CISI UK RPI: UK Contract and Trust Legislation

Topic snapshot

Sample questions

These questions are original Securities Prep practice items aligned to this topic area. They are designed for self-assessment and are not official exam questions.

Question 1

Topic: UK Contract and Trust Legislation

In England and Wales, when a person dies without a valid will, which document normally gives authority to administer the estate?

• A. Lasting power of attorney
• B. Grant of probate
• C. Deed of variation
• D. Letters of administration

Best answer: D

What this tests: UK Contract and Trust Legislation

Explanation: Letters of administration are generally used where there is no valid will, giving the administrator authority to collect assets, settle liabilities, and distribute the estate. A grant of probate is used instead where executors are acting under a valid will.

The core concept is estate administration after death. If someone dies intestate, meaning without a valid will, the estate is usually administered by a personal representative appointed through letters of administration. That document provides the legal authority to gather assets, pay debts and taxes, and distribute the estate under the intestacy rules.

A grant of probate is different: it is normally obtained by executors named in a valid will. A lasting power of attorney relates to decision-making during the donor’s lifetime and ceases on death. A deed of variation may be used after death to redirect who benefits from an estate, but it does not appoint the person who administers it.

The key distinction is whether authority comes from a valid will or from intestacy.

• Grant of probate is for proving executors’ authority where a valid will exists.
• Lasting power of attorney applies during the donor’s lifetime and ends on death.
• Deed of variation can alter beneficial entitlement after death but does not authorise estate administration.

Letters of administration are normally issued for an intestate estate to give an administrator legal authority to deal with it.

Question 2

Topic: UK Contract and Trust Legislation

Which statement about legal status in UK financial services is correct?

• A. Personal representatives can hold estate assets and contract during administration.
• B. An LLP is not separate from its members in law.
• C. A trust has separate legal personality and contracts in its own name.
• D. Shareholders directly own a company’s assets.

Best answer: A

What this tests: UK Contract and Trust Legislation

Explanation: Personal representatives are the legal actors who administer a deceased’s estate. During administration, they can hold estate assets and enter contracts in that representative capacity. A trust is not a separate legal person, an LLP is separate from its members, and company assets belong to the company rather than its shareholders.

The key distinction is between separate legal personality and acting in a representative capacity. Personal representatives, such as executors or administrators, deal with the deceased’s estate on its behalf during administration. That allows them to hold estate assets, sign documents, and contract with firms in their capacity as personal representatives.

A trust is different because the trust itself is not a separate legal person; trustees hold the legal title and contract as trustees. An LLP does have separate legal personality, so it is legally distinct from its members. A company also has separate legal personality, which is why its assets belong to the company itself rather than directly to its shareholders.

The main trap is treating a trust or estate as if it were automatically a separate legal person in its own right.

• Treating a trust as a legal person is a common error; trustees, not the trust itself, hold legal title and enter contracts.
• Saying an LLP is not separate from its members confuses it with an ordinary partnership; an LLP has its own legal personality.
• Assuming shareholders directly own company assets ignores the company’s separate legal identity; shareholders own shares, not the underlying assets.

Personal representatives administer the deceased’s estate in that capacity, so they can hold estate assets and enter contracts for the estate.

Question 3

Topic: UK Contract and Trust Legislation

A retail client wrote her life policy into a discretionary trust and appointed two trustees. The trust deed names her three adult children as potential beneficiaries. After the client dies, one child tells the insurer to pay the full policy proceeds directly to him because he is named in the deed. Who should control the distribution of the policy proceeds?

• A. The executors, because death benefits form part of the estate
• B. The child who requested payment first
• C. The adult children in equal shares
• D. The trustees, exercising discretion under the trust deed

Best answer: D

What this tests: UK Contract and Trust Legislation

Explanation: Because the policy was placed into a discretionary trust, the trustees control the proceeds after the settlor’s death. The children named in the deed are only potential beneficiaries until the trustees decide how to distribute the trust property.

The key concept is the difference between legal control and potential benefit in a discretionary trust. When a life policy is validly written into such a trust, the trustees hold the legal title and administer the trust property according to the trust deed. After the settlor dies, the insurer should therefore take instructions from the trustees. A person named in a discretionary trust does not automatically become entitled to the proceeds or to any fixed share simply because they are listed as a potential beneficiary. Nor do the executors normally control assets that are already held in trust. The trustees must decide how the proceeds are distributed within the powers given by the deed. The main trap is confusing a discretionary trust with a bare trust, where the beneficiary’s entitlement is fixed.

• The child who contacted the insurer first gains no priority; trustee powers are not displaced by a beneficiary request.
• The executors usually administer estate assets, but property already held in a valid trust is generally dealt with by the trustees.
• Equal shares for the children would require fixed beneficial interests, which is not how a discretionary trust operates.

