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R05 - Financial Protection > Trusts > Flashcards

Trusts Flashcards

1
Q

What is a trust?

A

A trust is a legal obligation binding a person (the trustee) to deal with property over which they have control (the trust property)

A trust is a way of giving property away to beneficiaries

It allows some control to be kept over the property and can sometimes provide tax advantages

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2
Q

Who are the 3 parties to a trust?

A
  1. Trustee
  2. Settlor
  3. Beneficiaries
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2
Q

Who administers and controls the trust according to its terms?

A

The trustees

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3
Q

What does the trust document do?

A

It transfers legal ownership of the trust property to the trustees

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4
Q

Who is the original owner of the property or provider of the funds being placed under trust?

A

The settlor (who is usually also the life assured)

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5
Q

Is the settlor often a trustee and why?

A

Yes, so they can retain some control over their property until death

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6
Q

Who is entitled to receive the property of a trust?

A

The beneficiaries

(Often the spouse, children, grandchildren or other relatives of the settlor)

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7
Q

Can a trustee also be a beneficiary?

A

Yes

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8
Q

Who are lay trustees, and do they charge for their services?

A

They are non-professional trustees such as family members of the settlor & they do not charge for their services

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9
Q

Do professional trustees charges for their services?

A

Yes

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10
Q

How many trustees can be appointed?

A

Any number of trustees except where the trust is of land, when only up to 4 can be appointed

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11
Q

Who can be a trustee?

A

Anyone over 18 who is of sound mind

It is in the settlor’s interest if the trustees are willing, honest, likely to outlive the life assured and are trustworthy

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12
Q

Who are trustees accountable to for their actions?

A

The beneficiaries

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13
Q

What are the 2 main reasons property may be placed under trust?

A
  1. For IHT planning purposes
  2. To retain some control over the gift
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14
Q

For gifts from normal expenditure from surplus income to be exempt from IHT, what 2 rules must be satisfied?

A
  1. The payments must be habitual
  2. The donor must have enough income remaining to maintain their standard of living
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15
Q

When are the proceeds paid on the death of the life assured not subject to IHT?

A

When the policy is written under trust

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16
Q

Can the premiums for a life policy written under trust be treated as gifts from normal expenditure?

A

Yes, as long as the payments are habitual and leave the donor with enough income to maintain their standard of living

17
Q

Name the 5 main types of trust

A
  1. Absolute trust (or bare trust)
  2. Life interest trust
  3. Flexible trust
  4. Discretionary trust
  5. Statutory trust
18
Q

What type of trust does not allow any changes to be made once it has been set up?

A

An absolute trust

19
Q

With an absolute trust, what type of interest do the beneficiaries have in the property?

A

An absolute interest

20
Q

Under which trust is it the sole responsibility of the trustees to hold the property for the beneficiaries and to transfer it to them when required?

A

An absolute trust

21
Q

Which trust uses the terms ‘life tenant’ and ‘remaindermen’?

A

A life interest trust

22
Q

Under which trust can a specified beneficiary have a right to income or enjoyment of trust property for their lifetime, after which the property will pass to another specified beneficiary?

A

A life interest trust

23
Q

Under a life interest trust, what interest do the remaindermen have to the trust property?

A

A revisionary interest

24
Q

Under a life interest trust, what is the term used for the initial beneficiary?

A

The life tenant

25
Q

What trust might be used if a settlor wanted his wife to benefit from the trust property during her lifetime, and thereafter transfer the property to his children?

A

A life interest trust

26
Q

Under which 2 trusts do the trustees have power to change the beneficiaries?

A

A flexible trust and a discretionary trust

27
Q

How is a flexible trust different from a discretionary trust?

A

A flexible trust makes provision for a default beneficiary (or gift-over) to whom the benefits will be paid if no other beneficiaries are appointed.

If the settlor doesn’t appoint a default beneficiary, then it’s a discretionary trust, and the trustees would have discretion over any distribution

28
Q

How do flexible and discretionary trusts differ in terms of IHT treatment?

A

They don’t anymore, they’re now treated the same

29
Q

Which 2 types of trust names the potential future beneficiaries in general terms (my spouse, our children, any future grandchildren)?

A

Flexible and discretionary trusts

30
Q

What type of trust do most life offices now use as their standard trust form?

A

Discretionary trust

31
Q

Which trust is created by an Act of Parliament?

A

A statutory trust

32
Q

Give an example of a statutory trust

A

The Married Women’s Property Act (MWPA)

33
Q

Could the bankruptcy of the settlor affect a trust?

A

Yes

34
Q

What could happen if a beneficiary under a trust became bankrupt?

A

Their interest in the trust could be claimed to pay off their bankruptcy debts

35
Q

Under a Married Women’s Property Act trust, who are the beneficiaries limited to?

A

~ Spouse or civil partner

~ Children (including illegitimate & adopted)

~ Stepchildren

36
Q

Can a Married Woman’s Property Act trust be used for an existing policy?

A

No, they can only be used at inception

37
Q

What type of trust could be used for policies with life and critical illness cover?

A

A split trust

38
Q

What type of trust could be used for partnerships and director’s share protection?

A

Business trusts

39
Q

Can an existing policy be assigned to a trust?

A

Yes, (except for an MWPA trust) the policyholder would sign a deed

R05 - Financial Protection (14 decks)

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