Trusts Flashcards
Duties of a Trustee (10)
- HOLD title documents eg share certificates
- REGISTER as legal owners on any relevant registry
- Everything they do is for BENEFIT OF BENEFICIARY -adhere to trust deed
- Statutory DUTY OF CARE - prudent business person could act, allowing for skills and experience
- INVEST CASH coming into trust unless it is being paid out
- Follow standard INVESTMENT CRITERIA i suitability of investment and need for diversification. Take advice and review
- UTMOST DILIGENCE to avoided loss
- INVEST properly and MONITOR regularly
- Keep ACCOUNTS
What are three certainties Knight v Knight
- Words - intent
- Subject matter - trust property clearly identified
- Object must be certain - ie beneficiaries
Benefits of a Charitable Trust
- Perpetuity Period. Can carry on indefinitely and can be varied if became obsolete
- Certainty. A gift to charity can’t fail = Trust property can be given to a similar charity
- Trust exempt from income tax CGT and IHT
What are genaral duties of a trustee 10
- Familiar with trust deed
- Ensure provisions of trust complied with
- Exercise reasonable care in managing trust
- Ensure trust funds are invested in line with the deed
- Be impartial
- Act in best interest of beneficiaries
- Keep proper accounts
- Keep beneficiaries informed
- Monitor investments on a regular basis
- Hold title document of trust property
- Obtain investment advice if appropriate
Under Saunders vs Vautier
What are the conditions when a trust can be varied
Beneficiaries can bring trust to an end providing
- All beneficiaries are ascertained
- No possibility of further beneficiaries
- All of full age and mental capacity
- All agree
3 parties to a Trust
3 Characteristics of Trust
- Settlor - transfers legal ownership to Trustees -deed of trust or deed of settlement.
Can be Trustee (cant benefit themselves) - Trustee- Legal owner
beneficiary
Characteristics
- assets are separate fund
- Trustees have title to trust assets
- Trustees must deal with trust property (manage it /sell) in line with Trust deed and Trust law
Describe Trustees
- Legal Owner
- Any number of Trustees (min 2, max 4) 1 if Trust corporation (cant die, expertises -high charges)
- Must be 18+ sound mind
- ## 2 types - lay ( cant charge) & professional
4 main types of beneficiary
Trust Property
- Absolute interest - Full equitable ownership
- Life interest - Entitled to income from trust but not capital
- Remainderman - Entitled to capital after death of Life tenant
- Contingent beneficiary - interest depends on particular event that may or may not happen
Trust property - NOT ISA
- Realty - Freehold interest in land
- Personalty either… Chattels real (leasehold interest-in land) Chattels personal
Chooses in action (intangible assets eg life assurance policy, shares)
Chooses in possession - tangible assets (jewellery art antiques)
New Trustee can be appointed : (6)
Who normally has power to get new trustees in place
When can beneficiaries order replacement of trustee
- Has died
- Been outside UK for more than 1 year
- Wants to be discharged
- Refuses to act
- Unfit or incapable of acting
- Is a minor
Appointer normally replaces trustees (named in deed). If no appointee, either surviving trustees or legal personal representatives will appoint.Appointyer can name themselves
(Corporate trustees expected to remain constant) - court can appoint in extreme circumstances
Beneficiaries can order retirement of Trustee if..
