Trusts Flashcards
What is a trust?
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
Who are the 3 parties to a trust?
- Trustee
- Settlor
- Beneficiaries
Who administers and controls the trust according to its terms?
The trustees
What does the trust document do?
It transfers legal ownership of the trust property to the trustees
Who is the original owner of the property or provider of the funds being placed under trust?
The settlor (who is usually also the life assured)
Is the settlor often a trustee and why?
Yes, so they can retain some control over their property until death
Who is entitled to receive the property of a trust?
The beneficiaries
(Often the spouse, children, grandchildren or other relatives of the settlor)
Can a trustee also be a beneficiary?
Yes
Who are lay trustees, and do they charge for their services?
They are non-professional trustees such as family members of the settlor & they do not charge for their services
Do professional trustees charges for their services?
Yes
How many trustees can be appointed?
Any number of trustees except where the trust is of land, when only up to 4 can be appointed
Who can be a trustee?
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
Who are trustees accountable to for their actions?
The beneficiaries
What are the 2 main reasons property may be placed under trust?
- For IHT planning purposes
- To retain some control over the gift
For gifts from normal expenditure from surplus income to be exempt from IHT, what 2 rules must be satisfied?
- The payments must be habitual
- The donor must have enough income remaining to maintain their standard of living
When are the proceeds paid on the death of the life assured not subject to IHT?
When the policy is written under trust
Can the premiums for a life policy written under trust be treated as gifts from normal expenditure?
Yes, as long as the payments are habitual and leave the donor with enough income to maintain their standard of living
Name the 5 main types of trust
- Absolute trust (or bare trust)
- Life interest trust
- Flexible trust
- Discretionary trust
- Statutory trust
What type of trust does not allow any changes to be made once it has been set up?
An absolute trust
With an absolute trust, what type of interest do the beneficiaries have in the property?
An absolute interest
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?
An absolute trust
Which trust uses the terms ‘life tenant’ and ‘remaindermen’?
A life interest trust
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 life interest trust
Under a life interest trust, what interest do the remaindermen have to the trust property?
A revisionary interest
Under a life interest trust, what is the term used for the initial beneficiary?
The life tenant
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 life interest trust
Under which 2 trusts do the trustees have power to change the beneficiaries?
A flexible trust and a discretionary trust
How is a flexible trust different from a discretionary trust?
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
How do flexible and discretionary trusts differ in terms of IHT treatment?
They don’t anymore, they’re now treated the same
Which 2 types of trust names the potential future beneficiaries in general terms (my spouse, our children, any future grandchildren)?
Flexible and discretionary trusts
What type of trust do most life offices now use as their standard trust form?
Discretionary trust
Which trust is created by an Act of Parliament?
A statutory trust
Give an example of a statutory trust
The Married Women’s Property Act (MWPA)
Could the bankruptcy of the settlor affect a trust?
Yes
What could happen if a beneficiary under a trust became bankrupt?
Their interest in the trust could be claimed to pay off their bankruptcy debts
Under a Married Women’s Property Act trust, who are the beneficiaries limited to?
~ Spouse or civil partner
~ Children (including illegitimate & adopted)
~ Stepchildren
Can a Married Woman’s Property Act trust be used for an existing policy?
No, they can only be used at inception
What type of trust could be used for policies with life and critical illness cover?
A split trust
What type of trust could be used for partnerships and director’s share protection?
Business trusts
Can an existing policy be assigned to a trust?
Yes, (except for an MWPA trust) the policyholder would sign a deed
