Trusts

Question 1

What is a trust?

Answer 1

A settlement/trust is an arrangement under which assets are transferred to a trustee to look after on behalf or the beneficiaries

Question 2

What are the names and roles of the 3 parties involved in setting up a trust?

Answer 2

• Settlor - the person transferring the assets into the trust and therefore giving up ownership
• Trustee - looks after the assets, this can be one or more individuals or a corporation
• Beneficiary

Question 3

What ways can a trust be created? (7)

Answer 3

Oral statement
Circumstances that imply a trust
Execution of a deed
Statute
Will
Court order
Operation of law

Question 4

What are the requirements to be a trustee?

Answer 4

• Legal owners of the asset ( however this will never form part of their estate)
• Over 18
• Mentally capable
• Act within the terms of the trust

Question 5

Can a settlor be a trustee and a beneficiary?

Answer 5

Yes

Question 6

What is a contingent beneficiary?

Answer 6

This is a secondary beneficiary whose interest is dependent on the circumstances. They are second in line so will only receive assets if the primary beneficiary dies before the settlor

Question 7

What happened with the ruling in Saunders v Vautier?

Answer 7

It stated that beneficiaries can end their trust provided that they are:

• 18
• have full mental capacity
• between them they have absolute entitlement to trust assets
• there is no possibility of other people becoming beneficiaries in the future

Question 8

How many trustees can you have?

Answer 8

Any number ( however it is sensible to have more than one)

Question 9

How many trustees are required for land?

Answer 9

Must be a minimum of 2 and maximum of 4 trustees

Question 10

Can a professional trustee charge fees?

Answer 10

Yes provided they are professional. If non professional then they can’t.

Question 11

What are the expenses that a trustee can be reimbursed with?

Answer 11

*Provided they are properly incurred with the running of the trust
*Can apply for expenses of the agents
Nominees
Custodians

Question 12

How will trustees be appointed

Answer 12

• Deed
• Will ( normally the executors)
• Intestacy
• Court order

Question 13

When can a trustee be replaced? (6)

Answer 13

• on death
• Remains outside the UK for more than 1 year
• Wishes to be charged
• Refuses to act
• Is unfit/mentally incapable
• is under 18

Question 14

In what 4 circumstances can the trustee retire without being replaced?

Answer 14

• Where there is an express power in the trust deed
• If at least 2 trustees of a corporate remain and they consent
• by court order
• By direction of the beneficiaries

Question 15

What happens if a trustee dies?

Answer 15

• Their powers can be exercised by the remaining trustees
• if the last trustee dies, their legal representatives will act as trustees until a new appointment is made by the appointor
• the death of a trustee does not make the will invalid

Question 16

Is a trustee liable for their own actions and the co-trustees?

Answer 16

They would be liable for their own actions but not those of their co-trustees

Question 17

What is a breach of trust in reference to the trust?

Answer 17

This is where the trusteed acts outside of their powers or fails to act as required under the duties of a trustee

Question 18

Can a beneficiary take legal action against a trustee if they think they are going to commit a breach of the trust?

Answer 18

Yes

Question 19

What are the potential remedies that can take place if a court agrees to take action against the trustee? (5)

Answer 19

*Issuing an injuction to prevent the trustee from acting in breach
Ordering the trustee to make a payment to the beneficiary
*Setting aside a transaction
*Ordering the return of property wrongly transferred
*Removal of a trustee

Question 20

When did the Trustee Act 2000 come into force?

Answer 20

1st February 2001

Its powers however are retrospective and therefore cover trusts created before that date

Question 21

What is a general power of investment in respect to the trustee Act 2000?

Answer 21

The trustee can make any type of investment that could be made if the trustee were absolutely entitled to the trust assets.
(this does not apply to pensions, unit trusts, charitable trusts)

Question 22

How often does the trust require that the investments are reviewed?

Answer 22

At least annually

Consider whether they should be varied

Question 23

What is the standard investment criteria?

Answer 23

• The suitability of the investment to the trust i.e is it in the best interest of the beneficiaries
• The need for diversification
• Advice to be given where necessary for a qualified and experienced individual ( if a trustee cannot)

Question 24

What is apportionment?

Answer 24

Trustees should act impartially between beneficiaries

Question 25

How is apportionment covered with an interest in possession trust?

Answer 25

Interest in possession beneficiaries have different interests - ie one for income and one for capital. Therefore the trustees need to act and invest in such a way that both growth and income is achieved

Question 26

What responsibilities of the trustees can never be delegated? (4)

Answer 26

* Distribution of assets * How fees are allocated * appointment of new trustees * Any specified powers set out in a will

Question 27

What is the definition of a bare trust? (4)

Answer 27

Known as an absolute trust Specified beneficiaries that have absolute interest to the trust assets Beneficiaries can access the funds at 18

Question 28

What is a trust for a vulnerable beneficiary?

Answer 28

A trust set up for a mentally or physically disabled person

Question 29

What is the specification for a trust for a disabled person?(2)

Answer 29

Trust assets must only be capable of being used to benefit the disabled person The disabled person must be entitled to all the income if there is any

Question 30

What is the definition of a disabled person? (6)

Answer 30

* By reason of mental disorder or of the Mental Health Act 1983 incapable of managing their own affairs * increased disablement pension * attendance allowance * care component of the disability allowance at the high or middle rate * Personal independence payment * Armed forces independence payment

Question 31

What must happen to the trust if this is part for a vulnerable person and part for a non vulnerable person? (2)

Answer 31

* Identified and kept separate | * Assets for the vulnerable will be used only for the vulnerable party

Question 32

Explain an interest in possession trust?

Answer 32

* Two classes of beneficiary - income and capital (capital is referred to as remainderman) * income beneficiary is referred to as the life tenant * At the end of the period of time or on death of the income beneficiary the remainder man will receive the capital. The interest is referred to as reversionary interest.

Question 33

What is an immediate post-death interest (IPDI)?

Answer 33

This is where someone becomes an income beneficiary ( in an interest in possession trust) upon the death of the individual, the trust being created by a will or the laws of intestacy

Question 34

What is a discretionary trust?

Answer 34

Allows its trustees the discretion about how to use the trust income and the capital On death of the beneficiary, then this trust does not form part of the estate

Question 35

What is a power of appointment trust or flexible trust?

Answer 35

Trustees have the flexibility to change or appoint other beneficiaries.

Question 36

What is an accumulation and maintenance trust?

Answer 36

Special trust for young beneficiaries, where income is accumulated until the individual reaches 25. Any income that is not accumulated can be used for maintenance, education or benefit of the beneficiary.