Trusts Flashcards
1
Q
What are the Duties of Trustees?
A
- Ensure they’re legal owner of assets
- Actions will benefit Beneficiary
- Duty of care
- Adhere to trust deed
- Invest cash within trust
- Maximise the return on trust fund
- Do not put assets at risk
1
Q
Explain Immediate post-Death Interest (IPDI) Trust?
A
- Created by will or intestacy
- beneficiary becomes beneficially entitled on death of settlor
- There is a chargeable transfer by the deceased unless the IIP is for the spouse
- not treated as ‘relevant property’ and so the trust will not be subject to periodic or exit charges.
- the value of the trust will form part of the life tenant’s taxable estate on their death.
2
Q
Explain Power of Appointment Trust?
A
- Trustees have the power to appoint/vary beneficiaries
- Also vary beneficiaries interests within the stated limits
3
Q
Explain a Statutory Trusts?
A
- Created under particular statue
- Examples:
- Married Womens Property Trust
- Trust for Minor Beneficiaries under intestacy
4
Q
How can a trust be set up?
A
- By execution of a deed
- By Will
- By statute
- By court order (Constructive Trust)
5
Q
When and how are Trusts registered?
A
- All non-exempt Trusts must register
- Within 90 days of being established/becoming liable for tax
- Using Trust Registration Service
IF set up on Death: - Only have to register 2 years after death
- If trust still exists/ not wound up
- Earlier if accepts additional assets
- or becomes taxable
5
Q
What are the 3 Certanties
A
1 - Intention
- must be imperative e.g. on trust for…
2 - Subject Matter
- the property must be certain
3 - Objects
- beneficiaries must be certain (by name or class)
6
Q
What are exempt Trusts?
A
- Trusts that don’t have to be registered
- Types of Trust
- 18-25
- Bereaved Minors Trusts
- Vulnerable people Trust
- Statutory Trusts
- Charitable Trusts
- will trusts only receiving assets from estate
- and more
7
Q
When can changes be made to a trust?
A
Only on court order
8
Q
How to set up LPA?
A
- Must be 18 and have mental capacity
- Complete form and submit to Office of Public Guardian
- Form signed by Donor, attorney, certificate provider and witness
- Registration takes 8 to 10 weeks
- Both types of LPA must be applied for separately
9
Q
When is an LPA revoked?
A
- Bankruptcy of donor or attorney (not welfare)
- Death of attorney
- dissolution of marriage if partners
- incapacity of attorney
10
Q
Duties of Attorney (LPA)
A
- Decisions in best interests
- in line with LPA
- keep own money separate from donors
- confidentiality
- no conflict of interest
11
Q
What happens if no LPA and become mentally incapable
A
- Court of Protection make decisions
- Or appoint a deputy to
12
Q
What is a bypass Trust?
A
- Usually disc trust that death benefits of pension paid into
- Spouse usually trustee and beneficiary and can give self income (from pension death benefits held in trust)
- Then the ultimate beneficiary is someone else e.g. kids
- Avoid IHT charge on passing from spouse to kids
- Death before 75 - no tax on benefits paid to trust
- Post 75 - 45% charge on benefits paid to trust
- Less popular with the new flexibilities
13
Q
Explain a Loan Trust
A
- Discretionary Trust set up
- Makes interest-free, repayable on demand, cash loan to trustees
- Trustees invest in investment bond
- no IHT on loan as not a gift
- Loan repaid as and when the settlor wants - usually using 5% Deferred allowance
- Any Growth outside of estate
- Loan balance still in estate.
- Subject to Periodic and exit charges (Amount left in the trust less any loan value remaining)
14
Q
Explain Discounted Gift Trusts
A
- Make a cash gift/assign inv. bond to a disc/bare trust
- maintain right to receive income for life (making use of 5% deferred allowance)
- The amount of the gift is discounted by the expected income repaid to the settlor.
- Actuarial calculation to work out discount takes into account the age/health status - full underwriting
- The gift is a PET or CLT depending on type of trust
- Subject to Exit and periodic charges if Disc.
- The discount and growth are immediately outside of the estate
15
Q
Explain Flexible reversionary Trusts
A
- Similar to DGT but the income isn’t mandatory - can be passed up.
- Settlor makes cash gift to FRT
- Gift is CLT
- outside estate after 7 years
- Invests in a series of surrenderable single premium endowment policies
- On each maturity date decide if they want the income - if so let it mature if not don’t let it mature
- if it matures the settlor receives income and taxed
- Can also surrender policies at any time if the settlor wants income
16
Q
Explain a Back-to-Back arrangement
A
- Settlor takes out an annuity on their own life (or joint life)
- Also takes out a life policy under trust
- usually disc trust
- Annuity pays the premiums of the life policy - Classed as CLTs but can be covered by gifts from normal exp. or annual allowance
- on death life policy pays to trustees but outside the estate + no income tax charge if qualifying policy
17
Q
Explain a General Power of Attorney
A
- Temporary
- Finishes if individual loses capacity (needs an LPA)
- Revoked any time
- Can give power to act on you behalf and have limitations in place
