UK Contract and Trust Legislation

Question 1

If they do not have capacity the contract could be?

Answer 1

Void - the contract is unenforceable
Voidable - the contract cab continue in force unless and until one of the parties decides that they do not want to be bound by it.

Question 2

What are ways an individual can lack capacity to contract?

Answer 2

• Under 18
• Bankruptcy
• Mentally Incapable
• Drunk

Question 3

POA - There are specific, general and lasting POA. Which one doesn’t get revoked if the person becomes incapable?

Answer 3

Lasting

Question 4

Who looks after your will?

Answer 4

Personal Representative
Executor - Obtain grant or probate from valid will
Administrators - Obtain letters of administration from courts (no valid will)

Question 5

What is a deed of variation?

Answer 5

When the beneficiary has been left money but decides they want to give it to someone else eg. Kids. Has to be done in 2 years after death.

Question 6

When a will is deemed invalid what happens?

Answer 6

A letter of administration is written.

Question 7

What happens if someone dies without a valid will?

Answer 7

Dying intestate if you have a spouse and no kids, the spouse gets it all. If you have children some goes to them too.

Question 8

What are the two types of property and give an example?

Answer 8

Real Property - land and buildings
Personal Property - Chattels (personal possessions)

Question 9

What is the difference between joint tenancy and tenants in common?

Answer 9

Joint tenancy - on the death of one party, total ownership goes to the other.
Tenants in common - On the death of one party, ownership goes to the beneficiary.

Question 10

What is an alternative to bankruptcy?

Answer 10

Inability to pay debts does not have to lead to bankruptcy, they can file an IVA Individual voluntary arrangement.

Question 11

What is the main difference with bankruptcy and insolvency?

Answer 11

Bankruptcy is an individual and insolvency is about a company.

Question 12

Insolvency doesn’t have to lead to liquidation, what can you do instead?

Answer 12

• Informal arrangement
• Company voluntary arrangement (CVA)
• Administration

Question 13

How much debt is needed to make a bankruptcy order?

Answer 13

Anything in excess of £5000

Question 14

Name the 3 ways trusts can be created?

Answer 14

Deed
Will (on death)
Statute (on death, but with no will. Sometimes if joint tenants)

Question 15

What are the duties of trustees? Name 4

Answer 15

• Comply with terms of trust
• Take control of the trust property
• To act impartially between the beneficiaries
• Duty to keep accounts
• Duty to provide information
• Duty of care (common law, statutory duty of care - Trustee act 2000)

Question 16

Name the 3 types of beneficial interest.

Answer 16

• Absolute vested interest
• Life interest
• Remaindermen

Question 17

What is Remainderman?

Answer 17

The beneficiary will receive the capital of the trust fund on the death of the life tenant.

Question 18

What is a reactive protector?

Answer 18

Reacts to the actions of a trustee.

Question 19

What is a proactive protector?

Answer 19

Take initiative and instigate actions.

Question 20

What does a protector do?

Answer 20

Overseas the trustee and makes sure they are acting in the benefit of the beneficiary.

Question 21

What is a Bare trust?

Answer 21

There is a named trustee as a nominee only. Thay take legal control until the beneficiary wants access to the assets. They do have to be 18 years old.

Question 22

Who might use a Bare trust?

Answer 22

Grandparents may use for grandchildren. (grandchildren can gain access at 18)

Question 23

What is an interest in possession trust?

Answer 23

Life interest trust .-
Life tenant - If you name spouse as life income, they will gain all the income of the portfolio until she dies. The capital however remains the same.
Remainderman - receives capital when life interest ends

Often property gets puts in. Life interest get to live in the property but can’t sell it. When the life interest ends the remainderman gets the property and can sell it.

Question 24

What is a power of appointment trust?

Answer 24

A trust which allows the trustee to appoint beneficiaries and vary the terms of the trust.
Commonly used for life assurance policies written in a trust as it minimises Inheritance charges.

Question 25

What is a discretionary trust?

Answer 25

Trustees have powers of appointment and absolute discretion for the trustee to distribute income to beneficiaries. eg. dad can leave money to son but only for educational purposes. Gives trustee choice to say yes or no.

Question 26

Give an advantage of a discretionary trust/

Answer 26

It is flexible.

Question 27

What is an accumulation and maintenance trust?

Answer 27

Beneficiary age is 25 Allows property to accumulate within the trust. Income can be distributed for maintenance of beneficiary, not for normal spending..

Question 28

Give an advantage of a charitable trust.

Answer 28

They benefit from not paying taxes except for VAT.

Question 29

Who can never be made bankrupt?

Answer 29

A deceased person.

Question 30

Name 3 advantages of setting up a life policy in trust.

Answer 30

• The proceeds are paid outside the deceased estate and therefore avoid inheritance tax
• A grant of representation is not required
• Proceeds can be paid by the insurance company within a matter of days of production of the death certificate.