 situations?

Answer 34

Insurable interest is an extra legal requirement unique to insurance contracts. It states the policyholder must have a financial interest ('insurable interest') in the life assured. In other words their death must cause a negative financial impact to the policy holder. If there is no insurable interest, the contract is invalid There are six situations where insurable interest is automatic (it doesn't need to be proven): When insuring own life When insuring spouse civil partner An employer insuring their employee A mortgagee insuring a mortgagor A creditor on a debtor Between business partners For any other situations, evidence must be provided at the point of application to prove insurable interest

Question 35

Who does not have capacity to contract?

Answer 35

Minors Individuals without mental capacity Individuals who are drunk (or not fully in control of their faculties) at the time of entering into a contract. Individuals under duress

Question 36

Any contracts taken out by minors (below 18) are 1 of 3 types. What are they?

Answer 36

Contracts for minors can either be: Binding, Binding unless repudiated, non-binding 1) Binding: These are enforceable only if they are to benefit the minor, such as a contract of employment/apprenticeship. 2) Binding unless repudiated: These are contracts that the minor can effectively back-out of before their 18th birthday ( known as ‘during minority)’. Rent agreements are an example. 3) Non-Binding: All other contracts beside the above.

Question 37

If a contract is 'during minority' what does this mean?

Answer 37

Refers to 1 of the 3 types of contracts for minors. It means they can back out before their 18th, (during minority), without any legal consequences. Basically the contract is not binding until their 18th (and a reasonable time afterwards) so they can back out. For example, rental agreements

Question 38

Define the following in relation to agency law: The principle The agent

Answer 38

The principle = Who authorises another person (the agent) to act on their behalf. They are responsible for the agents actions The agent = Who acts on behalf of the principle For example: IFA is agent, client is principle FA is agent, FA's firm is principle Estate agent is agent, the estate agents firm is the principle

Question 39

Answer 39

REMEMBER: IFA’s are agents of the client so client is responsible got their actions Single/multi tied advisors are agents of their firm so the firm is responsible for their actions.

Question 40

Contract law, and agency law summary

Question 41

Tell me about freehold, leasehold and commonhold tenure

Answer 41

Question 42

For leaseholders to purchase the freehold of their property, what proportion of leaseholders must agree to the purchase?

Answer 42

50% of leaseholders must agree

Question 43

Explain commonhold ownership:

Answer 43

Introduced by the commonhold and Leasehold Reform act in 2002 due to increased popularity of flats in major cities. used mainly for multi unit developments The units (flats) are owned outright (ie as freehold) by occupiers Each unit-owner is a member of a commonhold association (a company) The association owns the common areas of the development (the staires, lifts, hallways etc

Question 44

The Commonhold and Leasehold Act 2002 provided leaseholders with the right to buy the freehold or extend the lease What requirements must be met before a leaseholder can action this right?

Answer 44

Lived at least 2years in the property Their lease is a 'long lease' (lease has 21 years or more to run) 50% of leaseholders must agree

Question 45

Tell me about: - Joint Tenancy - Tenants In Common

Answer 45

'Joint Tenancy' - Each tenant has an equal share of the property and when one dies, the survivor inherits the deceased owner’s share automatically. This can NOT be changed under any circumstance, for example via a will. To sell the property both tenants must agree Tenancy in Common- Each party owns a separate share/'equitable share' in the property. When one party dies, their share forms part of the deceased individual’s estate. Tenants can sell their share at any moment.

Question 46

What is Shared Ownership?

Answer 46

Shared ownership is a housing scheme where an individual buys a share of a property from a housing association, such as 25%, and then pays rent to the association on their share. Overtime, the individual can buy more of the property from the association known as ‘staircasing’ until they own the property outright

Question 47

What is help-to-buy?

Answer 47

Help to Buy is a scheme introduced by the government to make it easier for people with small deposits to buy their first property, or for existing homeowners to move to a new house. There are two forms of help to buy: 'Equity loan' 'Mortgage guarantee scheme'

Question 48

What is the Help to Buy: Equity loan scheme? Explain how it works, what happens when the property is sold and its entry requirements

Answer 48

Where the government lends a borrower up to 20% (or 40% in Greater London) of the purchase price of their new property. No charges are levied on the 20% government loan (40% Greater London) for the first 5 years Basically, the house is 100% owned by the buyer made up of 3 parts: their mortgage, their interest-free equity loan and their deposit. Any sale triggers the repayment of the interest-free loan Requirements: 5% minimum deposit required from borrower Borrower's mortgage is for 75% (or 55% in Greater London) Ie, the borrower must meet the costs of at-least 80% (or 60% in London) of the property The borrower cannot own any other property.

