RO1 - S.3 - legal concepts and considerations relevant to financial advice

Question 1

When did Enduring POAs cease to exist and what replaced them?

Answer 1

October 2007, Lasting Power of Attorneys

Question 2

What was an Enduring Power of Attorney?

Answer 2

Written whilst mental capacity was held, Power handed over once the mental capacity is lost.

Question 3

What are the two types of Lasting Power of Attorney available?

Answer 3

a) Financial attorney - make financial decisions on behalf of another
b) health and care attorney - make decisions when another is incapacitated

Question 4

Which Act introduced Lasting Power of Attorneys?

Answer 4

The Mental Capacity Act 2005

Question 5

Where do LPAs have to be registered to become legal?

Answer 5

Office of the Public Guardian

Question 6

In what 3 situations would an LPA cease to be valid?

Answer 6

1) Bankruptcy of the donor
2) Death/ bankruptcy of the attorney
3) Divorce/ dissolution of a civil partnership between donor & donee

Question 7

What were the two ways an Enduring Power of Attorney could have been set up?

Answer 7

1) Immediate Action - Came in to force straight away allowing the attorney to act
2) Delayed Action - Only came in to force when the donor lost capacity and the POA had been registered

Question 8

For a contract to be valid, what are the four stages it has to go through?

Answer 8

1) Offer
2) Acceptance
3) Intention
4) Consideration

Question 9

What is the consideration stage of a contract?

Answer 9

When both parties understand to provide something to another

Question 10

What is the difference between freehold and leasehold property?

Answer 10

a) Freehold – Own land and building
b) Leasehold – Own building and lease the land

Question 11

What is a commonhold property?

Answer 11

own flats in perpetuity under commonhold association

Question 12

What is the difference between joint tennants and tennants in common?

Answer 12

ii) Joint tenancy basis - Owned jointly, on death passes to survivor
iii) Tenants in common – owned together in part, on death part owned by deceased passes to their estate not the co-owner

Question 13

What is shared ownership?

Answer 13

Buy a property in part with a housing association, can get a mortgage and buy part of the house then pay market rent for the other part. Can eventually increase the share in the future, known as staircasing. Need to pay the market rate at the same time for other part.

Question 14

What is the difference between bankruptcy andf insolvency?

Answer 14

Bankruptcy is for individuals, insolvencies for companies

Question 15

What is an alternative form of insolvency that companies can use?

Answer 15

Administration

Question 16

What happens when a company goes in to administration?

Answer 16

administrator is appointed to run the firm to change companies fortunes or find a buyer, this can’t last more than 12 months.

Question 17

How much would someone have to owe to declare themselves bankrupt?

Answer 17

owe £5k + and have tried every means to repay debt

Question 18

What is the procedure of someone declaring themselves bankrupt?

Answer 18

creditors petition the courts and official receiver appointed to acquire assets to sell for cash

Question 19

What kinds of arrangements can help someone to avoid insolvency?

Answer 19

individual and company voluntary arrangements (IVA & CVA)

Question 20

when an insolvency practitioner is appointed, typically how long is given for the debts to be paid off?

Answer 20

Over the course of 5 years

Question 21

what is intestacy?

Answer 21

if you die without a will then you die intestate

Question 22

what happens to your estate if you die intestate?

Answer 22

An Administrator will be appointed and your estate is distributed in line with rules of intestacy

Question 23

Who is the testator with regards to wills?

Answer 23

The person who writes the will

Question 24

What is probate?

Answer 24

A license to act for the executors to distribute the estate

Question 25

According to the rules of intestacy, if you were to die intestate with a partner and children what would be the split of the estate?

Answer 25

first £322k goes to spouse/ civil partnership – remainder goes half and half with kids

Question 26

who is the settlor with regards to trusts?

Answer 26

Person who creates the trust and owns the assets

Question 27

what is a bare trust?

Answer 27

Absolute trust (set in stone once set up), beneficiaries can’t be changed and set up for asset to be passed to a beneficiary

Question 28

what is a discretionary trust?

Answer 28

Trustees in these trusts have discretion on when and to whom they pay the income and capital to, most flexible option of trusts

Question 29

When two people are in a partnership and one of them makes bad decisions & creates debts, who is responsible for the debts?

Answer 29

Both of the people in the partnership