In a discretionary trust, the trustees hold legal title and decide which potential beneficiaries receive the proceeds.

Question 4

Topic: UK Contract and Trust Legislation

An adviser in England is told that retail client Mr Lewis has advanced dementia and can no longer understand investment decisions. His daughter emails a copy of his will, which names her as executor, and asks the firm to encash £40,000 from his ISA to pay care-home fees. She has not provided a lasting power of attorney. Which response best applies professional conduct and fair treatment of the client?

• A. Treat the daughter as next of kin and act on her request in the client’s best interests.
• B. Accept the instruction if the daughter signs an indemnity for the firm.
• C. Accept the instruction because a named executor may act before the client’s death.
• D. Pause the instruction and require proof of legal authority, such as a registered property and financial affairs LPA.

Best answer: D

What this tests: UK Contract and Trust Legislation

Explanation: The daughter cannot instruct the firm just because she is named as executor in the will. Acting professionally means protecting a vulnerable client and dealing only with someone who has proper legal authority during the client’s lifetime, such as under a registered property and financial affairs LPA.

The key distinction is between authority during life and authority after death. A will operates on death and helps determine who administers the estate; it does not let the named executor control the client’s accounts while the client is alive. Here, Mr Lewis lacks capacity to make investment decisions, so the adviser should not act on the daughter’s request unless she can show valid legal authority to manage his financial affairs, such as a registered property and financial affairs lasting power of attorney. That approach reflects fair treatment, integrity, and proper protection of a vulnerable client. Urgency, family relationship, or a promise to indemnify the firm does not replace legal authority. The closest distractor is the next-of-kin idea, but next of kin is not a recognised authority to give investment instructions.

• The executor point is misplaced because executors act in estate administration after death, not during the client’s lifetime.
• An indemnity does not cure the lack of authority; the firm still must not take instructions from an unauthorised person.
• Next of kin may be a useful contact, but it does not give power to encash investments or direct the firm.

A will does not give authority while the client is alive, so the firm should act only on valid lifetime authority.

Question 5

Topic: UK Contract and Trust Legislation

Mrs Patel is placing a new life policy into trust. She tells her adviser: “I want my two children to benefit, but I may want different shares later if one needs more support. I also want trustees to control any payout.” Which response best demonstrates acting professionally and treating her fairly?

• A. Leave the policy outside trust and record her wishes in a side letter, because that has the same legal effect as a trust.
• B. Use the standard trust form first and explain the control and beneficiary consequences after the policy is issued.
• C. Recommend a bare trust because the children are named and trustees can alter their shares later if circumstances change.
• D. Explain that a bare trust fixes the beneficiaries’ rights, so a discretionary trust may better fit her need for flexible shares and trustee control.

Best answer: D

What this tests: UK Contract and Trust Legislation

Explanation: The adviser should explain that a bare trust gives named beneficiaries fixed beneficial rights, so it does not meet a wish to vary shares later. Treating the client fairly means recommending a structure, such as a discretionary trust, that better matches her stated need for trustee control and flexibility.

When advising on a trust, acting professionally means matching the legal structure to the client’s objectives and making the consequences clear before the trust is created. Here, the key issue is who has beneficial entitlement and who controls distributions. In a bare trust, the beneficiaries’ interests are fixed once the trust is set up, so trustees cannot later change the shares simply because circumstances change. A discretionary trust is generally more suitable where the client wants trustees to decide who benefits and in what amounts within the permitted class. A letter of wishes may guide trustees, but it does not replace the legal effect of the trust itself. The closest trap is the bare-trust suggestion, but fixed entitlement is exactly what Mrs Patel says she does not want.

• The bare-trust suggestion is wrong because naming the children gives them fixed beneficial interests; trustees cannot simply reallocate shares later.
• Leaving the policy outside trust may preserve personal control, but a side letter does not create the same legal rights or trustee powers as a trust.
• Using a standard form first is poor practice because the trust’s legal effect on control and benefit should be explained before the client signs.

This matches her stated objectives by explaining the legal effect of each trust before she commits.

Question 6

Topic: UK Contract and Trust Legislation

During a face-to-face review, a UK retail client asks her investment adviser about settling £200,000 into an arrangement where her husband must receive all income for life, but the capital must pass to her two adult children when he dies. She wants this fixed outcome written from the start, with no trustee discretion over who benefits. Which arrangement best meets her objective?

