Trusts

Question 1

What are the Duties of Trustees?

Answer 1

• 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

Question 1

Explain Immediate post-Death Interest (IPDI) Trust?

Answer 1

• 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.

Question 2

Explain Power of Appointment Trust?

Answer 2

• Trustees have the power to appoint/vary beneficiaries
• Also vary beneficiaries interests within the stated limits

Question 3

Explain a Statutory Trusts?

Answer 3

• Created under particular statue
• Examples:
  
  • Married Womens Property Trust
  • Trust for Minor Beneficiaries under intestacy

Question 4

How can a trust be set up?

Answer 4

• By execution of a deed
• By Will
• By statute
• By court order (Constructive Trust)

Question 5

When and how are Trusts registered?

Answer 5

• 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

Question 5

What are the 3 Certanties

Answer 5

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)

Question 6

What are exempt Trusts?

Answer 6

• 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

Question 7

When can changes be made to a trust?

Answer 7

Only on court order

Question 8

How to set up LPA?

Answer 8

• 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

Question 9

When is an LPA revoked?

Answer 9

• Bankruptcy of donor or attorney (not welfare)
• Death of attorney
• dissolution of marriage if partners
• incapacity of attorney

Question 10

Duties of Attorney (LPA)

Answer 10

• Decisions in best interests
• in line with LPA
• keep own money separate from donors
• confidentiality
• no conflict of interest

Question 11

What happens if no LPA and become mentally incapable

Answer 11

• Court of Protection make decisions
• Or appoint a deputy to

Question 12

What is a bypass Trust?

Answer 12

• 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

Question 13

Explain a Loan Trust

Answer 13

• 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)

Question 14

Explain Discounted Gift Trusts

Answer 14

• 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

Question 15

Explain Flexible reversionary Trusts

Answer 15

• 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

Question 16

Explain a Back-to-Back arrangement

Answer 16

• 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

Question 17

Explain a General Power of Attorney

Answer 17

• 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