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The CII J02 February 2021 Exam in Review

The CII J02 February 2021 Exam in Review

With an extra exam sitting in February this year, here we take a first look at what was tested, firstly with the CII J02 Trusts exam.

You can find the exam guide by clicking here.

The exam tests core aspects of the syllabus but also covers areas that may have been more of a challenge for the not so well-prepared candidates.

Question 1

The exam started with a three-part question: firstly, candidates had to outline the legal definition of a trust (nice gentle start) and then had to state three ways trustees may be appointed (again a nice start) and finally, they had to explain the action a trustee in bankruptcy can take on a regular premium policy held under a MWPA if the settlor becomes bankrupt… (maybe not so gentle!).

Question 2

The next question however should not have caused any problems as it was the Knight vs Knight question, which anyone using old exam guides in their revision, would have found has been tested several times.

Question 3

The non-tax features of an 18 to 25 trust were tested next – this was for six marks and again, should not have been a problem for students studying at this level.

Question 4

Next to be tested was what happens on the death of one of the owners where property is held as joint tenants and tenants in common, and again this is core knowledge for this subject.

Question 5

The fifth question was on interest in possession trusts where trustees are considering investing in an AIM-listed company. Candidates had to explain which provisions of the Trustee Act 2000 would be relevant to the trustees when considering this investment.

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Question 6

Powers of attorney usually appear in this exam, and this exam tested enduring powers of attorney and perhaps from a different angle than most questions we’ve seen asked on this. The EPA had been registered when the father had lost mental capacity. With mental capacity having improved, he now wished to take control again.  The questions asked for the key assessment used to decide if mental capacity has been regained and the steps that would need to be taken to formally manage their own affairs again.  This may have caused candidates some difficulty.

Question 7

The exam continued in this area with the next question asking for a description of the Court of Protection considerations in appointing a deputy, together with four pieces of guidance from the Mental Capacity Act 2005 Code of Practice that a deputy should adhere to in performing their duties.

Well-prepared candidates using old papers for their revision should have realised that these topics are very standard in this exam.

Question 8

This question tested wills – the question concerned an unmarried couple neither of which had a will. They did have a young daughter though, and the question asked for the main requirements needed to execute a valid will and three circumstances that will automatically revoke a will.  Again, this is core knowledge which students should have scored well on.

Questions 9 and 10

These questions were also favourite topics and should not have caused problems to candidates. Firstly, disclaimers were tested, and secondly, in Question 10, candidates had to explain an executor’s duties regarding the payment of IHT and an explanation of how the executors would assess available nil rate band on death.

Question 11

This question also seemed familiar; candidates had to state four advantages and four disadvantages of a non-statutory trust compared to a statutory trust.

Question 12

Onto the home stretch, and Question 12 was a calculation: firstly, the income tax liability on dividends within a discretionary trust and secondly, the CGT treatment of the investments held within a discretionary trust (although the second part was theory and not a calculation).

Question 13

The next question continued with the taxation of trusts with a description required of how the potential IHT is calculated on creation of a relevant property trust.

Question 14

The penultimate question asked for five advantages and five disadvantages of using a discounted gift discretionary trust compared to a flexible reversionary discretionary trust.

Question 15

Finally, Question 15 candidates had to identify seven factors to consider following changes to the taxation of investments held within the trust.  Quite a lot of marks were given for the last two questions, but we feel most of them were achievable for those candidates who had prepared well.

Comparison with the October 2020 Paper

Let’s now consider what was covered in the last J02 exam which was sat in October 2020.  In this sitting, the following topics were covered:

  • Main differences between the legal and beneficial ownership of assets held in a trust
  • The main duties and responsibilities of trustees
  • How a bare trust operates
  • Constructive trusts
  • Transitional serial interests
  • Charitable trusts
  • Health and welfare LPA
  • Mutual Wills
  • Laws of intestacy
  • The main duties of the Administrator of an estate
  • Discretionary trust taxation
  • Trusts for vulnerable beneficiaries
  • Income tax and CGT on a deceased’s estate
  • Taxation of an onshore bond where the settlor had died
  • HMRC conditions for the normal expenditure exemption
  • Factors that trustees should consider after the death of the last surviving life assured of a policy held within the trust

Once more, we can see that the topics tested within J02 are wide and do vary between sittings.  However, the same topic areas seem to be tested each time so it is very much worth looking at old exam guides to see what has been tested in the previous exam – for example, powers of attorney are usually tested – as it was enduring powers of attorney in February is it more likely to be a general power of attorney or LPAs in the next sitting?

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