• A. A bare trust
• B. A life interest trust
• C. A discretionary trust
• D. A nominee holding arrangement

Best answer: B

What this tests: UK Contract and Trust Legislation

Explanation: This is a life interest trust because the husband is meant to have a fixed right to income during his lifetime, while the children are fixed to receive the capital afterwards. That makes it a genuine trust arrangement with split beneficial interests, not a simple nominee or bare ownership structure.

A life interest trust, often called an interest in possession trust, is used when one beneficiary is intended to enjoy the income from trust assets for life or for a specified period, while the capital is preserved for other beneficiaries later. In this scenario, the client wants the husband to receive all income for life and the children to receive the capital on his death, with that outcome fixed from the outset. That is the classic purpose of a life interest trust.

A bare trust would give the beneficiary an absolute beneficial entitlement, which does not fit a split between lifetime income rights and later capital rights. A nominee arrangement is different again: it mainly concerns holding legal title on behalf of the true beneficial owner and does not create the layered beneficial interests described here.

The key point is that this arrangement is a genuine trust because it separates and defines beneficial rights between different people.

• Discretion removed: A discretionary trust would let trustees decide who benefits and when, but the client wants the beneficiaries’ rights fixed from the start.
• Absolute entitlement: A bare trust gives the beneficiary the underlying beneficial ownership outright, so it cannot neatly give income to one person for life and capital to others later.
• Legal title only: A nominee holding arrangement usually means someone holds assets in name only for the beneficial owner; it does not create the intended split of income and capital rights.

A life interest trust gives one beneficiary a right to income for life while preserving the capital for named beneficiaries later.

Question 7

Topic: UK Contract and Trust Legislation

A financial adviser is onboarding Hilltop Cycling Club, an unincorporated association. The club treasurer asks to sign the advisory agreement and give dealing instructions alone. The club constitution supplied to the firm states that investments must be registered in the names of three trustees and that any dealing instruction must be signed by two trustees. What is the best next step?

• A. Contract with the treasurer personally as the club’s representative.
• B. Contract with the three trustees and act only on instructions from any two of them.
• C. Take the treasurer’s instruction now and obtain trustee signatures later.
• D. Contract with the club and rely on the treasurer’s authority.

Best answer: B

What this tests: UK Contract and Trust Legislation

Explanation: The key issue is legal personality and authority. Because an unincorporated association is not usually a separate legal person, the firm must contract and take instructions in line with the constitution, which here points to the trustees and a two-signature mandate.

This question tests who can validly enter an arrangement and who can give instructions. An unincorporated association does not normally contract or hold investments in its own name, so the firm must identify the individuals authorised under its governing rules. Here, the constitution is the controlling document: it says investments are to be registered in the names of three trustees and that any dealing instruction requires two trustees.

That means the adviser should:

• set up the relationship with the trustees
• record the mandate exactly as the constitution requires
• decline a sole instruction from the treasurer unless authority is formally changed

A day-to-day office holder may have administrative responsibilities, but that does not override the documented authority for contracting and dealing.

• Relying on the club name alone fails because the association itself is not the contracting legal person for this purpose.
• Using the treasurer personally confuses office-holding with ownership and would misidentify the client.
• Acting first and collecting signatures later skips the authority check, which must be completed before instructions are accepted.

An unincorporated association lacks separate legal personality, so the agreement and dealing authority must follow the constitution through its trustees.

Question 8

Topic: UK Contract and Trust Legislation

A client placed a single-premium investment bond into a discretionary trust. The trust deed names the client and her brother as trustees and her two children as potential beneficiaries. The client has now died, and one child asks the provider to cash in the bond and pay the proceeds to him. What is the firm’s best next step?

• A. Cash in the bond because a potential beneficiary can request payment directly.
• B. Verify the current trustees from the trust deed and act only on a valid trustee instruction.
• C. Require both children to agree because all beneficiaries must approve trustee actions.
• D. Take instructions from the executor because the bond returns to the estate on death.

Best answer: B

What this tests: UK Contract and Trust Legislation

Explanation: The key issue is legal control of the trust asset. In a discretionary trust, trustees hold the legal title and make decisions under the trust deed, while beneficiaries do not have authority to instruct the provider directly.

This turns on the difference between legal ownership and beneficial entitlement. Once the investment bond is placed into a discretionary trust, it is administered by the trustees under the trust deed. The child is only a potential beneficiary, so he cannot require the provider to surrender the bond or pay him directly.

After the settlor’s death, the firm should first check the trust deed and confirm who the current acting trustees are, including whether any replacement trustee has been appointed and how valid instructions must be given. The bond remains a trust asset rather than simply falling back into the deceased’s estate. The closest distractor is the executor route, but that confuses estate assets with assets already settled into trust.

