Chapter 4 - Legal Concepts

Question 1

What is a ‘Lasting Power of Attorney’?

Answer 1

A legal document that allows a lawyer to look after a clients assets and welfare.

Question 2

What are the three elements of a valid contract?

Answer 2

Agreement - offer and acceptance
Consideration - cash/reward
Intention - legal cooperation

Question 3

What is the difference between legal and beneficial ownership?

Answer 3

Legal ownership - the bank looking after your money

Beneficial ownership - your money

Question 4

What is the difference between being ‘Tenants in Common’ and having ‘Joint Tenancy’?

Answer 4

Tenants in Common - All have separately divided shares in the land.
Joint Tenancy - Where two or more people own all of the land.

Question 5

When does a company become insolvent?

Answer 5

When it can no longer meet its obligations on time.

Question 6

When does a company become bankrupt?

Answer 6

When a company cannot recover from insolvency with its auditors. This leads to the appointment of court administrators, debt-holders, receivers or liquidators who will then wind up the company.

Question 7

What are the five requirements for a valid will?

Answer 7

Must be written
Must be signed and witnessed by two people
Author must be over 18
Author must be sane
Must be independently created

Question 8

What is intecstacy?

Answer 8

Occurs when an individual dies without a valid will. The estate of the deceased is then subject to the laws of intestacy (given to next of kin).

Question 9

What is a trust?

Answer 9

An equitable obligation in which certain persons (trustees) are bound to deal with property over which they have no control (trust property), for the benefit of certain individuals (beneficiaries).

Question 10

What is a settlor?

Answer 10

An individual who transfers assets into a trust over their lifetime. These trusts are known as Settlements.

Question 11

What is a Bare Trust?

Answer 11

A trust where there is only one beneficiary.

Question 12

What is an Interest in Possession Trust?

Answer 12

Occurs when a beneficiary has a legal right to the income or other benefit derived from the trust property.

Question 13

What is a Discretionary Trust?

Answer 13

Occurs where the trustees exercise their discretion as to which beneficiaries will be entitled to receive income or capital from the trust.

Question 14

What are the two types of Lasting Powers of Attorney?

Answer 14

Personal Welfare LPA

Property and Affairs LPA

Question 15

What is meant by an Agency Relationship?

Answer 15

Agency is a relationship that exists between two legal persons (principal+agent), where the agent arranges a contract between the principal and a third-party.

Question 16

How is the process of liquidation best described?

Answer 16

Where a company has its affairs wound up leading to its dissolution, with the liquidator acting mainly in the interests of the unsecured creditors.

Question 17

Which part of a life assurance policy contract would constitute the ‘offer’?

Answer 17

A completed proposal form.

Question 18

What was the purpose of the Mental Capacity Act 2005?

Answer 18

To replace the procedure of setting up Enduring Powers of Attorney with Lasting Powers of Attorney. Pre-existing EPAs can still be registered, although they cannot be changed.

Question 19

Which regulatory body is able to register Lasting Powers of Attorney?

Answer 19

The Office of Public Guardian

Question 20

Who does a Bankruptcy Order apply to?

Answer 20

Individuals, sole traders or partners.

Question 21

What is the minimum amount of debt at which the court would hear a petition for bankruptcy?

Answer 21

£5,000

Question 22

What are the basic aims of insolvency law?

Answer 22

Controlling/punishing directors (removing their responsibilities), and protecting creditors (not shareholders)

Question 23

How is the process of administration best described?

Answer 23

Where an administrator is appointed to run the company’s affairs and aims to rescue the company.