Financial services, regulation and ethics

F...

Shortened demo course. See details at foot of page.

Administration of estates

The law of trusts and their use

A sole trader is a person who solely controls their own business, whether or not they employ others

Self-employed

Personally liable for the debts of the business

No contract of employment with an employer

May provide services under contract...

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Employees pay income tax through PAYE

Employees pay Class 1 NICs

Sole trader pays secondary Class 1 NICs as the employer where the employee is liable for Class 1 NICs

Tax and NIC treatment is largely the same as for a sole trader

Each partner is self-e...

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These rules apply to a traditional partnership

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LLPs do not pay corporation tax

HMRC cannot look to shareholders to pay tax on the company's profits

HMRC looks only to the limited company itself

Most large businesses are run as companies to gain the benefit of limited liability

The company is responsible for its own debts

Liability is limite...

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Reduces the scope for directors to manipulate the timing of remuneration to minimise NIC liabilities

After incorporation

Directors no longer pay income tax directly to HMRC on their salaries

Neither the directors nor the company pays NICs on business profits

The company must still pay secondary Class 1 NICs on employees liable to Class 1 NICs

It is when a company becomes quoted on the Stock Exchange that the major distinctions arise

Due to the need to protect investors

Must follow the rules for quoted companies

Requirements of PLCs

Must hav...

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Companies House has enhanced powers to scrutinise filings, reject incorrect documents and impose penalties for non-compliance

Company directors and persons with significant control must verify their identity

Failure to comply may result in financial penalties or criminal prosecution

A power of attorney may be:

General

Specific to one or more areas

Exampl...

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A power of attorney is generally revoked:

On the death of the donor

On the bankruptcy of the donor

On the expiry of a specified time

If cancelled by the donor at any time

An EPA continues if the donor loses mental capacity.

While the donor has mental capacity, an EPA usually has the same powers as an ordinary power of attorney.

To qualify as an EPA

Must have been establi...

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Customary gifts of reasonable value, such as birthday gifts, are permitted

Revocation of an EPA

Donor can revoke the EPA at any time while they have mental capacity

Once registered, revocation requires the consent of the Court of Protection (COP)

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Communicate the decision

The Mental Capacity Act 2005 introduced the Lasting Power of Attorney (LPA).

An LPA allows a donor to appoint attorney(s) to make decisions about:

Personal health and welfare

Property and financial affairs

If both health and financial decisions are required

A health and care decisions LPA is required

A financial decisions LPA is required

Requirements for an LPA

Donor must be aged 18 or ov...

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The Court of Protection (COP) can appoint a deputy

Where a person lacks mental capacity

May be used where there is no valid EPA or LPA

Deputy cannot create settlements of the person's property or exercise trustee powers unless authorised by the Court

Advance medical decisions

Made by a person aged 18 or over with mental capacity remain valid after loss of capacity

Requirements of a binding contract

Offer and acceptance

Offer made by the provider

Acceptance by the proposer

Both parties must understand the contract terms

Contract terms must be ...

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Does not depend on who ultimately receives the policy benefits

Must arise from a recognised legal or financial relationship

The interest may arise through:

Legal obligation

Pecuniary loss

Relationships recognised in law, such as spouses or civil partners

The main categories are:

Minors

People with mental health conditions

People under the influence of alcohol or drugs

Minors

A minor is a person under the age of 18 (Family Law Reform Act 1969).

The law aims to:

Protect minors from disadvantageous contracts due to in...

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People under the influence of alcohol or drugs

The rules are similar to those for people with mental health conditions.

A contract may be avoided if:

The person was totally unaware of what they were doing

The other party knew this

If approved after the effects have worn off

The contract becomes binding

An insurer's prospectus or advertisement is an invitation to treat, not an offer...

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Policyholder may cancel the contract during the cooling-off period

Premiums are usually refunded in full if the right to cancel is exercised

Where an Independent Financial Adviser (IFA) is used

IFA is the agent of the client

IFA owes a duty of care t...

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Owes a duty of care to the insurer

Must comply with FCA rules

The insurer

Must ensure its agents comply with FCA rules

Is responsible for any non-compliance by its agents

The way a property is owned:

Affects the owner's le...

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Freehold

Owner owns both the building and the land

Ownership continues until the property is sold or the owner dies

On death, the property forms part of the own...

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Ban most new leasehold flats

Make commonhold the default tenure for new developments

Simplify conversion from leasehold to commonhold

Improve transparency in property management

Draft legislation is subject to consultation and scrutiny

Usually does not present difficulties in obtaining a mortgage, provided all other lending criteria are met

Leasehold property

Most mainstream lenders require at least 25 years remaining on the lease after the mortgage term ends

Some lenders require at least 40 years remaining

Protects the lender if the property...

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Simplifies and reduces the cost of buying freeholds

Extends standard lease terms to 990 years

Increases transparency of service charges

Removes the two-year ownership requirement, allowing eligible leaseholders to extend their lease or participate in collective enfranchisement immediately

When two or more people buy property or other assets together, ownership can ...

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Each ...

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Shared ownership schemes are opera...

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New purchaser can increase their ownership through staircasing

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Shortened demo course. See details at foot of page.

