Trusts Flashcards
Name 5 reasons/uses for trusts.
-Reduce tax, particularly IHT
-Most pension schemes set up under a form of trust
-Protect spendthrift beneficiaries from themselves
-Special reasons i.e. maintenance for disabled person
-Protection from creditors/business protection
Who are the three main parties to a trust?
Settlor
Trustees
Beneficiaries
Name three objectives a settlor may have when setting up a trust.
-Control/protect family assets
-Hold assets for an individual who is too young or incapacitated to handle their affairs
-Pass on property during their lifetime/on death
True or false. A settlor can also be a trustee.
True - they often are
Why are investment bonds often used within trusts?
Not deemed income producing assets –> income treated as return of capital –> saves admin work for trustees
What are two main drawbacks to using investment bonds within trusts?
-Can’t use beneficiaries’/trustees’ CGT exemption
-Can’t use beneficiaries’ dividend allowance
What are two main benefits to using UTs/OEICs within trusts?
-Can use beneficiaries’/trustees’ CGT exemption
-Can use beneficiaries’ dividend allowance/PSA for certain trust types
What are three main drawbacks to using UTs/OEICs within trusts?
-Extra administration
-Ongoing tax returns
-Need to account for income/gains as they arise
What two conditions must an individual meet to be a trustee?
-Over 18
-Of sound mind
What are the thirteen duties of a trustee under the Trustee Act 2000?
-Reasonable care and diligence
-Act as a prudent business person would
-Ensure they’re registered as the legal owners
-Read & understand the trust deed and comply with the terms of the trust
-Act impartially between beneficiaries so as to act in the best interests of all beneficiaries
-Take into account the tax position of the trust and beneficiaries
-Avoid conflicts of interest & keep their own finances separate
-Invest any cash received into the trust appropriately
-Invest trust money property, using standard investment criteria and taking advice where necessary to ensure adequate diversification
-Monitor & review investments regularly
-Keep proper accounts & accurate records of all trust property
-Use utmost diligence to avoid any loss
-Ensure they make the correct returns and payments to HMRC
What three ways can trustees be appointed?
-Via trust deed when trust is created
-When a trust is created by a will
-Under laws of intestacy
What six ways can trustees be replaced?
-They’ve died
-They’ve been outside the UK for >1 year
-They desire to be discharged
-They refuse to act
-They’re unfit/incapable of acting
-They’re an infant
What power does an appointer have?
To remove a trustee
What is the process by which a trustee can retire? (8)
-Execute a deed of retirement
-If mental capacity maintained - trustees can retire as trustees
-If mental capacity lost - remaining trustee(s) can remove/replace trustee using Trustee Act 1925 Section 36
-If no trustee appointed, one can be appointed by the Court
-Trust cannot be left without a trustee
-New trustee would need to be appointed
-Or corporate trustee could be used
-If land is within the trust, then there must be at least 2 trustees
What are seven investment duties of a trustee?
-Obtain proper advice
-Duty of care to act as if the assets were their own
-Note the standard investment criteria
-Consider suitability of investments within the trust
-Diversification
-Monitor & review the investments
-Make changes to investments if appropriate to rebalance
What are the four different types of beneficial interest?
-Absolute interest
-Life interest
-Remaindermen
-Contingent beneficiary
What four conditions must be met for beneficiaries to request that a trust be terminated?
-All the beneficiaries can be ascertained
-No possibility of further beneficiaries
-All beneficiaries of age and mental capacity
-Unanimous agreement of all beneficiaries
What three certainties must be present for a trust to be established?
-Words
-Subject matter
-Objects
True or false. Transfers into a trust on death would be eligible for the annual exemption.
False
Name five issues that may be caused by an individual dying without a will.
-Deceased’s wishes not catered for.
-Care/custody of minor children not arranged.
-IHT inefficient
-Assets may not automatically go to spouse
-No control of assets if all passed to spouse
How can a will be revoked? (3)
-Deliberate destruction
-Making a new will
-Marriage/civil partnership
If an individual dies intestate with a spouse/RCP and issue, how will their estate be distributed?
Spouse receives:
-Personal chattels
-First £270k
-Half of any residue
Issue receives:
-Other half of any residue
What seven conditions must be met for a deed of variation to be used?
-All affected beneficiaries over 18 & of sound mind.
-To be IHT effective, it must refer to Will/intestacy being varied.
-Must be signed by all those who would/might have benefitted from the original provisions.
-Must be done within 2 years of death.
-Must be a statement that the variation is to have effect for IHT as if the deceased had made it.
-If the variation increases IHT, must also be signed by the personal representatives.
-Must be no consideration for money/money’s worth.
What is a disclaimer?
If an individual has inherited property, they can disclaim it as long as it hasn’t already been accepted and is actioned within two years from the date of death.