Question 49

If an individual already owns another property would they be eligible for the government equity loan scheme?

Answer 49

No The borrower cannot own any other property. This also includes part exchanging an existing property

Question 50

What is the Help to Buy: mortgage guarantee scheme How does it work? What is its aim? What is its requirements?

Answer 50

Where the government backs LENDERS for mortgages with very high LTV, up to 95%. The government guarantees the lender a certain proportion of the property value if repossession occures. The aim is to increase the low-deposit mortgage market. Requirements: The borrower has to be able to afford to service up to a 95% mortgage. The borrower cannot have a history of mortgage arrears. Properties can be either new-builds or existing, valued at up to £600,000. The mortgage has to be on a capital and interest (repayment) basis The mortgagor must be an individual (natural person), NOT a company

Question 51

Mortgage and general insurance became regulated following the Financial Services & Markets act 2000 Where are those rules found and what year did it come into action

Answer 51

Mortgage rules are contained in the Mortgage Conduct of Business introduced in 2004 (think MCOB = 4 letters = 2004). General insurance became regulated in 2005 and the rules are found in The Insurance Conduct of Business Sourcebook (Think, ICOBS = 5 letters = 2005)

Question 52

Beside sickness what is another common reason someone may grant POA

Answer 52

You may decide to travel abroad for a gap year, and want someone to manage your UK financial affairs on your behalf whilst you are away so general power of attorney may be used

Question 53

Can there be more than one donor in a POA arrangement?

Answer 53

Only 1 donor is allowed but there can be multiple attorneys

Question 54

Can there be more than one attorney in a POA arrangement?

Answer 54

There can be multiple attorneys but only 1 donor is allowed

Question 55

What is general POA? Can it be revoked?

Answer 55

Allows someone to act on a day to day basis on the donor’s behalf. The power is only valid whilst the donor is mentally capable of making their own decisions ( a major disadvantage of this type of power ) A general power is automictically cancelled on the donor’s bankruptcy, death, mental incapacity, or at the end of a specified term, or on the Donors request

Question 56

What is Enduring POA? What is the downside of EPA?

Answer 56

An EPA is effectively a ‘General Power of Attorney’ but allows the powers to continue if a donor’s mental capacity fails Once mental capacity is lost, it must be registered with the Office of the Public Guardian for the EPA to be activated (this is another disadvantage. LPA can be activated before mental capacity is lost) No provision for health care is provided in EPA (major disadvantage) The power can be revoked by the Court of Protection if an attorney is deemed to be acting inappropriately

Question 57

There are 2 elements of a LPA. What are they?

Answer 57

Personal Health and Welfare (not available in EPA) Property and financial affairs

Question 58

When is LPA revoked automatically?

Answer 58

Bankruptcy (Bankruptcy does not apply to health and welfare LPA) death, donor’s request, if donor and attorney are married and they divorce

Question 59

When an individual dies, they do so either testate or intestate What do either terms mean?

Answer 59

Testate means they have died with a valid will. Intestate means they have died with no will, or it was invalid.

Question 60

What does the term 'estate' mean

Answer 60

The total value of a deceased’s assets is known as the 'estate' Individuals cannot continue to ‘own’ assets on death, so any property must be transferred to another person.

Question 61

Who is the testator? Who are the executors?

Answer 61

Testator: The person making the will Executors: Their job will be to administer the estate, collect any debts, pay any taxes and bills and distribute the assets in accordance with the will. There are usually at least two executors.

Question 62

What is revocation of a will?

Answer 62

Where an individual testator changes the provisions in their will or cancel it altogether or the testator acts in a way that cancels it regardless of whether they intended to or no

Question 63

What are chattels? When someone dies their chattels will form part of their estate.

Answer 63

When someone dies their chattels will form part of their estate. It's all tangible moveable property except: money, or security for money. property used at the date of death by the intestate solely, or mainly, for business purposes. property held at the date of death solely as an investment

Question 64

What are Executors and Administrators collectively known as?

Answer 64

legal personal representatives (LPR)

Question 65

There are the two grants of representation What are they?

Answer 65

Grant of Probate (where there is a valid will - the deceased dies testate) Grant of Letters of Administration (where there isn't a will or the will is invalid - the deceased dies intestate) NOTE: either must be granted If the deceased person’s assets excluding land, property, and shares are more than £5,000 before an estate can be distributed.

Question 66

What is the purpose of trusts?

