Trust Creation And Rules

Question 1

What is a fully secret trust and why used?

Answer 1

Where no trust appears in the terms of the will

Main objective to preserve identity of person on who benefit is conferred

Question 2

What is a half secret trust?

Answer 2

Trust appears in will but terms of trust are not disclosed

Question 3

Conditions for a fully secret trust

Answer 3

🤫 Legatee holds property for intended beneficiary (Legatee = trustee)
🤫 Testator must communicate trust terms to legatee before death can be made any time during lifetime
🤫 All terms must be clearly communicated - sealed letter??
🤫Testator must communicate legally binding obligation on legatee and legatee must accept trust

Question 4

What happens if secret trust fails?

Answer 4

🤫From outside looking at the will looks like property has been given to legatee
🤫If fails legatee can keep and benefit from property

Question 5

What happens if half secret trust fails?

Answer 5

Property distributed in accordance of residue it a will or intestacy

Question 6

What are the three certainties for a valid trust?

Answer 6

📚Words - unmistakably show trust was intended, must be imperative

🏠 Subject - Property to hold on trust, specified and clearly identified

👩‍👩‍👧‍👦 Objects - Beneficiaries must be certain, named or class description

Question 7

What is a charitable trust and how does it differ from a private trust?

Answer 7

Wholly and exclusively of a charitable nature for public benefit

🤔 Can’t be void for uncertainty
🙄 Not subject to general law on perpetuities
🌝 Can continue indefinitely
🩴 Won’t fail for being impractical - can apply property to purpose as close to original (cy-pres doctrine)
🤑Can accumulate income 21 years or for the life of the settlor unless Charity commission provides for different period
💰 Investment income exempt from tax
💰 Gains exempt from CGT

Question 8

Charitable trust categories

Answer 8

💰 Prevention or relief of poverty

🥇Advancement of
Education
Religion
Health
Citizenship
Arts, culture, heritage, science
Amateur sports
Human rights
Environmental protection
Animal welfare

😅 Relief of those in need

👮‍♂️Promotion of effciency of armed forces, police, fire, rescue, ambulance

❓ Any other purpose currently recognised as a charity

Question 9

Who and what does the mental capacity act govern?

Answer 9

😶‍🌫️ Decison making on behalf of adults who lose mental capacity at some point in life or at birth

👍💲Decisons on personal welfare and financial matters

👍 Everything in best interests of individual

Question 10

Key principles of mental capacity act 2005

Answer 10

🤯 Capacity until proved otherwise
🤯 Supported to make own decisions
🤯 Not treated as lacking capacity for making an unwise decision
🤯 Must be done in best interest
🤯 Least restrictive option - decisions made in a way that interferes least with rights and freedom of individual

Question 11

Absolute interest means..

Answer 11

Beneficiary has full equitable ownership - capital and income

Ownership can’t be removed

Question 12

Life interest means..

Answer 12

Entitled to income from trust property for life

No capital entitlement

Called a life tenant

Question 13

Remainderman means..

Answer 13

Who trust property passes to on death of life tenant

Reversionary interest = future interest

Question 14

Contingent beneficiaries mean…

Answer 14

Interest depends on a particular event occurring

No beneficial interest if event doesn’t occur

Example = John dies and leaves his estate to David provided David reaches age 21

Question 15

What is the legal definition of a trust?

Answer 15

An arrangement where the settlor creates a legal obligation over property to transfer the property to trustees over which the trustees have control for the benefit of the beneficiaries any one of whom may enforce the obligation.

Question 16

How are trustees appointed when trust is created?

Answer 16

By deed that creates the trust

Where trust is created by a will

Under the laws of intestacy

By the court

Question 17

What is Knight v Knight?

Answer 17

Sets out rules for a valid trust.

Three certainties

Words/intention

Subject matter property to be held must be certain

Objects - the beneficiaries must be certain

Question 18

Who has the legal ownership of trust assets?

Answer 18

Trustees are the legal owners of trust assets

Assets registered in trustee names

Trustees can’t benefit from trust assets use for benefit of beneficiaries

Question 19

Who has beneficial ownership of trust assets?

Answer 19

Beneficiaries have beneficial ownership

Entitled to economic benefit or use of trust assets

Income and gains from trust belong to beneficiaries

Question 20

What are the main duties of a trustee?

