Trusts Flashcards

Question

What are the various requirements for an LPA to be valid ? (5)

Answer 1

written in prescribed form Donor and attorney must be 18+ Donor must have mental capacity Donor and attorney must state they understand the POA and the duties Certificate from prescribed person confirming that the donor undersand the LPA and no fraud/pressure

Answer 2

They have capacity (donr) bankruptcy of donor or attorney death of attorney dissolution of marriage between donor and attorney incapacity of the attorney

Answer 3

Needs to be registered with Office of Public guardian takes 8-10 weeks normally registered when creaster £82 If need to make a correction to be done within 3 months and £41

Answer 4

You can choose the decisions you want to be made on their behalf, if they lose capacity choose the people you want to make the decisions how they want the people to make the decisions

Answer 5

Make decisions in best interst of donor only make authorised decisions consult with donor prior to action where possilbe and others who may have an interst in the donors affairs keep own money seperate confidential no conflict of interest

Answer 6

act in the best interests and consider their needs and wishes as far as possible not taking advantage of the donors position to gain any benefit keep donors money seperate

Answer 7

on customary occasions (ie birthdays) charities they may have donated to previously to provide for the donees needs (ie buy clothes for them) IHT gifts if specifically worded

Answer 8

court of protection office of public guardian independent mental capacity advocate (imca)

Answer 9

1. Every adult has the right to make their own decisions and must be assumed they have capacity unless otherwise proven 2. An individual must be supported and given reasonable help to make own decisions before they are treated as unable to do so 3. An individual must not be treated as lacking capacity simply because they make an unwise decision - can make crazy decisions! 4. Everything done for someone who lacks capacity must be done in their best interest 5. where decision made for another the 'least restricitive option' must be followed. The decision maker must make sure they interfere less with rights and freedom

Answer 10

Mental Capacity Act 2005 The Principles Assumptions – One should never assume that someone lacks mental capacity. Rights – One should take the least restrictive option with an individual who lacks mental capacity so that they maintain their basic human right of access to freedom. Unwise decisions – An unwise decision does not constitute someone having lost their mental capacity. Best interests – You must always act in the best interests of the individual. Support – It is essential that a person who lacks mental capacity is given the necessary support they need to assist them with decision making. Mental Capacity Act 2005 The Principles Assumptions – One should never assume that someone lacks mental capacity. Rights – One should take the least restrictive option with an individual who lacks mental capacity so that they maintain their basic human right of access to freedom. Unwise decisions – An unwise decision does not constitute someone having lost their mental capacity. Best interests – You must always act in the best interests of the individual. Support – It is essential that a person who lacks mental capacity is given the necessary support they need to assist them with decision making.

Answer 11

The easiest way of remembering this is to think of the past, the present, and the future. Does the individual have all of the information that they require in order to make the decision? Does the individual understand why they need to make a decision? Does the person understand the consequences of making the decision. Can the person communicate clearly their decision?

Answer 12

The OPG regulates and supervises Court appointed Deputies. Its main functions include: Registering LPAs Keeping a record of court appointed deputies Supervising deputies Liaising with social services Handling complaints Provides reports the Court of Protection is it suspects that a Deputy is abusing his position.

Answer 13

For a Lasting Power of Attorney to be valid there are some requirements that must be adhered to: The Donor or Attorney must be aged 18 or over They must not be bankrupt They must not lack mental capacity. The LPA must be made in the prescribed form. It must be signed by the donor. It must be signed by an independent witness. It must be signed by a certificate provider. The Power of Attorney must not have been made under undue pressure and the Donor must have an understanding of the powers that they are giving away. This must then be registered with the Office of the Public Guardian (OPG). This will cost a fee of £82 per LPA (either Health and Welfare or Property and Financial Affairs). The process can take 8-10 weeks. They are not effective until registered. Health and Welfare can not be used unless the Donor has lost mental capacity whereas the Property and Financial Affairs PoA can be used immediately.

Answer 14

Best Interests of the Donor must be adhered to. Authority to make decisions must be established in the LPA. The Attorney does not have the authority to make decisions that are not prescribed. Separation of the Donor’s funds and the Attorney’s funds is essential. Interests, or conflicts of, should be avoided at all costs. Consult with the Donor relating to decisions made on their behalf.

