The CII J02 September 2022 Exam in Review
Last updated on August 3rd, 2023 at 7:33 am
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.
The exam started with a standard J02 question which asked for the three certainties that need to be present for a trust to be valid. This has been asked many times before, and candidates should have been prepared for it.
This question asked for the three main methods by which trustees can initially be appointed, as well as five circumstances when trustees can be replaced under section 36 of the Trustee Act 1925. Again, this is standard knowledge that anyone studying trusts at this level should have been able to answer well.
The exam then tested the differences between holding a property as joint tenants and tenants in common. Again, most candidates should have been able to explain the difference but as the senior examiner mentions in their report, some of the reasoning was missing, in other words, property passes to the survivor with a joint tenancy due to the ‘right of survivorship’.
Accumulation and maintenance trusts are not put in place as much anymore. However, they are still in existence so anyone wishing to study trusts at this level should have a basic understanding of their main features. The question was for 7 marks and may have caused some difficulties for some candidates.
Next, candidates had to describe the actions trustees should take in accordance with their investment powers under the Trustee Act 2000. This was for 8 marks and again should be standard knowledge.
The exam continued with a question on a married couple where one was UK domiciled and the other was not. It is possible for someone who is not UK domiciled to elect to be treated as such, and this question asked for the IHT advantages of doing this. It was only for 5 marks so even if knowledge was weak in this area, some marks could have been achieved by assuming the estate would be completely IHT-free.
Within J02, there is usually a question on one of the types of power of attorney. This time, it was the turn of the general power of attorney with a comparison question on these and lasting powers of attorney. It was for 7 marks, and it seems that candidates did well here.
Another area that has been tested before is being able to list the five key principles of the Mental Capacity Act 2005 and the main functions of the Office of the Public Guardian. This is an area where if candidates have spent the time to memorise both, they would clearly have done well.
Bankruptcy was next with firstly, the restrictions that a bankruptcy order imposes on an individual who has not been discharged and secondly, the rules that apply to a bankrupt’s assets whilst they are still under the bankruptcy order. The first part has been tested many times before however, the second part did appear to cause some difficulties as it was a general question around assets rather than specifics around pensions, investments, property etc.
The duties of an executor of a Will, which is what was tested in this question, really should not have caused problems. This is standard technical knowledge for this syllabus.
Next came a discretionary trust scenario, and candidates had to calculate the periodic charge and a future exit charge. This is technical and may have caused some difficulties for candidates who perhaps know the theory but are unable to put it into practice.
As the exam neared its end, candidates were asked to explain how a nomination on a personal pension operates as well as explain the IHT implications if an existing personal pension is transferred into a discretionary trust. The first part was answered well according to the senior examiner report but not so part (b) however this has been the subject of some media attention in the past as well as being covered in the text.
Next, we had another calculation that asked for the Income Tax liability on a discretionary trust, although firstly candidates had to explain how the standard rate band is calculated.
This was a 10-mark question on back-to-back arrangements. This is one of the IHT planning schemes within the section covering discounted gift trusts and loan trusts. Perhaps not of the more mainstream products used anymore but still the information is clearly in the textbook.
The final question tested examples of where a dispute can arise between the beneficiaries of a trust and the trustees. And in part (b) a description of the actions adult beneficiaries can take against the trustees when a dispute involving the trust arises. Review questions often appear at the end of the exam and as the exam guide states those candidates that recognised that in part (b) they should be explaining the rules in Saunders vs Vautier would have scored well.
Overall, this paper had a mixture of questions that had been asked many times before, along with more challenging areas such as back-to-backs and discretionary trust IHT charges. However once more every question is based on content from the textbook so anyone that has put in place a well-thought-through study plan, using as many exam guides as possible should have gained a pass in this paper.
Comparison with the February 2022 Exam Paper
If we look at what was tested in February 2022’s paper, we can see if there has been any overlap. This question paper can be found here.
The topics covered were:
- Choses in action and choses in possession
- Advantages of trusts
- Beneficial interests
- Role of the protector
- IHT charges on a discretionary trust
- Excluded Property Trust and the main benefits
- Lasting Powers of Attorney
- Deputy decisions
- IHT Nil Rate Bands and valid Wills
- Individual Voluntary Arrangements
- Payments on account and self-assessment
- Trust Registration Service
- Claims on a life policy
- Loan trust scheme
- Review of an interest in possession trust
The J02 exam tests aspects of the key trusts as well as some of the technical theory and practical application. Each exam sitting seems to focus on different topics so future candidates should ensure that as many past papers are used for revision as possible to ensure that a wide range of topics is studied.
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