Answer 66

A trust is a means of arranging property (assets) for the benefit of other persons without giving them full control over it

Question 67

What are the names of the 3 parties involved in a trust? Explain the role of each:

Answer 67

settlor, trustees and beneficiaries Settlor: This is the original owner of the asset Trustee: The legal owner of the asset held in trust. They own the asset temporarily and control it for the term of the trust who look after the interests of the beneficiary. Beneficiary: These are the long-term intended recipients of the asset. They have ‘beneficial or equitable ownership’ of the asset.

Question 68

What is the downside of the settlor also being the beneficiary of the trust?

Answer 68

When a settlor is also the beneficiary of the trust it is known as 'possession' The downside of this is that it will negate any tax advantages of the trust because the settlor is still benefiting from the asset and this isn’t allowed in inheritance tax law

Question 69

What basic requirements must trustees meet?

Answer 69

Trustees must be aged at least 18, of sound mind and not bankrupt. This is because they are in control of trust assets on behalf of beneficiaries If they are a non-professional trustee, they must reach competence in 6 months

Question 70

How are trusts different to contracts?

Answer 70

In trusts there does not need to be an agreement between the settlor and the beneficiary, so it does not class a contract

Question 71

What are 'bare or absolute' trusts? What are discretionary /flexible trusts?

Answer 71

'bare or absolute' trusts: Very inflexible Opposite to below Has a fixed and unchangeable beneficiary. The trustees role is to transfer the trust assets to the beneficiary at a stated age (usually 18). Trustees have no control over how assets are distributed. Known as a 'bare trust' if beneficiary is younger than 18. Known as an 'absolute trust' once the beneficiary turns 18. discretionary /flexible trusts : Opposite to above Trustees have complete control over how assets are distributed to beneficiary's.

Question 72

What is a discretionary /flexible trust?

Answer 72

Appointment of assets are at the discretion of the trustees

Question 73

What is 'Interest In Possession'

Answer 73

Its a term used in relation to trusts Just means the beneficiary has a right to income or capital of the trust assets For bare/absolute trusts the beneficiary has IIP because they have a right to the the trust assets. Ie, it will be transferred to them at a certain age no matter what. However, beneficiaries in flexible/discretionary do NOT have IIP because they have no right to the assets - the trustee chooses how the assets are distributed.

Question 74

What are power of appointment trusts?

Answer 74

Where the trustees can vary and appoint beneficiaries within a set group of individuals

Question 75

What are successive trusts?

Answer 75

USED IN ESTATE PLANNING LEARN IT #

Question 76

What can trusts be used for?

Answer 76

There are many many uses. Here are a few: Keeping trust assets outside an individual’s estate (to reduce IHT liability) Ensuring swift payment of benefits to the intended beneficiaries because trusts can bypass the need to get Grant of Probate or Letters of Administration Keeping pension fund assets separate from trading accounts This offers protection in the event of insolvency, as the liquidators cannot use pension funds to offset trading losses. Protecting pension assets from misuse

Question 77

What are trust deeds?

Answer 77

Trust deeds are often used by life companies to help create trusts. These provide the legal framework for mainstream cases and avoid the need to write individual trusts for each case. More complex scenarios may need bespoke trust deeds to be created, often at considerable cost

Question 78

What are Will trusts?

Answer 78

Created by a will and comes in effect at death. Its aim is to satisfy the deceased wishes. Used typically where the estate is being passed to a minor (minors do not have capacity to receive full IHT inheritance)

Question 79

If a trustee loses all the trust assets by poorly investing it, what can the beneficiary do?

Answer 79

beneficiaries can hold trustees accountable if it all goes wrong by taking them to court

Question 80

When can trustees be removed?

Answer 80

A trustee will be removed from their duties when they: resign their duties or die. are removed or retired under the provision of the trust deed. are removed in accordance with the Trustee Act 1925 (they have failed to discharge duties). are removed by a court

Question 81

In relation to trusts, it must be possible to determine the beneficiaries at any time. They don't have to be specifically named, but must be capable of being described i.e. my wife or my children. Beneficiaries can have different types of interest and can be individual or jointly nominated: What are the different types of interest (ie, how can assets be distributed)

Answer 81

Absolute interest -Entitled to the asset absolutely. Life interest -Entitled to income but not capital. Reversionary interest -Entitled to the assets after the termination of a life interest. Contingent interest - Only entitled in the event of contingency, such as getting married (so they may never come into possession, if they remain single).

