Chapter 4 Flashcards
Legal Topics
4.1.1 Explain legal persons and power of attorney
Legal Person
Rights, privileges, responsibilities and liabilities under law
E.G companies, sovereign states and co-operatives
Legal Personality
Allows one or more natural persons to act as a single entity (a composite person) for legal purposes.
In many jurisdictions, a composite can be considered under law separately from individual members or shareholders
May be subject to certain legal obligations - pay tax
May shield an entities participants E.G shareholders, from personal liability.
Power of Attorney
A legal document that allows a person to give another person or persons the power to make decisions about their financial affairs and/or health and wellbeing
Enduring Power of Attorney (EPA) and Lasting Power of Attorney (LPA)
LPA created in 2007 under the Mental Capacity Act 2005 and replaces EPA
LPA consists of:
Property and affairs LPA - financial affairs
Personal welfare LPA - somebodies personal healthcare and welfare
Unlike EPA, LPA must be registered at the Office of the Public Guardian (OPG)
EPAs created before 2007 remain valid
4.1.2 Explain the basic Law of contract and agency
Contract - agreement creating and defining the obligations between two parties
Offer and acceptance = contract formed
Acceptance - willingness by acceptance party to enter into a contract, the requirement for T&Cs to be set out and accepted - once set and agreed contract = complete/full
No consideration = no enforceable by law - mutual consideration required
Intention - if there is no intention by the parties of the agreement to become legally binding it will not be judged to be a contract under the eyes of the law.
If one party wants to argue in court that it was not legally binding - require written evidence
T&Cs - if contract brought to court strong emphasis is on the T&Cs
Contract not complete unless T&Cs are fully laid out, and not vague or ambiguous.
Unclear T&C = non-legally binding
Types of Contract
Normally formalised with a written contract
An oral contract can be upheld
Contract Discharge (ending)
Performance - obligations accomplished by both parties
Agreement - both parties agree to end or partly release the other party from the agreement
Frustration - events occur to make completion impossible
Breach
Party doesn’t fulfil one or more specified T&Cs.
Defective work or one party makes the other aware agreed work is not going to be carried out
Law can then be brought to judge on this contract dispute
Financial damages only awarded if an innocent party can prove financial loss
4.1.3 Explain the types of ownership and property
Legal ownership:
People named on title documents are legal owners - land registry
Legal ownership is not significant as the use and title to the property lies with the beneficial owner
Beneficial owner:
Right to live and use the property; may not be the legal owner
Have the right to share proceed of the sale
Power to control the sale of land or buildings
Other forms of property may also have legal and beneficial owners
E.G client money held in an account in name of the firm (legal owner) but is held in trust for its beneficial owner of the client.
Most people own property as both legal and beneficial owners
Property can be held:
Individual - absolute ownership
Co-owners as tenants in common
Co-owners as joint tenants
Equal ownership - can only dispose of interests by giving notice and converting to tenets in common.
Death of a JT - shares pass to other JT
4.1.4 Explain insolvency and bankruptcy
Insolvency - financial state company cannot pay bills and other obligations on time
Liabilities exceed cash flow
Immediate action required to generate capital to settle or renegotiate debts
If unable - face bankruptcy proceedings
Insolvency is a state of being. Bankruptcy is a matter of law.
Liquidation - end of the company
Property administered for the benefit of creditors and members
Alternatives to liquidation:
Administration - Administrator appointed to run company aiming to rescue the company
Voluntary arrangements - insolvency proceedings avoided by substituting a satisfactory settlement of financial difficulties between the company and creditors
Anyone can apply to the court to become bankrupt
Creditors can petition the court to use a bankruptcy order if the person owes more than £5k
Once bankruptcy order made against a person - official receiver admins the bankrupt person’s financial affairs
If they have significant assets - insolvency practitioner appointed as a trustee who sells all the permitted assets and pays creditors
Individual Voluntary Arrangement (IVA) - alternative to bankruptcy
IVA acceptability determined by creditors in a meeting and voted on
75% majority required
If approved creditors cannot take legal action to recover the debt
4.1.5 Explain wills and intestacy
Will sets out the distribution of an estate of a deceased person
Will to be valid:
It must be in writing
Signed and witnessed by two people
The person over 18 when made
The person must have the mental capacity to make the will and understand effects
Not be pressured to make a will by another
Executor/s - execute the will by settle debts, tax and any complications prior to distributing assets = ‘probate’
No executors? The beneficiary will usually act as an administrator
A person who dies with no will or with an invalid will = died intestate.
Estate distributed according to laws of intestacy - leave estate to NoK
4.1.6 Describe the main types of trust and their uses
Trust is an arrangement which a settlor transfers property to a trustee who manages it on the behalf of the beneficiaries.
Created in the lifetime of settlor = Trust Deed
Or upon the death of settlor by will or intestacy statutory provisions
Investments within a trust must be managed by the Trustee in accordance with the Trustee Act 2000 unless the Trust Deed overrides it
Four main types of trust:
A Bare Trust (absolute trust) - assets legally owned by trustees for the benefit of the beneficiaries. Income and capital gains treated as beneficiaries for tax. Used for children
An interest in possession trust (life interest trusts) - beneficiary has an interest in the benefits of the assets held in the trust until their death.
One party (Party A) has the right to income or occupation of the property - Party A = interest in possession.
Upon Death of A interest in possession ceases.
Assets then go to the second class of beneficiary = remainderman.
Usually used on spouse or partner
A Charitable Trust
Purpose of charitable deeds - relief of property, the advancement of religion, education and other community benefiting purposes
A discretionary trust
Property held for the beneficiaries - trustee has discretion about when, how much to and which beneficiaries receive property
Settlors children and grandchildren - each becoming entitled to their share of the fund at a certain age.
Naming various beneficiaries - who benefit from trustee discretion according to need.
DT provides freedom to the trustee - other trusts trustee actions strictly defined
Useful for mitigating inheritance tax
In the will of first to die of a couple
Assets would normally be passed to surviving spouse or in a trust
Spouse = beneficiary and trustees appointed
The beneficiary doesn’t have an absolute entitlement to the asset; so, assets in trust not treated as part of that individual’s estate
Settlor should leave a letter of wishes - guidance for trustees on how assets should be distributed to beneficiaries.
Main duties and powers of a trustee:
To invest the trust fund
Property in fund = trust fund
Make sure it is invested for the beneficiaries until the money is distributed
If insurance - no funds until any claim on the insurance plan
To act impartially
More than one beneficiary they must not act to the benefit of one and not the other
To take appropriate advice
Professional advice before investing the trust fund, unless very small and prof advice cost outway benefits or trustees qualified to give advice
To distribute the trust property
Ensure it passes to beneficiaries at the right time
To keep the trust’s record
Keep a record of any decisions they make and actions are taken
Inc. investments made and money paid out to beneficiaries.
Also on advice taken and incurred costs for advice.