- No appointer
- All beneficiaries over 18
- Mental capacity
- Absolutely entitled
Also apply if trustee become mentally incapable
What if Trustee retires? Form
When can trustee retire without being replaced
On death
- Deed of retirement
- `Retire without being replace if at least 2 left or corporate trustee who agree to retirement
-On death, either remaining trustees continue or if not enough, legal personal representative acts until replacement appointed
(Death of trustees doesn’t void the trust)
6 ways a trust can be created
- Express - expressly created in writing or orally
- Implied- by actions or intentions
- Presumptive. Similar to implied. where one buys property in name of another and holds it for them
- purpose .Exists not to benefit an individual but a purpose eg maintain a building
- Constructive. Imposed by law
- Resulting - Trust that arises where failure of trust on which property held
Advantages and disadvantages of using a trust ( 5 each)
Advantages
- Reduce liability to IHT
- Control
- Keep some access to assets that have been given away
- Prevent assets falling into wrong hands
- Put off decision re ultimate recipient of assets
Disadvantages
- Usually need to survive 7 years (for IHT)
- May not be able to change trust once established
- Access may be restricted
- CGT & Income tax rates can be higher for trusts
- Potentially ongoing IHT charges
Breach of Trust
- What can beneficiary do
- Court can (3)
If guilty Trustee must
- beneficiary can take legal action if breach
- Court can 1) use an injunction 2) order trustee to make restitution 3) order return of property
if guilty must compensate beneficiary
If Trustee acted honestly and reasonably court may relieve them of liability
How is a Trust created (6)
- Deed- usual method . settlor excutes giving legal ownership to Trustee for benfit of benficiaries. States trust property, name of trustees and powers, beneficiaries and rights.
- Will. either expressly in will or implied due to property being left to minor. Executors become trustees collect assets and pay to beneficiary. Hold property for minors until18, pay tom parents if terms allow
- Immediate post death interest (IPDI). Life interest set up as result of will
- Statute
Different Types of Trust property
- realty - Freehold interest
- Personalty …divided into
Chattels Real (leashold interest)
Chattels personal : divided into …..
Choses in action - intangible
Choses in possession - tangible
Trust V Contractiesoei
Trust Offer & acceptance not needed Consideration not needed Beneficiaries don’t need to k now about truth Minors can be benficiaries Trustee legal owner.
Contract Offer and acceptance Consideration needed Parties must agree Only parties to contract have legal or equitable right
Perpetuity and accumulations act 2009
What perpetuity period applies to all trusts
What is accumulation period for charitable trust
Perpetuity period 125 years for trusts after 6 April 2010.overrides trust deed
Charitable trust can carry on indefinitely
- Accumulation period for charitable trusts 21 years, otherwise no restriction on accumulation.
- Shorter term can be chosen
- existing trust can have 100 year perpetuity period written in
Prior 2009 Perpetuities and accumulations act 1964
- perpetuity period either lifetime of specified person plus 21 years or
- fixed period of 80 years from date trust created
Excluded Property Trust
- Offshore discretionary Trust for UK tax resident, but non dom/deemed dom
- ring fence non UK assets and protect from UK tax on death- typically offshore bond
- Remain excluded even if settlor is beneficiary and later becomes dom/ deemed dom provided
Trust created while non dom
Any further property only added while non dom
Property must be non UK and never based in UK
No further assets added once dom UK
Residence status is irrelevant
What is a Trust (3)
- A legal obligation, binding on a person (Trustee)
- To deal with property over which he or she has control
- For the benefit of certain persons
Charitable Trust
- Accumulation period maximum 21 years
- Can carry on indefinitely ( whereas normal trust cant go on beyond 125 years)
- Investment income in trust is tax exempt
- Gains exempt from CGT
- Donors : disposal CGT exempt, gifts exempt from IHT,gifts attract tax relief
Differences between Charitable Trust & Other Trusts
- Charitable
Can’t be void for in certainty , can continue indefinitely ,Accumulation - 21 years, investment income tax exempt, gains exempt from CGT
Donors: disposal is CGT exempt, gift aid, payroll giving tax relief, gifts exempt from IHT, 10% or more left to charity = 36% - Other Trusts
After 6.4.10
Perpetuity 125 years, accumulate income indefinitely, can only be varied in limited circumstances
The variation of trusts act 1958 gives court power to vary which trusts (4)
- Beneficiary incapable because of infancy
- Any contingent beneficiary
- Unborn people
- Anyone with discretionary interest under protective trust
Investment duties of trustee
- Obtain and consider proper advice
- Duty of care to act appropriately , invest assets as if own/acting in best interest of beneficiary
- Monitor investments regularly review
- Take note of investment criteria
- Consider suitability of investment/attitude to risk
- need for diversification
- changes to investment if appropriate/rebalance