• Beneficiary control: A discretionary beneficiary may receive a benefit only if the trustees decide to appoint one; that does not give direct authority over the bond.
• Estate confusion: Assets validly settled into trust are generally outside the settlor’s estate for administration purposes, so the executor is not the decision-maker here.
• Wrong approval route: Beneficiaries do not collectively run the trust; the trustees administer it according to the trust deed.

In a discretionary trust, control sits with the trustees, so the provider must confirm who the acting trustees are before accepting any instruction.

Question 9

Topic: UK Contract and Trust Legislation

An adviser acts for Rowan Engineering Ltd, a private limited company. At a review meeting, a 30% shareholder who is not a director or employee tells the adviser to switch the company’s portfolio immediately. The firm’s records show that only the managing director and finance director are authorised to give dealing instructions. Which action best applies UK professional standards?

• A. Act on the shareholder’s instruction because of his ownership stake
• B. Act if the proposed switch is suitable for the company
• C. Act only on an authorised signatory’s instruction or verified board authority
• D. Act if the shareholder repeats the instruction by signed email

Best answer: C

What this tests: UK Contract and Trust Legislation

Explanation: The client is the company, not the shareholder personally. Because a limited company has separate legal personality, only someone with authority to act as its agent can give binding instructions, so the adviser should rely on the mandate or verified board authority.

The core concept is separate legal personality and agency. Rowan Engineering Ltd is its own legal person, so the company’s portfolio belongs to the company, not to its shareholders individually. A shareholder may own part of the business, but that does not automatically make him an authorised agent for giving instructions on the company’s account. The adviser should therefore act only on instructions from a person already authorised under the mandate, or after obtaining verified board authority.

This is the professionally correct approach because it shows due skill, care and diligence, protects the client from unauthorised transactions, and avoids relying on someone who lacks legal authority to bind the company. A trade being sensible or low risk does not overcome the authority problem.

• Ownership is not authority: holding 30% of the shares does not by itself let someone bind the company.
• Written confirmation is not enough: a signed email may confirm what the shareholder wants, but not that he has authority to instruct.
• Suitability is a separate test: even a suitable switch should not be made on instructions from an unauthorised person.

A company is a separate legal person, so ownership alone does not give a shareholder authority to bind it.

Question 10

Topic: UK Contract and Trust Legislation

An adviser acted for Mr Patel, who had a registered property and financial affairs lasting power of attorney naming his daughter. Mr Patel has now died. The daughter asks the firm to sell investments immediately under the LPA. What is the firm’s best next step?

• A. Process the sale because the registered LPA remains effective after death.
• B. Stop acting on the LPA and require executor or administrator authority before dealing.
• C. Take the daughter’s sale instruction as next of kin and update the file later.
• D. Transfer the portfolio to the daughter because she was the named attorney.

Best answer: B

What this tests: UK Contract and Trust Legislation

Explanation: A lasting power of attorney is relevant only while the donor is alive. Once Mr Patel has died, the firm should move to deceased-estate procedures and only accept instructions from a verified personal representative, such as an executor under a will or an administrator on intestacy.

The core concept is that authority changes at death. A property and financial affairs LPA allows the attorney to act while the donor is alive, but it ceases immediately on death. From that point, the investments form part of the deceased’s estate, so the firm must stop taking instructions under the LPA and follow its deceased-client controls.

The correct route is to deal only with the estate’s personal representative once the firm has suitable evidence of authority. If there is a valid will, that will usually be the executor. If there is no valid will, an administrator will be appointed under intestacy rules. Family relationship, expected inheritance, or previous attorney status do not by themselves give dealing authority.

The key takeaway is to switch from incapacity authority to estate authority as soon as death is known.

• LPA after death: A registered LPA does not continue once the donor has died, so it cannot support a sale instruction.
• Next of kin: Being a close relative does not by itself give authority to deal on the deceased’s account.
• Former attorney status: The daughter does not become owner of the assets personally just because she acted as attorney during Mr Patel’s lifetime.

Death ends the LPA, so any dealing instruction must come from a properly authorised personal representative of the estate.

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Related focused pages

• Free CISI UK RPI Full-Length Practice Exam
• CISI UK RPI: The UK Financial Services Sector
• CISI UK RPI: UK Financial Services and Consumer Relationships
• CISI UK RPI: Integrity and Ethics in Professional Practice
• CISI UK RPI: UK Regulatory Infrastructure
• CISI UK RPI: FCA and PRA Supervision
• CISI UK RPI: FCA and PRA Authorisation of Firms and Individuals
• CISI UK RPI: Financial Crime Regulatory Framework
• CISI UK RPI: Complaints and Compensation
• CISI UK RPI: FCA Conduct, Fair Treatment, and Client Assets

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