Answer 15

A person who has been issued with a grant to administer a deceased person's estate. In practice, the term is commonly used in the broader sense of a person who is entitled to apply for a grant and administer the estate. If there is a will that names the personal representative, they are known as the executor (sometimes called an executrix, if a woman). If there is no will (or if there is no executor named in the will, or if the executor is unable or unwilling to act), the Administration of Estates Act 1925 sets out who can apply to court to be the personal representative (usually a close relative of the deceased). The personal representative is in this case known as the administrator.

Answer 16

Value the estate Complete an IHT Account with HMRC (IHT100 form) They pay outstanding tax Outstanding liabilities such as a mortgage They value any gifts made within the previous 7 years They take account of any Gifts with Reservation that have been made. They pay any IHT due on the estate Then they apply for the Grant of Probate This will then allow them to distribute the estate Important Note Inheritance tax is due 6 months after the month in which the Testator died. Probate can not be granted, and the estate can not be administered until the value of the IHT liability has been paid in full.

Answer 17

A Trustee must use care, skill, and diligence when administering trust assets. A Trustee must avoid conflicts of interest when performing trustee duties. A Trustee must comply with the Trust Deed. A Trustee must seek professional advice in relation to administering the Trust. A Trustee must keep accounts of Trust assets and provide these to the Beneficiaries (if they are so entitled). A Trustee must not benefit from the Beneficiaries of a Trust. A Trustee must treat beneficiaries fairly and not exercise favouritism over any one beneficiary. Trustees must act unanimously. A Trustee must complete a tax return for the trust – Importantly, remember that all trustees are jointly and severally liable for the tax of the trust, however, it is only one trustee that is elected to deal with HMRC in relation to these matters. A Trustee must ensure that the assets of the trust are controlled and insured.

Answer 18

A Trustee must use care, skill, and diligence when administering trust assets. A Trustee must avoid conflicts of interest when performing trustee duties. A Trustee must comply with the Trust Deed. A Trustee must seek professional advice in relation to administering the Trust. A Trustee must keep accounts of Trust assets and provide these to the Beneficiaries (if they are so entitled). A Trustee must not benefit from the Beneficiaries of a Trust. A Trustee must treat beneficiaries fairly and not exercise favouritism over any one beneficiary. Trustees must act unanimously. A Trustee must complete a tax return for the trust – Importantly, remember that all trustees are jointly and severally liable for the tax of the trust, however, it is only one trustee that is elected to deal with HMRC in relation to these matters. A Trustee must ensure that the assets of the trust are controlled and insured.

Answer 19

Section 3 – General Power of Investment This subsection of the act stipulates that a trustee should act with the investment as if it were his own money, and as if he were absolutely entitled to the trust assets.

Answer 20

The section insists that: The Trustee reviews the investments from time to time to ensure that they remain appropriate to the trust deed and needs of the beneficiaries. He should consider the need for diversification of the investments. He should not invest in risky or speculative investments to maximise potential returns on the trust fund assets.

Answer 21

The Trustee, before exercising any power of investment, whether arising under this Part or otherwise must obtain and consider proper advice about the way in which, having regard to the standard investment criteria, this power should be exercised. Professional advice must be sought before exercising his power of investment. The advice must be sought from a professional who the trustee believes to be proficient in the matters concerned.

Answer 22

This section makes clear that the powers of investment are limited should the Trust deed make clear that a specific investment is prohibited.

Answer 23

Successive Trusts A successive trust is where property is held on trust for a succession of interests. For example, an Interest in Possession Trust is a successive trust as when the life tenant dies, then remaindermen keep the successive right to the capital. Presumptive Trusts A presumptive trust is where one person purchases property in the name of another. That person is then deemed to be holding the property on trust. Purpose Trusts A purpose trust is a trust that is not intended for a beneficiary but rather, the assets in the trust hold a purpose, for example, the House Trust has the function of providing funds for maintenance and upkeep of the house. Express Trusts An express trust is created expressly and is usually created in a written method such as a deed. It is called express because the terms of the deed are expressly set out and there should not be any uncertainty about the wording, the subject, and the objects of the trust. Constructive Trusts Constructive trusts are created under institutional law. They are formed from the breach of trust rather than by the Courts. An example of a constructive trust would be where Person A sends Person B £1,000,000 by mistake. Person B then holds £1,000,000 on Constructive Trust for the benefit of the owner of the money, Person A in this scenario. Implied Trusts An implied trust is implied through the actions of the parties involved. For example, a business partner buys a property for the business. The Business Partner who completed the transaction would be considered to hold the property on trust for all of the partners of the business, even if there is nothing expressly written down. E is just here to finish the word The final trust to mention is a Resulting Trusts Quite simply, this kind of trust is where there is no longer a purpose for the assets that were originally placed into trust. For example, ‘I leave my fortune to my wife’, however, should the wife die, a resulting trust would be created in line with the laws of the Will or Intestacy, and the funds would naturally pass to the children of the deceased (if suggested in the Will) or however the individual choose.