Initial purchase price cap after the discount

£250,000 in England

£420,000 in London

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Approval of an IVA

Creditors' meeting is held to vote on the proposal

Creditors representing at least 75% of the debt must vote in favour

Once approve...

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May be required to remortgage if there is sufficient equity to repay creditors

If partners or sole traders cannot pay debts as they fall due

They may be made bankrupt if liabilities exceed assets

Most assets are realised and distributed to creditors

When bankruptcy ends, the debtor is generally released from their debts and can make a fresh start

Bankruptcy proceedings

Governed by the Insolvency Act 1986, as amended by the Enterprise Act 2002

Usually begins with a bankruptcy petition by one or more creditors

Cour...

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Floating charge holders

Creditors holding a floating charge, such as debenture holders

Unsecured creditors

Paid only after higher-ranking creditors have been paid

If funds are insufficient, creditors share proportionately

Debts owed to a spouse or civil partner

Paid only after all other creditors have been repaid

Bankruptcy normally means creditors do not recover all the money owed.

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Liquidation

Brings the company to an end...

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Voluntary arrangements

Insolvency proceedings are avoided

Financial difficulties are settled by agreement between the company and its creditors

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Apply when benefi...

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Specifies which assets pass to which beneficiaries

Appoints the executors responsible for administering the estate

Should be reviewed regularly ...

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Otherwise, the gift to that beneficiary is invalid, although the will remains valid

Witnesses must sign in the presence of the testator

Making a later will

Deliberately destroying it with the intention of revoking it

A will is au...

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It is generally advisable to make a new will following the breakdown of a relationship.

The estate is distributed according to the law of intestacy.

In England and Wales, the rules are governed by the Inheritance and Trustees' Powers Act 2014.

If the dece...

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If there are no surviving relatives

Estate passes to the Crown

Estate passes to the Duchy of Lancaster, if applicable

Estate passes to the Duchy of Cornwall, if applicable

Legal personal representatives (LPRs) administer a deceased person's estate.

LPRs include:

Executors, appointed under a will

Administrators, usually the next of kin where there is no will

LPRs

May appoint solicitors to administer the estate

Solicitors'...

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Administrators

Apply to the Probate Registry for Letters of Administration

Follow a similar procedure for IHT as executors

Once Letters of Administration are issued, distribute the estate according to the law of intestacy

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The settlor

Creates the trust...

Shortened demo course. See details at foot of page.

No consideration is required

Trust law is primarily contained in:

Trustee Act 1925

Trustee Act 2000

Ways a trust can come into existence

Express trust

Intentionally created, usually by deed or will.

Trust terms are expressly stated

Trust of personal property may be created orally

Trust of a life policy is normally created by written declaration or de...

Shortened demo course. See details at foot of page.

Trust property returns to the settlor or their estate

Example: Cleaver v Mutual Reserve Fund Life Association (1892)

Wife murdered her husband and could not benefit from the trust

Trust failed and the policy proceeds reverted to the husband's estate

Trustee's sole duty is to transfer the trust property to the beneficiary.

Beneficiary has an absolute entitlement

Example: Married Women's Property Act 1882 policy held on trust for a single named beneficiary

Power of appointment trust

Trustees have power to appoint or vary beneficiaries.

Provides flexibility to reflect changing family circumstances

Can accommodat...

Shortened demo course. See details at foot of page.

Trust deed

Declaration of trust

Deed poll

Board resolution

Occupational pension schemes usually use a trust deed

Personal pension schemes may also be established under trust

Pension scheme trusts and trustees' duties are complex

Trusts may also arise involuntarily.

Trustee in Bankruptcy (TIB) holds the bankrupt's property on trust for the benefit of creditors

Life assurance trusts

Can keep policy benefits outside the life assured's estate

Can reduce or mitigate IHT

Flexible and discretionary trusts

Trustees retain control ...

Shortened demo course. See details at foot of page.

Personal pension schemes do not have to be established under trust

Individuals may also establish their own trust

Can be used to deal with pension benefits on death

Shortened demo course. See details at foot of page.

May also be created individually by a solicitor

Cert...

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This certainty is not required for trusts established exclusively for charitable purposes

Shortened demo course. See details at foot of page.

Become familiar with the terms of the trust

Take control of the trust property

Obtain possession of the trust property or title documents

Register themselves as legal owners where required (e.g. Land Registry or company register of shareholders)

Administration of the trust

Must administer...

Shortened demo course. See details at foot of page.

Authority: Speight v Gaunt (1883)

Records and information

Trustees must keep proper accounts

Accounts must be produced to beneficiaries if requested

Beneficiaries are entitled to reasonable information about the trust's dealings and investments

Trust corporation

Usually requires a trustee charging clause

Anyone aged 18...

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Are removed by a relevant court

Must be capable of being identified at any particular time

May be named individually

May be described as a class to provide greater flexibility

Types of beneficial interest

Absolute interest

Beneficiary is absolutely entitled to the trust property

Life interest

Beneficiary is entitled to the income from the trust property for ...

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Together they are entitled to the whole beneficial interest

If these conditions are met:

Trustees must transfer the trust property to the beneficiaries

The trust comes to an end

Breach of trust

Trustee is liable for losses caused by breach of trust or fraud

Beneficiaries may enforce their rights through legal action

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Estimated study time 5.5 hours