Question 82

John is a director of his own company. He plans to retire soon but wants to keep hold of his company shares. The MOST likely reason for this is that John… wishes to avoid income tax. is obtaining tax relief on commercial property. can pass the shares to his children capital gains tax free. can pass the shares to his children inheritance tax free.

Answer 82

can pass the shares to his children inheritance tax free. If John has owned the shares a minimum of two years when he dies, they may benefit from Business Relief. This means they will be passed inheritance tax free to his children

Question 83

Marcus has an Individual Voluntary Arrangement (IVA). How often must his insolvency practitioner review this arrangement? Monthly. Quarterly. Bi-annually. Annually.

Answer 83

Annually. An IVA must be reviewed each year by the insolvency practitioner. This involves a review of the debtor’s (Marcus’) finances and a report will be sent to his creditors

Question 84

Steven married Joanne two months ago and has just died. He has a will in place that was written four years ago. What will happen to his estate? He will die intestate. The will determines who benefits from his estate. The estate will go to the crown. Joanne will inherit everything as they do not have any children

Answer 84

He will die intestate. Marriage invalidates a will, unless the will states that it was made in anticipation of marriage, and there is no mention of that in the question stem.

Question 85

Joanne is taking out a rental contract on a commercial office. In contract law which of the following is NOT required? Offer. Intention. Objection. Acceptance.

Answer 85

Objection. Objection is not a term that relates to a valid contract and its requirements

Question 86

Abdul is taking investment advice from his local IFA. Under the law of agency, who is the agent? The IFA is the agent of the product provider. The IFA is the agent of Abdul. Abdul is the agent of the IFA. Abdul is the agent of the product provider.

Answer 86

The IFA is the agent of Abdul. The IFA has responsibility to Abdul, and acts on his behalf as his agent. (Remember, FA's have responsibility to their firm)

Question 87

When Susan died, aged 76, she had no valid will. She was survived by her husband, Bernard, and one brother, Marcus, aged 68. Her estate was valued at £500,000. Her executors are considering how the estate will be distributed. You inform them that… Bernard will receive £322,000 absolutely and a life interest in the other £178,000. Bernard will receive £470,000 absolutely and a life interest in the remaining £30,000. Bernard will receive £322,000 absolutely with the other £178,000 going to Marcus. Bernard will receive £500,000 absolutely with £0 going to Marcus.

Answer 87

Bernard will receive £500,000 absolutely with £0 going to Marcus. The laws of intestacy state that where a spouse survives the death of an individual without children (issue) then the spouse receives everything as the sole beneficiary. If there were children (issue) then it would be 322k to spouse and 50% of residue left over with other 50% of residue to children.

Question 88

Kathryn has established a discretionary trust and Sue an absolute trust. It is true to say that… the absolute beneficiaries are unknown for the discretionary trust. the discretionary trust beneficiaries are known. the beneficiaries are unknown for the absolute trust. the absolute trust beneficiaries can be easily changed

Answer 88

The absolute beneficiaries are unknown for the discretionary trust. A discretionary trust has a flexible power of appointment element within it. This means that no beneficiary has an interest in possession, so are not absolutely known.

Question 89

Jackie has a property where she owns her flat in perpetuity (for ever) but not the freehold. This is possible because Jackie has… purchased on a commonhold basis. a lease of 99 years. a lease of 20 years. purchased on a shared-ownership basis.

Answer 89

purchased on a commonhold basis. Jackie is most likely to have purchased her property on a commonhold basis. This is where she owns her own unit, i.e. the flat, and is a member of a Commonhold Association. This association owns the land and the freehold, not Jackie as an individual

Question 90

Mavis is 82 and concerned about her health. Which of the following elements should Mavis include in a lasting power of attorney (LPA), if she wishes her son, Eric, to make health decision on her behalf, as her attorney? Personal health and welfare. Property and finance. Letter of wishes. Expression of wish

Answer 90

A personal health and welfare element will give these powers to Eric

Question 91

An individual, firm, or market can only carry out regulated activities in the UK if they are WHAT or WHAT? What happens if they carry out the activity without having one of the requirements?

Answer 91

An individual, firm, or market can only carry out regulated activities in the UK if they are either authorised or exempt. Otherwise, they are guilty of a criminal offence. This is collectively known as 'general prohibition'

Question 92

What did the The FSMA 2000 do?

Answer 92

It simplified the UK regulatory landscape, and gave us one regulator, one main ombudsman, and one main compensation scheme The Financial Service Authority (FSA) The Financial Ombudsmen Service (FOS) The Financial Service Compensation Scheme (FSCS)