Estrategias independientes

1) Where the settlor is named as a potential beneficiary under the terms of a discretionary trust, this is known as a : (16.6.11)

A back-to-back trust B maintenance trust C statutory trust D revert to settlor trust

2) Where a trust is established by the person who owns the trust assets, the trustees are appointed by the : (16.5.3.1)

A settlor B executor C testator

D Court of Trustees

3) Who is considered to be the legal owner of a life policy placed into trust ? (16.5.3.2) A The policyholder

B The beneficiary C The trustee D The settlor

4) For an interest-in-possession trust set up in 2010, how often could a periodic IHT charge be levied ? (16.7.3.3)

A Annually B Every 5 years C Every 6 years D Every 10 years

5) The Trustee Act 2000 imposes three special duties on trustees when making investments.

Which of the following is not a requirement of trustees ? (16.5.3.2) A Avoidance of capital risk when investing for a minor beneficiary B Awareness of the need for diversification

C The need to obtain and consider proper advice where appropriate D The need to review investments

68 6) Robert has taken out a policy on his own life, for the benefit of his wife. He has completed a declaration

establishing a MWPA trust. This is an example of a : (16.6.12.1) A discretionary trust

B flexible trust C maintenance trust D statutory trust

7) George arranged a life policy, written in trust for the benefit of his wife. However, he died without making a will. What will happen to the proceeds of the life policy ? (16.5.5)

A As there is no valid will, the policy proceeds will be added to George’s estate, but distributed to the beneficiary named in the trust deed

B The policy proceeds do not form part of the estate and will be distributed by the trustees in accordance with the terms of the trust

C The policy proceeds will be held outside George’s estate, but cannot be distributed to the beneficiary named in the trust, without the consent of the court.

D The rules of intestacy override the provisions of the trust and the trust is nullified by the absence of a will.

8) Assets are held in an interest-in-possession trust and capital gains are realised. What CGT exemption, if any, can be claimed by the trustees ? (16.7.2)

A None

B Half the individual rate C The individual rate D Twice the individual rate

9) Sarah, aged 19, is a beneficiary under an absolute (bare) trust. Trust assets are investments currently valued at £15,000. How is the income from the trust taxed, if at all?

(16.7.1.1)

A No income tax liability arises until Sarah becomes the legal owner of the assets which are currently held in trust.

B Sarah is responsible for the payment of income tax and can use her personal allowances to offset any liability

C The tax liability accumulates during the term of the trust and is paid by the settlor on the winding-up of the trust.

D The trustees are responsible for settling any income tax liability and may sell trust assets to pay any tax due.

10) If a lifetime transfer above the nil rate band is made into an interest in possession trust, it will be immediately : (16.7.3.2)

A free of any tax charge B subject to a 10% tax charge C subject to a 20% tax charge D subject to a tax charge at 42.5%

69 11) Which condition is not a requirement for a policy arranged under the Married Women’s

Property Act ? ( 16.6.12.1)

A It applies in England and Wales only B It must be an own life policy

C It must be for the benefit of the spouse and children of the assured D The wording of the policy must refer to the Act

12) Why might Mr Jones not wish to use the Married Women’s Property Act (MWPA) as a suitable trust for his life assurance arrangements ? (16.6.12.1)

A The cost of the trustees’ services may be prohibitive.

B This type of trust is restricted to children and stepchildren only.

C The life policy he was planning to use is in the joint names of himself and his wife.

D The trust assets may not be protected in the event of his bankruptcy.

13) Which of the following is one of the three ‘certainties’, required for a valid trust ? (16.5.4) A Certainty of timing

B Certainty of effects C Certainty of execution D Certainty of objects

14) The trustees of discretionary trusts are generally liable to income tax at the rate applicable to trusts.

There is an exemption on part of the income of discretionary trusts, which means that only basic rate tax is payable on the first : (16.7.1.3)

A £ 500 B £1,000 C £3,250 D £5,100

15) Shirley and Grant are trustees of separate trusts, but Shirley’s duties are much more straightforward than Grant’s. This is most likely to be because : (16.6)

A Grant is also the settlor of the trust

B They are trustees of an absolute trust and a discretionary trust respectively.

C Shirley is also a beneficiary under her trust

D They are the trustees of a discretionary trust and flexible trust respectively.

16) William and George are creating a trust. William is certain who his beneficiaries should be, but George is not. Which type of trust(s) should William and George each create ? (16.6) A Both William and George should create absolute trusts

B Both William and George should create discretionary trusts

C William should create a discretionary trust and George should create an absolute trust

D William should create an absolute trust and George should create a discretionary trust

70 17) Alfred died intestate aged 88, leaving a spouse and one sister. If his estate is valued at

£500,000, how will it be distributed ? (16.2) A It will all go to his spouse

B His spouse and sister will each receive £250,000

C £325,000 will go to his spouse and £175,000 will go to his sister D £475,000 will go to his spouse and £25,000 will go to his sister

18) How is the loan part of a gift and loan trust treated for IHT purposes ? (16.6.8) A It isn’t treated as a transfer of value

B It is a potentially exempt transfer C It is a chargeable lifetime transfer D It’s a gift with reservation

19) The terms of a deceased person’s will can be changed by the beneficiaries by the use of a ? (16.4.2) A Deed of variation

B Disclaimer C Codicil

D Deed of variation or a disclaimer

20) Transfers into interest-in-possession trusts which were set up prior to 22^nd March 2006, were treated for IHT purposes as : (16.6.5)

A chargeable lifetime transfers

B potentially exempt transfers (PETs) C exempt transfers

D potentially chargeable transfers

21) With a gift-and-loan trust, which products are normally used ? (16.6.9) A Joint whole life policy in the names of the settlor and beneficiaries B Whole life policy in the name of the settlor

C Joint life investment bond in the names of the settlor and beneficiaries D Investment bond in the name of the settlor

22) Robin transferred a property into the name of his wife, Robina, with his children as

contingent beneficiaries under the trust on her death. If the trust was set up in July 2010, what is the maximum period the trust can run, under the terms of the Perpetuities and Accumulations Act 2009 ? (16.5.2)

A In perpetuity

B For a maximum of 80 years C For a maximum of 125 years D For the full lifetime of the children.

71 23) With which of the following types of trust is it not possible to defer a CGT liability ?

(16.7.2)

A Interest in possession B Absolute

C Discretionary D Flexible

24) Which of the following types of will forms a legal contract between a couple and becomes binding on the death of the first party ? (16.1.4.2)

26) Miss Black was unmarried and died intestate ; she had no children. She was survived by her mother and brother and sister. Under the laws of intestacy, who inherited her estate ? (16.2)

A her mother B her brother C her sister

D her brother and sister equally

27) The only gifts that Bob and Carol have made in recent years have come from surplus

income. They are now considering giving £40,000 to each of their children, Ted and Alice, for a future house deposit. What is the inheritance tax treatment of these gifts ?

(16.6.5)

A Each gift will be a chargeable lifetime transfer with a value of £34,000 B Each gift will be a chargeable lifetime transfer with a value of £40,000 C Each gift will be a potentially exempt transfer with a value of £34,000 D Each gift will be a potentially exempt transfer with a value of £40,000

28) If a will makes valid provision for the distribution of some of the assets of the estate , but not for others, this is known as : (16.2)

A Intestacy B Sequestration C Partial intestacy D Partial apportionment

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Topic 17 – Specimen Questions