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AF1 Trusts & Taxation > Trusts > Flashcards

Trusts Flashcards

1
Q

Beneficiaries can be named generally or by class, give an example of class?

A

‘Grandchildren’

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2
Q

What is a contingent beneficiary under a Trust?

A

Second in line, they will only receive Trust assets if the primary beneficiary dies before them

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3
Q

What is the maximum perpetuity period for a Trust?

A

125 years

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4
Q

From which date did this perpetuity period come into force?

A

6 April 2010

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5
Q

Which piece of legislation covers the perpetuity period?

A

The Perpetuities and Accumulations Act 2009

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6
Q

The perpetuity period is the period in which future interests might what?

A

Vest

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7
Q

What 3 criteria must be met if a Beneficiary is to end a Trust?

A
  1. Must be over 18 years of age
  2. Must have full mental capacity
  3. There can be no possibility of anyone else becoming future beneficiaries
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8
Q

A Trustee can be an individual or?

A

A corporation

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9
Q

To be an individual Trustee what 2 criteria must be met?

A

Over 18 and mentally capable

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10
Q

Trustees cannot benefit from their position but what can corporate Trustees do?

A

Charge fees for their services

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11
Q

What is the limit on the number of Trustees under a Trust?

A

There are no limits on amounts of Trustees, except for when a Trust holds Land

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12
Q

If a Trust holds Land what are the restrictions that apply to the number of Trustees?

A

Must be a minimum of two (unless one Trustee is a corporation) and a maximum of 4 Trustees

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13
Q

Although not a legal requirement, why is it sensible for Trusts to have more than one Trustee?

A

In case a Trustee dies or suffers incapacity

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14
Q

Give two advantages of having a Corporation as a Trustee?

A
  1. A corporation never dies or suffers incapacity

2. A corporation may be specialists in running Trusts

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15
Q

What sort of Trust might a Corporate Trustee might not be suitable for and why?

A

A small Trust, because they charge fees

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16
Q

For a professional (non corporate) Trustee to take charges what must happen?

A

There must be at least two Trustees and the other Trustee must agree to the fees in writing

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17
Q

All types of Trustees are entitled to be reimbursed for expenses incurred by the running of the Trust, True or False?

A

True

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18
Q

Trustees have the power to insure what?

A

A Trusts Assets

19
Q

A Trust deed will usually state the circumstances under which capial and income can be distributed, what happens if the Trust deed is silent and the Beneficiary is a Minor?

A

Trustee can pay income towards a beneficiaries maintenance, education of benefit. Can also benefit up to 50% of the capital for a beneficiary

20
Q

What acronym is used to describe ways in which a Trustee can be appointed?

A

W.I.C.D

21
Q

Go on explain W.I.C.D

A

Will
Intestacy
Court Order
Deed

22
Q

Explain the Mnemonic ‘ Replaces’for replacing a Trustee?

A 
Refuses to Act
Expires (dies)
Proved as unfit (bankrupt)
Leaves UK (more than 1 year)
Asks to be discharged
Corporate Trustee is dissolved
E is a baby (under 18)
Sanity lost (unsound mind)
23
Q

Beneficiaries can direct a replacement Trustee or direct the receiver or Attorney or the former Trustee (now mentally incapacitated) to appoint a replacement Trustee as long as the beneficiaries are what?

A

Over 18, mentally capable and together have absolute entitlement

24
Q

In what 4 circumstances can a Trustee retire without having to be replaced?

A
  1. If the Trust Deed allows
  2. If at least 2 Trustees or 1 corporate Trustee remain
  3. By court order
  4. By direction of the beneficiaries
25
Q

Does the death of a Trustee make a Trust void?

A

No

26
Q

If a Trustee dies, what can the remaining Trustee(s) do?

A

Exercise their powers and continue making decisions

27
Q

If a Trustee dies, what rules relating to land ownership must be adhered to?

A

There must be at least two remaining Trustees or one corporate Trustee.

28
Q

Who can continue to act as a Trustee if the last or sole Trustee dies?

A

There legal representatives until a new appointment is made by the appointer

29
Q

The Trustee Act 200 introduced a statutory what?

