Topic 5 - Types Of Borrower

Question 1

What determines a High Net Worth client?

Answer 1

Net annual income of £300,000 per annum or net assets of £3m

Question 2

What can a High Net Worth client do that others can’t?

Answer 2

1. Opt out of receiving advice

2. Could potentially benefit from interest roll-up facilities

Question 3

What 4 considerations do lenders take in to account when lending to limited companies?

Answer 3

1. The company’s powers to borrow and any limits or limitations imposed on the company’s borrowings
2. The authority of its officers to borrow
3. The company’s status as a credit risk
4. The company’s limited liability

Question 4

When might you need an attorney?

Answer 4

1. Elderly people who can no longer manage their own finances,
2. Disabled people
3. People who live overseas for a long period.

Question 5

What 2 organisations do Powers of Attorney’s bring in to play?

Answer 5

1. Office of the Public Guardian

2. Court of Protection

Question 6

What is the Court of Protection?

Answer 6

The Court of Protection is a specialist court for all issues relating to people who lack capacity to make specific decisions. The Court makes decisions and appoints deputies to make decisions in the best interests of those who lack capacity to do so (Ministry of Justice).

Question 7

What are powers of the Court of Protection?

Answer 7

1. Decide whether a person can make their own decisions
2. Make decisions for people that cannot make their own decisions.
3. Appoint deputies
4. Decide whether an EPA or LPA is valid
5. Remove deputies where they are not carrying out their responsibilities
6. Hear cases to objections to register EPA or LPA

Question 8

What is an Ordinary Power of Attorney?

Answer 8

It is a simple document allowing a nominated person to handle the financial affairs of another. It will be automatically revoked if the donor becomes mentally ill. Not appropriate for elderly people.

Question 9

What is a Lasting Power of Attorney designed to achieve?

Answer 9

It is designed for donors that lack the capacity to act for themselves, such as mental illness or dementia.

Question 10

Does the donor have to be of sound mind to create a LPA?

Answer 10

Yes, it is usually arranged in anticipation of becoming mentally ill.

Question 11

Where should a LPA be registered before it can become effective?

Answer 11

Office of the Public Guardian

Question 12

What are the two types of LPA?

Answer 12

Personal welfare LPA and property and affairs LPA

Question 13

When does a personal welfare LPA and property affairs LPA come in to force?

Answer 13

Personal welfare only when donor becomes mentally incapacitated.

Property and affairs immediately when registered with OPG unless specified by the donor that it is not be in force until mentally incapacitated.

Question 14

What is a personal welfare LPA?

Answer 14

It is where the donor appoints an attorney to deal with their social and medical affairs.

Question 15

What is a property and affairs LPA?

Answer 15

It is when a donor appoints an attorney to deal with their financial matters.

Question 16

What are Trustees?

Answer 16

They are people appointed to handle the assets of beneficiaries using a document called a Trust Deed.

Question 17

What should a lender examine before considering lending to Trustees?

Answer 17

That the have the powers to do so.

Question 18

What are the two basic types of Trust?

Answer 18

An absolute trust and a discretionary trust.

Question 19

What is the difference between an absolute trust and a discretionary trust?

Answer 19

An absolute trust holds assets for the beneficiary is pre-determined whereas the beneficiaries are not necessarily entitled to the income or capital of assets in a discretionary trust.

Question 20

What is the impact of IHT when placing assets in a discretionary trust or an absolute trust?

Answer 20

If assets placed in a discretionary trust it is considered as a chargeable lifetime transfer which if liable on anything exceeding the nil rate band. If placed in an absolute trust it is considered a PET meaning that it is nit subject to IHT if settlor survives for 7 years. Death within 7 years means the PET becomes a CLT.

Question 21

What should be considered when taking out a mortgage for a trustee on behalf of a beneficiary?

Answer 21

With an absolute trust the beneficiary is entitled to take ownership of the property when they become 18 years old whereas this is not necessarily the case with a discretionary trust.

Question 22

What is a registered social landlord?

Answer 22

Mainly housing associations but could be trusts or companies.

Question 23

What is the role of registered social landlords?

Answer 23

Not-for-profit organisations which receive government funding to provide decent homes to rent, sell or shared ownership.

Question 24

Who can start a bankruptcy petition?

Answer 24

The debtor themselves, a creditor or two or more creditors jointly.

Question 25

When can a creditor file a debtor for bankruptcy?

Answer 25

If the debt is a minimum of £5,000, is unsecured and there is no means of repayment.

Question 26

What % of creditors by value must agree to a debtor entering in to an IVA?

Answer 26

75%

Question 27

Who does a Debt Relief Order apply to?

Answer 27

It is a relief for debtors who are in debt that are unable to make repayments with little disposable income, no assets with little chance of their situation changing.

Question 28

How does a Debt Relief Order work?

Answer 28

It is a moratorium for existing debts, usually lasting 12 months which after this time the eats are usually written off.