Legal Concepts

Question 1

What is a Legal Person

Answer 1

Has rights, protection, privileges, responsibilities and liabilities under law - as natural persons do.

e.g Companies, Sovereign States, Co-operatives

Question 2

What is a Legal Personality

Answer 2

Allows one of more natural persons to act as a ‘composite person’ for legal purposes

Often considered under law separately from its individual members, therefore may shield participants from personal liability

Question 3

Lasting Power of Attorney

Answer 3

Created from Mental Capacity Act 2005, replacing EPA

Must registered with Office of Public Guardian (OPG)

1. Property and affairs LPA - financial decisions
2. Personal welfare LPA - healthcare decisions

Question 4

Stages of Contract and Legality

Answer 4

Offer - Terms and Conditions - Acceptance

Consideration - mutual consideration on either side, one promises a service and the other payment. makes legally enforceable

Intention - must have intention of being legally binding. Commercial contracts assume this

Question 5

Medium of Contract

Answer 5

Written or Orally are both acceptable

Certain agreements (e.g. property and tenancy) are writing only

Question 6

4 Ways of Contract Discharge (PAFB)

Answer 6

1. Performance - obligations of contract have been accomplished by both parties
2. Agreement - mutual agreement to end contract
3. Frustration - events occurred which make contract impossible to complete
4. Breach - one party does not fulfil T and Cs or work is defective.

Question 7

Legal and Beneficial Property Ownership

Answer 7

1. Legal - named on title documents at Land registry or on share registers
2. Beneficial - right to live in property. Power to control the sale and share the proceeds

Question 8

Types of Property Ownership

Answer 8

1. Individual - with absolute ownership
2. Tenants in Common - two or more co-owners free to dispose of their share
3. Joint Tenants - two or more in equal ownership, can only dispose of ownership by giving notice to other tenant and converting to ‘tenancy in common’. Share passes on death

Couples can change to tenancy in common to mitigate Pre-Owned Asset Tax (POAT)

Question 9

Insolvency Definition and Aftermath

Answer 9

State where company cannot pay bills or obligations on time

Debts > Assets + Cash Flow

When insolvent, a company must immediately generate cash and settle or renegotiate debts

If it cannot recover, it will lead to bankruptcy or liquidation

Question 10

Liquidation

Answer 10

The shutting down of a company

Liquidation occurs where a liquidator collects assets, pays debts to creditors and distributes surplus to members

The company is then removed from Register of Companies.

Question 11

Alternatives to Liquidation

Answer 11

1. Administration - administrator runs company affairs to rescue it
2. Voluntary Arrangements - insolvency is avoided by making a deal between the company and its creditors

Question 12

Bankruptcy Definition and Application

Answer 12

Again, when Liabilities > Asset
but whereas insolvency is a state, bankruptcy is by law (i.e company can be insolvent but not bankrupt)

Anyone can apply for bankruptcy or Creditors can petition if the person owes >£5000

Question 13

Process of Bankruptcy

Answer 13

One bankruptcy order is made, an ‘Official Receiver’ will manage the affairs to pay off the creditors

If there are significant assets, an ‘insolvency practitioner‘ may be appointed to sell the assets

Question 14

Alternative to Bankruptcy - Individual Voluntary Arrangement

Answer 14

To decide if an IVA is acceptable, a creditors meeting is called with at least 75% in favour

Monthly repayments to creditors

Question 15

Conditions of a Will

Answer 15

1. Must be in writing
2. Signed and witness by 2 people
3. Must be over 18
4. Must have mental capacity
5. Must be made under no pressure

Question 16

Probate and Intestate

Answer 16

Probate - a specified ‘executor’ will share our estate and settle debts. If no executor names, a beneficiary will take the role

Intestate - person dies without a will or valid will and estate shared by laws of intestacy to next of kin

Question 17

What is a Trust and Investments within a trusts

Answer 17

Arrangement where a person (the Settlor) transfers property to another person (the Trustee) who manages on behalf of specified persons (the Beneficiaries)

Trust Deed must be written in lifetime or by Will

Investment within a trust must follow the Trustee Act 2000

Question 18

4 Main Types of Trust

Answer 18

1. Bare
2. Interest in Possession
3. Charitable
4. Discretionary

Question 19

Bare (Absolute) Trust

Answer 19

Assets legally owned by the trustee for the absolute benefit of the beneficiaries

Income and capital gains are the beneficiaries for tax purposes

e.g. set up for child, disabled

Question 20

Interest in Possession (Life Interest) Trust

Answer 20

Beneficiary has an interest in the benefits of the assets of the trust until their death

After the specified event (usually death), the persons interest cease and the interest will be held for the benefit of the second class beneficiary (the Remainderman)

e.g. Provide for spouse, while protecting assets for secondary children

Question 21

Discretionary Trust

Answer 21

Trustees have discretion on how much to give to which beneficiaries and when = more freedom for trustee

Either:

1. Settlor’s children/grandchildren becoming entitled at specified age
2. Trustee’s discretion according to need

Can be used to mitigate Inheritance Tax by using a discretionary trust in the first couple member to die’s will. A ‘letter of wishes’ will give the surviving spouse enough assets but avoid some IHT liability

Question 22

Duties of a Trustee (IIADSR)

Answer 22

1. INVEST the trust fund
2. Act IMPARTIALLY
3. Take appropriate ADVICE (professionally) - unless too small for costs to outweigh or already qualified
4. DISTRIBUTE trust properly
5. Keep trusts property SECURE - insure tangible items
6. Keep RECORDS - advice, investments, costs and money paid to beneficiaries