3 - Laws and Legal concepts relevant to financial advice Flashcards Preview

CII: R01 2020-21 > 3 - Laws and Legal concepts relevant to financial advice > Flashcards

Flashcards in 3 - Laws and Legal concepts relevant to financial advice Deck (29)
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sole trader

- any individual who solely controls their own business whether or not they employ other people

- they are "self employed" and are personally liable for the liabilities of their business


traditional partnership

where two or more self-employed people work together in the same business


unincorporated business

- a sole trader or a partnership
- no tax on an incorporated business that makes profit; instead the tax is levied on the individual owners


limited companies

- are a separate legal entity from the owners of the business
- HMRC cannot look to these individual owners to pay tax on company profits


limited companies vs plc

- no difference from a taxation point of view but a limited company is unable to advertise it's shares for sale
- BOTH pay corporation tax on their profit and capital gains


powers of attorney incl. powers of attorney act

powers of attorney act (1971) - a person can give power to another individual to act on their behalf

- where there is a POA, both adviser and life office, bank, investment firm etc. need to be clear what power this confers.
- POA is automatically revoked on death, bankruptcy or expiry of a specified time. The donor can also revoke the attorney


enduring powers of attorney act (1985)

introduced to enable an attorney to continue to act in the event of mental incapacity of the donor


mental capacity act (2005)

introduced a lasting power of attorney (LPA) - this is an agreement where the donor may give the attorney power to make decisions about their:
- personal health and welfare
- property and financial affairs


binding contract

- there must be an offer and an acceptance
- there must be an intention to create a legally binding contract and both parties must have the power to contract
- there must be consideration


binding insurance contract

additional requirements (on top of a binding contract)
- utmost good faith, subject to the modifications bought about by legislation
- insurable interest


an agency

a contract whereby one party (the agent) agrees to do certain acts on behalf of the other party - the principal


independent financial adviser (IFA)

- someone seeking insurance may use an independent financial adviser to find the most suitable contract on the market for them
- under the law of agency:
-- the IFA is the agent of the client & owes a duty of care to the client
-- the IFA owes no duty to the insurer, but must comply with the relevant FCA rules
-- the client is responsible for the acts of the IFA


how can property be held? (in England, Wales & Northern Island)

FREEHOLD - means that both the building and the land it stands on is owned until such time as the owner decides to sell it or dies, in which case it becomes the property of their estate.

LEASEHOLD - means that the land on which a building stands is not owned outright by the buyer instead, it is leased from the person who owns the freehold rights at a 'rent'. The lease is typically 99 or 125 years. At the end of term, this reverts to freehold.

COMMONHOLD - an alternative to leasehold and will eventually replace it


joint ownership

when two or more people buy a house (or an asset) together, there are two possible ways in which the joint ownership can operate:
1. JOINT TENANCY: neither individual can sell without the other's agreement. Each has an equal share of the property and when one dies, the other inherits the other's share of the property without probate.
2. TENANCY IN COMMON: each holds their share separately, they can dispose of their share as they wish and when they die it goes to their estate and is disposed of as per their will - it doesn't need to be split equally


bankruptcy vs insolvency

- bankruptcy applies to individuals and typically continues for a 12 month period
- insolvency applies to companies



the process whereby the existence of a company is brought to an end and its property administered for the benefit of creditors and shareholders

alternatives to liquidation are:
- administration
- voluntary arrangements


laws of succession

applies when beneficiaries succeed to property on someone else's death


died intestate

estate = total value of a deceased assets

if an individual has passed without making a will then they are said to have died intestate
- the laws of intestacy will dictate the distribution of the assets

the estate will be handled by their next of kin, called administrators


formalities required in the making of a valid will

1. WRITING - the will must be in writing, including print or type as well as personal handwriting
2. SIGNATURE - must be signed by the testator or by some person in their presence acting under their direction, if the testator is unable to write for whatever reason
3. ATTESTATION - the testators mark or signature must be witnessed by two or more people present when the will is signed
-- witnesses should be independent i.e. not benefitting from the will


legal personal representatives

- executors and administrators
- their task is to administer the estate, collect any debts pay any tax and distribute the assets


inheritance & trustees' powers act (2014)

the rules of intestacy in England and Wales are governed by this act


express trust

- intentionally and expressly created usually by some written method such as a deed or a will
- called 'express' because the trust is expressly set out.

a trust of personal property (oral)
a life policy (declaration in writing)


presumptive trust

one person purchases a property in the name of another - similar to an implied trust

e.g. where a partnership purchases property and arranges for the conveyance to be to one of the partners only, who will then hold the property on trust for all partners, even if there is no formal document written out


implied trust

NOT created expressly but implied from the actions or circumstances of the parties

e.g. A buys a house in the name of B, there is then a presumption that B holds it in trust for A


successive trust

property is held on trust for a succession of interests, taking effect one after the other

e.g. a marriage settlement: husband - wife - children = successive


obtaining a mortgage on a leasehold

the shorter the lease, the harder it is to get a mortgage


bankruptcy under the Enterprise Act (2002)

bankruptcy lasts for 12 months


what is the Grant of Representation?

issued by the Probate Registry and gives legal authority to administer the estate


What three certainties are required for a trust to be valid?

1. subject matter - what is being put in trust
2. clearly showing that a trust is intended
3. the objects of the trust - who benefits?