Answer 24

There is a petitioner who is usually a creditor must prove that the individual owes in excess of £5,000 in a unsecured debt. A debtor can do this against themselves if Creditors are harassing for payment. Until 2016 this was done at the court however now it is all done online. The debtor must prove that they are unable to pay the debts. Following this the Court will make a Bankruptcy Order against the debtor.

Answer 25

What happens next The Official Receiver will usually call a meeting of the creditors. Only 10% of the creditors need to agree to this for a meeting to be called. (The % is calculated by money owed). At this meeting the Official Receiver will appoint a Trustee in Bankruptcy. If there is no meeting held then the OR will become the TIB. Their function is to realise and distribute the assets of the Bankrupt to settle their debts with the creditors.

Answer 26

The TIB is unable to take: Books, tools, etc. used for the business of the Bankrupt Clothes, furniture, sanitary items that allow the Bankrupt to provide the basic domestic needs of his or her family. Property held on trust by the Bankrupt for the benefit of another person.

Answer 27

The TIB will probably apply for an Income Payment Order (IPO). This must specify by sum or percentage proportion of income that is payable to the TIB in order to release to the creditors. The period of payments must be set out in the agreement at the outset and can not be changed. This can not last for more than three years, and the Bankrupt is bound to this, even if they are discharged from the Bankruptcy before this point.

Answer 28

If the Bankrupt lives by themselves, with a cohabitee, or with Adult children, then their share of the property will pass to the TIB for them to make an order of sale. Although the bankruptcy will usually last for about 12 months, the TIB has up to three years to make a charge on the home for sale. After the three year period, the home is automatically reverted to the Bankrupt. Where there is a shared interest in the property, i.e. if it is owned on a joint tenancy basis with a partner, then the TIB will make an application to sever the tenancy and claim their half of the home. However, this application will be made before the Courts and as a result the Court will consider the following: The interests of the Creditors The needs and resources of the spouse The needs of any resident children Whether the spouse’s conduct contributed to the bankruptcy. There is generally a three year limit in which you can deal with the sale of a home in bankruptcy proceedings. If you have concealed property from the TIB then the three years start from the date they became aware of the property. This limit can be extended by a court order.

Answer 29

First and foremost the TIB is compensated out of realised assets. Then employees wages and pension contributions (up to a limit of £800 to be secured) anything above the £800 becomes an unsecured debt. The employees are also entitled to holiday payments which do not have a cap. Then secured creditors. Unsecured creditors. Interest due on debts since the bankruptcy petition was taken out And finally, any debts to relatives/spouse comes at the end.

Answer 30

Do not trade under any name except that which you were made bankrupt under. Do not accept credit in excess of £500 without informing the individual/corporation you are bankrupt. Do not act as a director during your bankruptcy. Do not act as an insolvency practitioner during the bankruptcy.

Answer 31

Do not conceal property from the TIB Do not destroy property in order to defraud the TIB. Do not provide false information to the TIB. Do not dispose of property in order to defraud creditors. Do not preference one creditor over others. Do not leave the country with your property.

Answer 32

here is a Less than 2, 2 to 5, and in excess of 5 rule to remember when considering whether an application to have a payment set out would be successful in court. This includes pension contributions and gifts/payments. If under 2 years, then the TIB would not need to prove that the Bankrupt was insolvent at the time of the transaction in order to have the payment set aside. Between 2 to 5 then the TIB would have to prove beyond reasonable doubt that the bankrupt was insolvent at the time of the transaction. In excess of 5 years, then there is very little chance that any transaction would be set aside by the court. Disposal of assets at an undervalue into Trust. This is the same as the above, however it is important to remember the one small change in the rules. If a settlement was made between 2-5 years of being declared bankrupt, then the liability to prove solvency, not insolvency, is on the Trustees and they must prove beyond reasonable doubt that the Settlor was solvent at the time of the transaction. All other rulings are the same. In all of the above, proving without reasonable doubt means that it must be evidenced that the transaction/settlement was not carried out with the intention to prejudice creditors in any way.

