The CII J02 April 2021 Exam in Review

Here, we take a look at the exam paper for J02, the exam that sits in the Diploma in Financial Planning and covers trusts – useful for those preparing to sit the next J02 exam.

You can find the exam guide here.

Question 1

The exam paper started nicely with a very easy question for three marks.  Candidates had to state the three main parties involved in the creation of a trust.  Part (b) for five marks asked for a description of the powers that could be given to the Appointor of a trust. This may not have been so easy.

Question 2

This question asked for five advantages and five disadvantages of using a bare trust compared to a discretionary trust when gifting to grandchildren, and again this should have caused no problems at all for candidates.

Question 3

This asked for six pieces of information that should be included in a deed to create a trust and in part (b), candidates were asked to describe the criteria required to enable a trust deed to be validly executed.  The question gave 10 marks overall.

Question 4

Candidates were then asked to list the seven types of trusts which are not treated as relevant property. Again, candidates should have been able to pick up most of the marks here.

Question 5

In this question, we were introduced to Sanjay, the trustee of a small family trust. He had recently moved to Europe for six months, and candidates had to explain the extent to which he could delegate his trustee powers under the Trustee Delegation Act 1999.  This was for 8 marks and may have stretched some candidates.

Question 6

Thankfully though, we’re back on familiar territory again with this question: the main functions of the Office of the Public Guardian for six marks and for another four marks, an explanation of the process if a donor wishes to end an existing Lasting Power of Attorney.

Question 7

Here, we were introduced to Francesco and his partner, Eva, and their two children. Francesco had died leaving an estate of £265,000.  The questions were: explain how Francesco’s estate would be distributed assuming he had not made a will (for 7 marks) and then state how the distribution of the estate would have varied if Francesco and Eva had been married (for 2 marks).  This should have been very well answered by candidates as it is an area often tested.

Question 8

This question tested the bankruptcy of a trustee and also if the trustee had also been the settlor.  10 marks in total were available here and well-prepared candidates should have scored the majority of these.

Question 9

This question asked for an explanation of how the special treatment for Income Tax and CGT purposes is achieved for a vulnerable beneficiary trust. This was for five marks and for another three marks, candidates had to state the IHT treatment of the trust.

Question 10

The first part of the question was a calculation: candidates had to work out the CGT liability on a gain made by personal representatives during the administration of an estate. This was for five marks, and in part (b), they had to describe how the dividend income received during the tax year of death, is treated and taxed – this theory question was for four marks.

Question 11

For seven marks, candidates had to explain the tax treatment of an offshore discretionary trust with a UK domiciled settlor and non-UK resident trustees.  This may have caused some candidates to struggle; although, it has been tested before.

Question 12

Onto the home straight, and candidates were next asked to explain how a defined contribution pension scheme operates under a trust. This was for three marks, and in part (b), for five marks describe how a lump sum death benefit from a defined contribution pension scheme could be distributed.

Question 13

For five marks, candidates had to firstly, describe how a Relevant Life policy operates, and for another three marks, describe the tax treatment of the premiums that are paid by the employer.

Question 14

Here, candidates had to identify five benefits and five drawbacks of using a whole of life policy, written under a discretionary trust for IHT planning, compared to an outright gift.

Question 15

And finally, candidates had to state eight circumstances that would prompt trustees to conduct a review of a trust.  There is usually a review question in the exam so this should have been no surprise to most candidates. 

Once more the paper tested various subjects but the well prepared candidate should have been ready for most of them; there was a good mixture of old and new but nothing that should have come as a great surprise.

Comparison with the February 2021 Exam Paper

If we look at what was tested in February 2021’s paper, we can see if there has been any overlap. This question paper can be found here.

The topics covered were:

• Legal definition of a trust/3 ways trustees may be appointed
• Action a trustee in bankruptcy can take on a policy held under a MWPA if settlor is bankrupt
• Knight vs Knight
• Non-tax features of an 18 to 25 trust
• Joint tenants and tenants in common and what happens on a death
• Interest in possession trusts and AIM company investment and the Trustee Act 2000
• Enduring powers of attorney
• Court of Protection considerations when appointing a deputy
• The Mental Capacity Act 2005 Code of Practice
• Wills and unmarried couples
• Disclaimers
• Executor’s duties regarding the payment of IHT and assessment of NRBs
• Advantages and disadvantages of non-statutory trusts compared to statutory trusts
• Income tax liability on dividends within a discretionary trust and the CGT treatment of investments held within a discretionary trust
• IHT on creation of a relevant property trust
• Pros and cons of using a discounted gift discretionary trust compared to a flexible reversionary discretionary trust
• Factors to consider following changes to the taxation of investments held within the trust.

As you can see, the topics don’t often overlap between successive sessions; it is imperative therefore that future students study a number of past papers to ensure they understand the broadness of the subjects that can be tested in each sitting.

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!