Answer 20

Adhere to trust deed

Protect trust property

Ensure everything they do with trust property is done for benefit of the beneficiaries

Act impartially among beneficiaries

Register as legal owners of trust assets

Must adhere to Trustee Act 2000 legislation

Question 21

What is a bare trust?

Answer 21

Created for benefit of fixed beneficiaries which can’t be changed - % shares can’t be changed

PETs = no periodic/exit charges

No immediate lifetime IHT even if gift exceeds NRB

If settlor survives 7 years gift is not liable for IHT

Taper relief applies after 3 years which reduces IHT liability

Part of beneficiaries estate for IHT

Beneficiary absolutely entitled to their share of trust at 18

Beneficiaries liable for income tax/capital gains incurred by trust

Parental settlement rule = different taxation rules when gift made by parent

Question 22

What is a constructive trust?

Answer 22

Imposed by law/courts when their has been a breach of trust, regardless of intentions/ presumed intentions of parties involved

If an individual has taken trust property not permitted under trust law and in the knowledge that it was a breach of trust law.

The profit made from the breach of trust would be held on a constructive trust for the beneficiaries

Question 23

What powers does an appointer of a trust have?

Answer 23

Power to appoint new trustees

Power to remove/replace trustees as ,omg as min no. remain/if land can’t increase trustees over 4

Can become a trustee in place of one retired/removed

No statutory power enabling an appointer to become a trustee - trust deed needs to say so

Power of veto of trustee decisions/block trustees decisions

Question 24

How can trustees delegate powers under trustee delegation act? For example if moves abroad for 6 months

Answer 24

Delegate some or all trustee powers to an attorney under a general POA

Can delegate for no longer than 12 months

Written notice must be given to other trustees and appointer if there is one

Give the reason and within 7 days of it being in place

Liable to acts and defaults of attorney as if their own.

Can also transfer responsibility to others and appoint an agent but not all powers and can’t:
Have power over distribution/deal with fees/appoint new trustees/delegate.

If exercised duty of care in appointment not liable for loss due to acts of person appointed.

Question 25

What are choses in action and choses in possession

Answer 25

Choses in action = Intangible assets (not physical)

Life insurance policies/investment bonds/capital redemption polices/Debts/Reversionary interests/Shares in a company/collective investments

Choses in possession = Tangible objects (Can be handled)

Works of art/furniture/cars/jewellery

Question 26

What is a protector of a trust?

Answer 26

Usually for offshore trusts

Power to veto certain decisions of trustees

Remove trustees

To Ensure settlors intentions are followed

Not usually a trustee

Ensure trustees administer trust effectively

Question 27

What are the investment powers of a trustee?

Answer 27

Take account of standard investment criteria - suitability/diversification

Keep investments under review

Obtain and consider proper advice unless concludes has skill/expertise or small trust

Take account of tax position

Keep proper accounts

Utmost due diligence to avoid loss

Avoid conflict of interest

Question 28

Legislation relating to trusts?

Answer 28

Trustee Act 1925

Law of property act 1925

Admin of estates 1925

Recognition of trusts act 1987

Trusts of land and appointment of trustees Act 1996

Trustees delegation act 1999

Perpetuities and accumulations act 1964 and again 2009

Inheritance and trustees powers act 2014

Variation of trust act 1958

Question 29

What is effect of Saunder v vautier?

Answer 29

A trust can end

If all beneficiaries:

Are ascertained
Aged 18 or over
Sound mind

Unanimous agreement of all beneficiaries

Question 30

How long is accumulation period?

Answer 30

No restriction - as long as trust period a shorter period could have been choses and incorporated into trust deed

Charities = 21 years from creation

Question 31

Accumulation trusts created prior to 6/4/210?

Answer 31

No longer than:

Life of settlor

21 years from death of testator/settlor

Duration of minority (ies)of any persons living at death of settlor testator

Duration of minority (ies) of any person entitled under trust

21 years from date of disposition

Minority of any person in being at that date

Question 32

How is an Immediate post death interest trust dealt with for IHT and income tax

Answer 32

Aligned to the life tenant and added to estate.

Trustees will pay IHT on trust

Income tax on life tenant/beneficiary so can use all allowances

If iip On death of life tenant would be taxed on remaindermen as they become absolutely entitled and stay in trust while minors. Same rules as above apply.