Answer 33

Pensions All pensions are safe from the TIB. All except unregistered pensions (EFURBS). The TIB can claim an unregistered pension scheme proceeds. See Raithatha v Williams and Horton v Henry. Income being drawn from a pension can be included in the IPO however, a TIB can not force a bankrupt to take pension benefits in order to repay creditors. Therefore, PCLS can not be forced on someone with the intention of paying outstanding debts.

Answer 34

Appointed to support someone who lacks capacity and has no one to speak on their behalf Represent someone about their wishes, feeling beliefs and values. Can challenge decision makes NHS and local authorisites must discuss Challend decisions mage by an attorney or deputy appointed by court

Answer 35

Can be detained for a max of 28 days - can be detained for a further 28 days if necessary approved medial practioner or nearest relative must act for someone to be section 2 drs must then recommend a section 1 dr must have experience in working withs mental illness Drs must assess eithin 5 days or each other within 14 day of section request

Answer 36

can be detained for up to 6 months, a further 6 months then 1 year same process as assessment

Answer 37

Can make limited decisions on a persons behalf made in persons best interest not financial decisions Make sure the person lives in a specified plan attend specified places for medical treatment, occupation education or training access to a Dr,

Answer 38

duties - bound by statutory duty of care, must use utmost diligence to avoid any loss discretion - act in good faith, act with diligence as they would your own affairs,

Answer 39

see accounts all reasonable information relating to transactions of property

Answer 40

Discretionary or Power of Appointment Trust The trusts are flexible The trustees have power of appointment Gives them the power to vary beneficiaries interests within limits Can be used to cater for changing circumstances Son can be a potential beneficiary He cannot benefit until trustees deem appropriate

Answer 41

Fully secret - does not appear in the till Half secret will appear but not the terms/details

Answer 42

The testator must communicate that property is subject to secret trust under the will to the apparant legatee the communication can be made at any time in the testators lifetime all the terms of the trust must be fully communicated (in the form of a sealed letter) the testator must communicate a legally biunding obligation on the legatt and the legatee must accept the fullt secret turst

Answer 43

The testator must comminicate before the will is executed

Answer 44

Subject - must be certain - property specified Object - beneficiaries by name or class Words - show that the trust was intended

Answer 45

Charities Act 2011

Answer 46

prevention or relief of poverty advancement of education, religion, health, saving lifes citizenship., arts, culture, amateur sport, human rights, environmental The relief of those in need pro,otion of the efficient of armed force, policy, fire and rescue, ambulance

Answer 47

The act governs - decision making on behalf of those who lose mental capacity at some point (or from birth) - Decisions on personal welfare and financial matters - best interest of individual 1. Assume you have capacity unless otherwise proven 2, must be supported to make own decisions 3. not treated as lacking capacity because they make an unwise decision 4. everything done must be done for their best interest 5. 'least restrictivie' option should be followed

Answer 48

Determine assets and liabilities collect assets and pay any debts obtain GOP Pay IHT Complete accounts distribute assets as per will

Answer 49

Collate all assets, liabilities and any gifts made in last 7 years detial and RNRN NRB / Carried out HRMC will calculate tax must be paid prior to probate

Answer 50

anything received between adjudication and discharge

Answer 51

must be assigned back by TIB

Answer 52

Must complete SA Make interim payments on account based on previous tax year interim payment - 31/01 in the year of assessment and 31/7 in the year following final balancing payment made on 31/1 following tax year along with any CGT All trustees are jointly and severally liable unpaid tax can be recovered from any of the trustess penalties can also be uncurred

Answer 53

Treated as a CLT if below NRB no immediate tax charge (or 20%/25% if above NRB) Trust outside of settlors estate (after 7 years)

Answer 54

Set up for minors under intestacy or criminal injuries comp scheme absolute interest given at age 25 Beneficiary treated as owning the assets for iht until they are 18 exit charge payable based on the time between 18th and when they receive the absolute interest

