The CII J02 September 2024 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.

This article is correct as at 26 November 2024. 

You can find the exam guide here.

Question 1

The exam started gently with an explanation of the difference between the legal and beneficial ownership of a trust. This was for six marks and the well-prepared candidates should have picked up most of these marks.

Question 2

Candidates then had to explain how a trustee can retire using the power in s39 of the Trustee Act 1925. This was for four marks and in part (b) a description was asked for regarding the action required to appoint new trustees following the death of a sole trustee. This was also for four marks and again anyone studying trusts at this level should have picked up most of the marks.

Question 3

In this question we were introduced to Nia who was considering making a gift of £350,000 into trust for the benefit of her grandchildren. Candidates had to explain five benefits and five drawbacks of her making a gift into a discretionary trust compared to using a bare trust. This was for ten marks and although has been tested in previous papers it may have been difficult to get all of the ten marks on offer.

Question 4

This question asked for four ways a lifetime trust can be created and in (b) a description was asked of the perpetuity period and accumulation period of a trust created on or after 6 April 2010. The question gave seven marks overall and although part (a) should have been straightforward, the more technical detail required in part (b) may have been a challenge to some.

Question 5

Next came a question on an Immediate Post Death Interest Trusts – an area not tested as much as the other types of trust, but nevertheless candidates should have been able to score most of the marks. In part (b), the IHT position on the death of an individual who had created an IPDI trust in favour of their spouse was tested. This was for just three marks so few to lose if knowledge was weak in this area.

Question 6

Charitable trusts were next to be tested – in particular the features of those established on or after 6 April 2010 that differ from a private trust. This was for eight marks and perhaps may have been challenging as more analysis was required than perhaps might have been expected.

Question 7

This was another two-part question. Firstly, candidates had to describe the requirements for a financial decisions LPA to be valid. This was for six marks. Part (b) asked for a brief explanation of the action which must be taken by the donor before an LPA can be used. The well-prepared candidate should have answered well enough to score all three marks available.

Question 8

Another mini case study followed.  Maria had recently been widowed following the death of her husband, Pedro. She had two adult children. Pedro had no Will and he left an estate made up of £600,000 of assets held solely in his name. For five marks, candidates had to describe how Pedro’s estate will be distributed under the rules of intestacy and then in part (b) for three marks explain who is responsible for distributing the estate and how they are appointed. This is very straightforward J02 knowledge and should have caused no difficulties to the well-prepared students.

Question 9

In Question 9, we met Jack who had inherited £200,000 following the death of his father. The value of Jack’s estate exceeded his nil rate band, and he wanted a share of his inheritance to go directly to his 12-year-old son. In part (a) and for eight marks, candidates were asked to describe the conditions for a Deed of Variation to be effective for IHT. In part (b), the Income Tax implications if Jack varies his father’s Will in favour of Daniel were required and this was for four marks.  Deeds of variation are commonly tested within the J02 exam and should have formed part of a student’s revision strategy.

Question 10

In Question 10, candidates had to explain the impact on a trust of someone’s bankruptcy in their role as firstly the trustee and secondly the potential beneficiary.  In total, six marks were available; although, the majority of these were for explaining the impact of the trusteeship.

Question 11

In this question, we had the only calculation in the entire exam.  Firstly, and for five marks, candidates were asked to calculate the IHT payable when OEICs are transferred into a discretionary assuming the trustees paid the tax. In part (a)(ii) and for three marks, the difference in the figures if Ahmed had paid the tax.  Candidates had to explain the grossing up principle which is often an area where misunderstanding can arise.

In part (b) it was the CGT implications that were tested if the trustees dispose of the OEICs.  This was for five marks.

Question 12

This question tested the responsibilities of personal representatives when paying Income Tax on dividends that had firstly been paid before a death and also afterwards.  This was a challenging question testing the liability on the person who had died and then the estate which also included the new rule around the £500 de minimis for low income estates.

Question 13

This question asked for the process required for the shareholding directors of a company to take out life insurance under a business trust, as part of a share purchase arrangement in the event of death. This was for nine marks and not an area that is tested regularly so may have caught a few candidates out.

Question 14

In this question, and for seven marks, candidates had to firstly describe how a flexible reversionary trust operates and in part (b) give three disadvantages of using a flexible reversionary trust compared to a discounted gift trust.  Again candidates had to apply their knowledge of both products to gain the marks.

Question 15

Finally candidates had to give eight examples of disputes between the trustees and the beneficiaries that may require a trust to be reviewed. This seemed like a new angle on the review question which may have caused some difficulties.

Overall, this was a test of some quite technical knowledge which may have proved challenging but tempered by some more of the basic core knowledge of trusts.

Comparison with the March 2024 Exam Paper

If we look at what was tested in March 2024’s paper, we can see if there has been any overlap. This exam guide can be found here.

The topics covered were:

• The legal definition of a trust
• Four types of beneficial interest
• Delegation of trustee powers
• Benefits of a life policy written under a trust for family protection
• Will trusts and the TRS
• IHT position of pre-2006 IIP trusts
• Income tax treatment of an IIP trust
• Factors to consider when investing cash in a bare trust
• CGT treatment when transferring OEICs into a discretionary trust
• Enduring powers of attorney
• Mutual Wills
• 18 to 25 trusts
• Trust income and beneficiaries
• Loan trusts for IHT planning
• Trustee losing mental capacity

As candidates should expect, exam papers of the same year are likely to test very different areas.  It is essential therefore that as many exam guides as possible are used as part of an overall revision strategy to ensure the wide variety of technical trust areas are practised.

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