Trusts

Question 1

3 Parties to a Trust

Answer 1

• Settlor
• Trustee
• Beneficiary

Question 2

Main Beneficiary Types (4)

Answer 2

• Absolute Interest - Full equitable ownership to C&I
• Life Interest - Entitled to Income but not capital
• Remainderman - Entitled to capital after death of Life Int
• Contingent Ben - Depends on a particular event taking place

Question 3

Saunders v Vautier - ending a Trust (5)

Answer 3

• Beneficiaries can bring the Trust to an end IF
• All beneficiaries are known
• No possibility of any more Ben’s
• All of full age and mental capacity
• All agree

Question 4

Trustee - General Duties (3)

Answer 4

• Protect trust property by holding title docs
• Ensure registered as legal owners for Trust property
• Avoid conflicts of interest incl making personal profit

Question 5

Trustee - Investment Duties (10)

Answer 5

• Follow Trust Deed
• Act for benefit of Ben’s
• Statutory duty of care - act in prudent way
• Exercise reasonable care and skill
• Invest in same way as if held individually
• Ensure investments are suitable and diversified
• Invest Trust money properly
• Take account of tax position of trust and ben’s
• Keep proper accounts
• Utmost diligence used to avoid losses

Question 6

3 ways Trustees can be appointed

Answer 6

• Named in Trust Deed
• Named in Will
• Administrators (intestacy)

Question 7

Reasons to replace a Trustee (6)

Answer 7

• Death
• Has been outside UK for more than 1 year
• Wants to retire
• Refuses to act
• Is unfit or incapable
• Is a minor

Question 8

What can a court do if there’s a breach of Trustee duty? (3)

Answer 8

• Issue injunction to stop Trustee
• Order Trustee to make restitution
• Order return of wrongly transferred property

Question 9

How can a Trust be created (5)

Answer 9

• Deed
• Will
• Statute
• Court order
• Secret Trusts

Question 10

3 Certainties for a Trust to be valid

Answer 10

• Words - must show intention to create
• Subject matter - Trust property must be identified
• Object - Must be certain - Beneficiaries

Question 11

Perpetuity Periods

Answer 11

• Created after 05/04/2010 - 125 years except for charities (21 years) or shorter can be written into deed
• Created prior to 06/04/2010 - Lifetime of specified person plus 21 years or fixed period of 80 years from creation

Question 12

Charitable Trust - Tax position

Answer 12

• Exempt from income tax & CGT

Question 13

Excluded Property Trust - Qualifying criteria (5)

Answer 13

• Offshore Disc Trust for UK Tax Resident but not UK Dom
• Ring fence non UK Assets to protect from IHT on death
• Remain excluded even if settlor is a beneficiary and later becomes domiciled providing:
• Trust created when non-dom
• Any further property only added when non-dom
• Property must be non-Uk and never based inUK
• Nothing added when UK Dom
• Residence status is irrelevant

BUT IF ONCE UK DOM, SET UP EPT WHEN NON DOM AND THEN RETURN TO UK - EPT FAILS

Question 14

Excluded Property Trust - Benefits (4)

Answer 14

• Transfers to EPT not transfer of value for IHT
• No P&E charges
• Beneficiaries can include settlor
• On death, EPT out of settlor’s estate

BUT IF ONCE UK DOM, SET UP EPT WHEN NON DOM AND THEN RETURN TO UK - EPT FAILS