The CII J02 April 2019 Exam in Review

Next in line for our exam paper analysis is J02, the exam that sits in the Diploma in Financial Planning and covers trusts – useful for those preparing to sit CII J02.

You can find the latest exam – April 2019 – by visiting the CII website.

Two hours are allowed for the J02 paper, which is made up of 15 short-answer questions and carries a total of 130 marks.

Question 1

This was a 10-mark question asking candidates to identify the main differences between contract law compared to a trust.  In the J02 manual, there is a nice table which explains how a trust can be distinguished from a contract, so anyone who had studied the manual well would have been pleased with this question.

Question 2

This asked candidates to state the circumstances where a new trustee can be appointed to replace a trustee under s36 of the Trustee Act 1925, along with a smaller question identifying who can appoint a new trustee if there is no appointer or surviving trustee. The first part of the question was for 6 marks and has been tested many times before; the second part was for 2 marks.  This is a good place to remind future candidates that past papers are a must in any revision plan.

Question 3

This asked for the benefits of using an immediate post-death interest trust.  Previous examiner comments have been that knowledge around the use of IPDI’s is not so good, so this may have been why this was tested again this time round.

Question 4

For this question, candidates had to explain how a trust can be created by a will and who the trustees would be; this should be core knowledge for anyone studying trusts.  The second part of the question asked how a will would transition into a trust following death; this does seem like a different angle to test so may have caused some difficulties.

Question 5

In this question, the different types of trust were tested: an implied trust and an express trust, and again candidates should have been prepared for this type of question.

Question 6

This question asked for five advantages of holding investment bonds in a relevant property trust, and again this should be quite straightforward knowledge.  The second part was a smaller question (for 3 marks): an explanation of what trustees should consider when managing cash in a trust.

Question 7

We then had four questions within Question 7 on the administration of trusts (for a total of 8 marks): firstly, candidates had to state the Act which gives the court a power to vary the beneficial interest under a trust; then list the categories of beneficiary who may benefit from a trust being varied under the Act; state the case which allows beneficiaries to bring a trust to an end and finally, the circumstances when an application to the court would be needed to bring a trust to an end.

Question 8

Candidates should always be prepared for a question on powers of attorney. This time, candidates had to compare an EPA to an LPA regarding registration (for 5 marks) and the donor’s and attorney’s powers (for 6 marks).

Question 9

For this question, candidates had to explain how a DWT operates, and for 6 marks, this should have been straightforward.  The theme continued with application of knowledge, and candidates had to identify four beneficiaries’ circumstances where the use of a DWT would be preferable rather than a bare trust.

Question 10

Another area that will always be tested is bankruptcy – in one form or other.  This time, candidates were asked to identify an alternative to bankruptcy, and considering the facts in the question, we assume the answer was an administration order. However, if the answer was wrong in the first part of the question, it was going to be hard to score marks in the second part, which asked for the conditions required.

Question 11

Taxation also is tested regularly. In this paper, candidates had to describe how CGT is calculated in a trust for vulnerable beneficiaries (for 3 marks), and (for another 3 marks) list the types of eligible trusts for ‘relevant’ minors.

Question 12

This was another two-part question: firstly, candidates had to describe how a capital gain made by a deceased person would be taxed in the year of death (for 6 marks); then calculate the income tax that the personal representatives would be liable for on interest received during the administration period (for 3 marks).

Question 13

This question asked for an explanation of the factors that the trustees of a SIPP would need to consider, when deciding how to distribute a lump sum death benefit, payable on the death of a member who died prior to taking any benefits from their plan. This was for 5 marks, and there were another 2 marks for the IHT implications.

Question 14

In this question (for 6 marks), candidates had to state how a chargeable gain is treated for tax purposes on an onshore bond held in a discretionary trust and (for 4 marks) list four types of chargeable event.

Question 15

The final question was another factors question; candidates had to list those that should be considered when selecting an investment for a trust. This was for 9 marks and should have been a nice way to end the J02 exam.

Comparison with the October 2018 Paper

Let’s compare this paper with the one candidates sat last October which can be found here.

This paper tested:

• trustees’ powers to vary interests under a flexible power of appointment trust
• tax consequences of including the settlor as a potential beneficiary
• pros and cons of using a professional trustee
• main actions a court can take if a trustee commits a breach of trust
• main features of an interest in possession trust
• methods of creating a trust and the information a deed should contain
• features of an immediate post-death interest trust and their IHT treatment
• trustees delegating their functions
• enduring powers of attorney
• Court of Protection and the main duties of the Public Guardian
• laws of intestacy
• impact of divorce on the wills of a married couple
• official receiver’s role and main aim of the trustee in bankruptcy
• income tax on dividends and interest received by a discretionary trust
• cross option agreements and life insurance and associated tax implications
• flexible reversionary trusts
• factors to take into account before making further gifts into a discretionary trust

In the October 2018 paper, the examiner’s comments included that candidates performed well in questions that tested core syllabus areas but struggled with the questions on IPDIs, the Court of Protection and the Public Guardian, the role of the official receiver, cross option agreements and the final ‘factors’ question.

Future candidates should ensure that they study the learning outcomes and carefully prepare a study plan, which covers all of them, taking note from previous exam guides the areas within these that are tested regularly.

Grab the resources you need!

If you’re studying for your CII J02 exam, and you’re wanting to be thoroughly prepared, grab our free taster to try out one of Brand Financial Training’s resources for yourself.  Click the link to download the J02 mock paper taster now!