Types of Trusts and Terminolgy

Question 1

Protector

Answer 1

Can Veto trustee or Remove them

Question 2

Silent Investment Powers

Answer 2

When no instructions on dealing with assets, assume same power as owner (General Power of Investment, doesn’t apply to (UT/Pension/Charitable)

Question 3

Absolute Interest

Answer 3

Cannot be taken away

Question 4

Conversion

Answer 4

Duty to convert / sell to invest in other things

Question 5

Apportionment

Answer 5

“balancing income between the life tenant and the remainderman” should not favour beneficiaries, balance income without risking capital – covered by Howe V Dartmouth ruling but excluded from most modern trusts

Question 6

Life Interest/tenant;

Answer 6

Income not capital

Question 7

Remainderman

Answer 7

Beneficiary of life interest on death

Contingent beneficiary; rights to property contingent on an event

Question 8

Features of a Charitable Trust?

Answer 8

1. Set up exclusively for charity
2. Poverty/education/religion/community
3. Differences
   (a) Certainties don’t apply (SOW)
   (b) Not subject to law on perpetuities
   (c) Can be varied if purpose obsolete (cy-pres)
   (d) 21 years income accumulation period
   (e) Exempt from income tax/CGT
   (f) Gifts to charitable trust exempt CGT/ apply gift aid

Question 9

Features of Overseas Trusts?

Answer 9

1. Subject to countries rules
2. Best to use a country with similar system to UK like Gibraltar
3. Maybe tax benefits if not domicile or resident in UK
4. Must inform HMRC
5. When set up could be a chargeable transfer for IHT

Question 10

Bare / Absolute

Answer 10

Only one beneficiary

Question 11

Relevant Property Trust;

Answer 11

generic term any set up after Finance Act 2006 with flexible, successive or contingent beneficiaries – they are CLT’s with an immediate charge if above NRB, Exit and Periodic charge, except (a) For Disabled Person (b) Bereaved Minor (c) 18-25 Trust

Question 12

Discretionary Trust

Answer 12

Can accumulate income, all distributions at the discretion of the trustees.

Question 13

Flexible / Power of Appointment;

Answer 13

can vary beneficiaries from current / potential – settlor can be trustee or beneficiary, taxed as a discretionary

Question 14

Life Interest & Interest in Possession Trust;

Answer 14

beneficiary known as the life tenant, the right to income or use of trust assets such as property, capital goes to remainderman, if set up in life known as Interest in Possession Trust and is a CLT

Question 15

6. Successive;

Answer 15

automatically passes to new beneficiaries following events, the final interest is the ultimate trust

Question 16

7. Statutory;

Answer 16

(1) MWPA 1882, (2) If you die with no will and the rules of intestate benefit minors, it is held in trust.

Question 17

8. Resulting Trust;

Answer 17

if trust fails, ownership reverts to the settlor

Question 18

9. Constructive;

Answer 18

have property that belongs to someone else and have duty to transfer

Question 19

10. Express

Answer 19

usually written / Implied from actions and intentions

Question 20

11. Presumptive

Answer 20

similar to implied

Question 21

12. Purpose

Answer 21

exits not for individuals but for a purpose such as maintaining a building

Question 22

13. Constructive

Answer 22

if holding property that doesn’t belong to you

Question 23

14. Accumulation and Maintenance

Answer 23

special type of discretionary trust with IHT benefits if set up pre 2006, beneficiary entitled to income before age 25, max term 25 unless for grandchildren

Question 24

Perpetuities & Accumulation

Answer 24

To avoid property indefinitely staying in a trust it must vest (end before) the perpetuity period, selected when trust created, trust period same as perpetuity period and trustees must exercise powers in that period - does not apply to pensions or charitable trusts

Question 25

Perpetuities & Accumulation Pre 2010 (1964 Act)

Answer 25

1. Life of specified person (alive when created, known as person in being) plus 21 years
2. 80 years from when trust created
3. If trust states a beneficiary will receive on a certain age this can be lowered so it does not exceed rule 1
4. Maximum period income can be accumulated before it must be distributed
5. Life of the settlor for gifts between living people when no other period specified
6. 21 years from death of settlor for gifts in a will when no other period is specified
7. Until any minorities on settlors death reach age 18

Question 26

Perpetuities & Accumulation POST 4/2010 (2009 Act)

Answer 26

• Perpetuity period is 125 years, a shorter period can be specified
• Max Income accumulation is 125 years or perpetuity period if shorter
• Accumulation period for charities is 21 years

If the direction to accumulate is invalidate by above rules the income would go to the person that would have benefited had there been no direction

Question 27

Difference to contracts

Answer 27

Contract must have;

1. Agreement
2. Consideration (Payment)
3. Trust based on equitable principles not common law