A

Duty of care

30
Q

What does the statutory duty of care set out in terms of professional vs non professional Trustees and Trustees not adhering to the duty of care?

A

Professional Trustees must show a greater level of duty of care than a non professional Trustee. Any Trustee not adhering to DOC will be personally liable for any loss resulting from their actions.

31
Q

Will a Trustee be liable for the conduct of other Trustees or related arties?

A

No, only if they failed to exercise a duty of care when appointing the said person(s)

32
Q

If a Beneficiary believes a Trustee has or is going to commit a breach of Trust, what can they do?

A

Take legal action against the Trustee

33
Q

The possible remedies of a breach of Trust can be summarised as an acronym ROOSI, what are these remedies?

A

Removal or replacement of a Trustee
Ordering a repayment to the beneficiary
Ordering the return of wrongly transferred property
Setting aside a transaction
Injunction against the Trustee preventing them to act as a Trustee

34
Q

Trustees are liable to compensate a Beneficiary if a loss was incurred as a result of a breach, however what about if a loss occurred but there was no breach?

A

Then the Trustee is not liable

35
Q

Who can a Trustee delegate powers to and what are 4 stipulations?

A

An Attorney under a Power of Attorney

  1. For up to 1 year
  2. The Trustee remains liable for actions of Attorney
  3. The Attorney cannot distribute Trust assets, appoint Trustees or negotiate fees
  4. Provided a duty of care has been exercised the Trustee is not liable for loss
36
Q

Name 3 conditions needed to be satisfied in order to qualify as a disabled person trust?

A
  1. Person unable to act independently now or in the future
  2. Any income or gains arising from the Trust must be applied for the beneficiaries benefit, beneficiary must be incapable of managing their own affairs
  3. In receipt of DLA/PIP at middle or higher rate
37
Q

Explain income tax treatment of a Disabled Persons Trust?

A
  1. All income up to £1,000 at basic rate and above £1,000 at additional rate
  2. Trustees are liable for income tax on the Trust
  3. Dividends are received gross
  4. Trustees calculate their liability with no personal allowances
  5. Income tax is then recalculated as if all Trust income arose directly to the beneficiary including any personal allowances
  6. Trustees then claim the difference between the two calculations
  7. Allowable expenses will be deductible
38
Q

Explain CGT treatment on a Disabled Persons Trust?

A
  1. Tax is only paid on gains above CGT exemption
  2. Trustees are liable for paying any CGT due
  3. Actual CGT payable is calculated using the same method as income tax (i.e tax on trustees vs beneficiary) then claim difference as a reduction
  4. Tax is paid via self assessment
39
Q

Who is a ‘Vulnerable Person’?

A
  1. Someone who is mentally or physically disabled

2. A minor under the age of 18 who has lost a Parent to death

40
Q

A VPT benefits from special IHT treatment as long as what is met in relation to payments?

A
  1. At least half of all payments from The Trust must go to the beneficiary during their lifetime
  2. An individual who is suffering from a condition that is expected to make them disabled, sets up a trust which sets aside all the capital for the settlor
41
Q

Name 3 IHT advantages on a VPT?

A
  1. All transfers into the Trust treated as a PET
  2. No periodic or exit charges
  3. No IHT on transfers out of the Trust to the vulnerable beneficiary
42
Q

How can an existing Discretionary Trust be amended to include a Vulnerable Beneficiary? 3 answers

A
  1. Assets may be split to create VPT/DPT
  2. Vulnerable persons trust assets must be kept separate and only used for benefit of vulnerable beneficiary
  3. Form VPE1 completed not more than 12 months following end of relevant tax year.
43
Q

Explain the Mnemonic ‘Purpose’ for the purposes of a Trust?

A 
Protection form creditors
U can be sure who gets money
Reduce Tax (IHT)
Pension Provision
Ongoing family support
Speedy payout on death
Enables vulnerable to be looked after
44
Q

Explain the Mnemonic ‘RT Hon WC Dobs’ for Trust creation

A 
Will
Conduct
Deed
Orally
Bankruptcy
Statute

AF1 Trusts & Taxation (10 decks)

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