Answer 55

Master Trust Provider is trustt pension provider holds underlying investments and manages the arrangement the individual is given a memebership doc Deed Poll Pension provider executes a deed setting up scheme deed delares that it will adhere to the legislative requirements deed delares that is will only make payments for approved purposes individual policies are issued to clients

Answer 56

Settlor sets up discretionary trust settlor makes an interest free, repayable cash loan to trustess trustess invest in a bond settlor usually trustess loan is repaid unter the 5% facility can demand repayment of loan at any time

Answer 57

Adv Growth outside of estate for IHT access to cash via repayment of loan income flexible Disadv Loan remains in estate for IHT Max 20 years of 5% long term iht planning

Answer 58

Death (Trustee 0r beneficiary) Serious illnees (T or B) Bankruptcy of settlor, T or B marriage seperation divorce changes in income and wealth disputes between S, T or B legislative changes economic change tax changes

Answer 59

Absolute - full entitlement and cannot be taken away Life Interest - entitled to the income from the trust for life, cannot touch capital of trust, - aka life tenant Remainderman - beneficiaires who the trust property passes after death of life tenan, until death they have reversionary interest (future) Contingent - interest depends on the happening of a certain event

Answer 60

Joint tenancy - identical and equal interest, property passes to survivor, cannot be distributed by will etc, severed if one becomes bankrupt Tenancy in common - their share passes to estate, distributed via will

Answer 61

Converts joint tenancy to a tenancy i common

Answer 62

Take legal action Court can issue an injunction preventing transaction ordeer the trustees to make restitution return of any property wrongly transferred

Answer 63

Power of appointment discretionary (within prescribed class)

Answer 64

Donor and POA - 18+ They have read and understood the prescribed info and duties Certificate from prescribed person confirming donor understands

Answer 65

- Donor end the LPA if he has capacity - bankruprcyy of Donor death of POA bankruptcy of POA Incapacity of POA

Answer 66

registered with OPG loses capacity

Answer 67

Donor can specift limitations on the POA actions

Answer 68

mustnt have accepted property must disclaim the property must be in writing made within 2 years no consideration for money or money's worth must be in writing that disclaimer to have the effect as if not received the property is treated as not being received

Answer 69

Can enforce security to repay the debt if sufficient they receive repayment before bankruptcy proceedings if security isnt sufficient they will be first in line

Answer 70

No tax relief on trustee expenses they are deductible Trust expenses are set against income in following order 1. dividends 2. foreign dividends 3. savings income 4. other income Complete a R185

Answer 71

Imposed by lawa regardless of intestions or presumed intentions

Answer 72

20% or 28% consider if have PRR

Answer 73

Transfer is treated as a disposal subject to holdover relief

Answer 74

The trustee acquires the asssets at settlors base cost - you must apply for it and the gain is transferred to the trust/beneficiary when they sell it

Answer 75

half of allowance divided by number of trusts (disabled trust have full allowance)

Answer 76

UK dom - liable to CGT if has an interest in the trust

Answer 77

Bare Diabled Life interest &FLexible interest in possession trust (pre Mar 206

Answer 78

if capital distributed in first 10 years 30% of the ?/40 is charged If after 10 years it is the periodic% / 40

Answer 79

at 10 year anniversary max is 6% (ie 30%*20%) every 10 years Value of fund at 10 yr minus NRB = $ $ x 30% x 20% -= £ £ divided by value (times 100) = periodic charge

Answer 80

Work out number of quarters since 10 year Use periodic charge figure calc at 10 year Amount taken out x no of Q / 40 x periodic rate = Exit charge

Answer 81

same but use quarters since 18th birthday

Answer 82

can retain its IHT planning if capital passed at 18 as per trust deed if at age 25 - if trust not amended then exist charge will be applied (18-25) If after 25 then exit charges will apply Charge based on quarters since April 2008 to 10 year anniversary

Answer 83

Gifts --> charged at rental income or market value POAT - income tax on annual value

Answer 84

Death Maturity Part surrender - assignment is not a chargeable event

Answer 85

Assessed against income If settlor alive or died in the same tax year as the event - settlor (who will have top slicing) Trustees if tax year after the one the UK resident settlor died or immediately before settlor is non uk Trust do not have top slicing Standard Rate band applies then 45% trustee rate If no UK trustee - but uk based beneficiary- beneficiary will be taxed but as trustee income not capital

Trusts Flashcards

(109 cards)