The CII J02 October 2020 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 the next J02 exam.

You can find the latest exam – October 2020 – by visiting the CII website.

This exam covered some areas which have been tested numerous times, but also introduced some areas which we think may not have come up before.  However, the well-prepared candidate should have done well overall.

Question 1

The exam started gently with a 9-mark question on the main differences between the legal and beneficial ownership of assets held within a trust, and the main duties and responsibilities of trustees. This was a good start, and we feel most candidates would have picked up most of the marks here.

Question 2

The second question asked for a description of how a typical bare trust operates and again this was a straightforward question for 8 marks.

Question 3 and 4

Questions 3 and 4 may have been more challenging for candidates. Question 3 tested constructive trusts, and first, a description was required of what one is, as well as an example of when a constructive trust might arise from an existing discretionary trust. Question 4 asked for three circumstances when a ‘transitional serial interest’ (TSI) can arise, and the second part of the question asked for the IHT implications of a beneficiary’s having a TSI.  This was for 6 marks overall. Both these questions may have proved difficult, but overall, they accounted for just 11 of the marks so shouldn’t have meant a fail if the other questions had been answered sufficiently well.

Question 5

Question 5 tested an area covered many times before – the main differences between charitable trusts and private trusts.  Part (ii) of the same question asked for ‘charitable purposes’, as specified in the Charities Act, to qualify for HMRC tax reliefs.  Both sections gave 6 marks each.

Question 6

The next question tested health and welfare lasting powers of attorney. Part (i) asked for key requirements that must apply before the attorney can act, and part (ii) asked for 6 types of decision the attorney can make with this type of LPA. This was for 9 marks in total.

Question 7 and 8

The next two questions tested core knowledge and should have caused little or no problems for most candidates.  The first was for 12 marks overall and asked how a mutual will works and the requirements for the will to be legally valid. Candidates then had a question testing the laws of intestacy and the main duties of the Administrator of an estate – for 11 marks.

Questions 9

The next question seemed to cover an area in a slightly different way. Candidates were asked how the CGT annual exempt amount for a discretionary trust is determined, where the settlor has already 3 trusts in existence, and secondly, the impact of CGT holdover relief if the settlor transfers shares into the new trust.  Overall, this question gave 9 marks.

Question 10

Question 10 was for 7 marks. Firstly, candidates were asked for the names of four State benefits that would indicate that an adult beneficiary was entitled to the protection of the ‘trusts for vulnerable beneficiaries’ provision and then to identify the three events that will revoke the special income tax treatment.

Question 11

Question 11 was a calculation of income tax on a deceased’s estate – for 6 marks. Part (ii) asked for a description of how a disposal of shares during the administration period will be treated for CGT. This was for 5 marks.

Question 12

The next question was for 6 marks. Firstly, candidates were asked how a level term policy can be written under a trust, and secondly, what gives the trustees the right to make a claim under the policy.

Question 13

Question 13 covered a well-trodden area too. Candidates had to explain how an onshore bond is assessed for tax purposes where the settlor had died – this was for 8 marks.

Question 14

The penultimate question was for 9 marks overall. Part (i) asked candidates to explain the HMRC conditions for the premiums paid to a whole of life policy written under trust so they qualify under the normal expenditure exemption. Part (ii) asked for 5 types of income that qualify for the normal expenditure exemption.

Question 15

Finally Question 15, and this asked for 8 factors that the trustees of a family trust should consider as a result of the death of the last surviving life assured of a policy held within the trust.

Comparison with the October 2019 Paper

Let’s compare this paper with the last J02 sitting, from October 2019, which can be found here.

This paper tested:

• The general power of investment for trusts governed by the Trustee Act 2000
• How trust powers are exercised following the death of trustees
• Benefits and drawbacks for making a gift into a trust vs making a direct outright gift
• Fully secret trusts
• Intestacy rules
• The Perpetuities and Accumulations Act of 2009
• Statutory duty of care contained within the Trustee Act 2000
• Saunders v Vautier (1841) and the Variation of Trusts Act 1958
• Excluded property trusts
• Revoking a power of attorney
• Duties of an Independent Mental Capacity Advocate
• Changes in the Mental Health Act 2007 relating to those affected by dementia
• Trust taxation – income tax
• Discretionary loan trusts
• Options to trustees and beneficiaries when beneficiaries unhappy

As you can see, the areas tested within J02 are wide and vary between each sitting.  Future candidates should use previous exam guides to ensure that they are familiar with the level of detail required to gain sufficient marks for a pass in this unit.

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!