Essay Route to STEP Membership

New topics are issued each year. Topics chosen must be submitted to STEP using the Paper Registration Form.

Where applicable, candidates should address questions from the perspective of their own jurisdiction and its relevant legislation. In the case that a question mentions a monetary value, candidates may refer to their local currency.

Question 1: Sham and illusory trusts

The question of so called ‘sham trusts’ has come before a number of different courts in a number of different jurisdictions over the years. More recently, courts have started to refer in their judgments to so called ‘illusory trusts’.

Quoting cases and statute law where relevant, discuss both the similarities and differences between sham and illusory trusts and give your views as to whether going forward we will see either illusory or sham trusts becoming the dominant nomenclature used.

Question 2: Private Trust Companies

Many settlors are reluctant to appoint commercial trust companies as trustees of their trusts and prefer to use private trust companies or similar privately managed vehicles. The choice of trustee vehicle and the way in which its ownership is structured is always a key issue as the settlor will often need to be kept away from the decision making process within the vehicle. The form the trustee vehicle takes is also integral to this issue.

a) Using relevant case and statute law where applicable, explain the various ways a private trustee vehicle can be structured and owned. Compare the relative merits of each option.
b) In doing so, consider the various legal forms the trustee vehicle can take. Compare the relative merits of each option.

Question 3: Blended families

Charles and Julia come to see you. They tell you that they both want to make a will. They tell you that they are very happily married, but they have both been married before. They both have adult children who live independently.

Charles and Julia both want advice from you regarding options for how they and their respective children can be ‘treated fairly’ if either or both of them should die. Each of them wishes to ensure that the survivor can maintain his or her standard of living after the other’s death.

Discuss all the testamentary options that are available to them. What are the advantages and disadvantages of each?

You should consider any ethical issues arising in relation to advising both Charles and Julia.

Your clients tell you that they do not need tax advice from you – they already have a family accountant.

Question 4: Disclaimers

Disclaimers and deeds of variation are both ways of altering the devolution of an estate after the death of the deceased.

Compare and contrast them, both in terms of:

a) their scope and legal consequences and
b) their UK tax treatment from the perspective of both the estate and the beneficiaries.

Note: This question is only applicable to candidates who practice UK tax and/or who are based in the jurisdictions of England & Wales, Scotland or Northern Ireland.

Question 5: Trusts and means-tested benefits

You have been consulted by Sandra, a new client of your firm. Sandra tells you that she wants to make a will. She has been widowed for many years and lives alone, but she has two adult daughters who both have a physical disability. Because of their physical impairments, the two daughters are unable to work and receive means-tested State Benefits. Both daughters have full mental capacity.

Sandra wants to leave provision efficiently for her daughters so that they can continue to receive means-tested State Benefits.

You are asked to advise Sandra on the following matters:

1. How, if at all, she can achieve her goals during her lifetime.
2. Whether Sandra can achieve her goals by way of her will.
3. (i) What advice would you give to Sandra about the identity of any executors or trustees?
(ii) What reassurance (if any) would you give to Sandra about the protection for her daughters if things go wrong and the daughters fall out with the trustees – could either or both of the trustees be removed from office and how would her daughters go about this?
(iii) Are there any sanctions if the trustees do not act professionally?
4. If, rather than consulting you in her lifetime, you were consulted by Sandra’s daughters in respect of a will that left everything to the daughters unconditionally, are there any steps that can be taken to rectify this so that they would not lose their right to Benefits?

You should not consider in detail the tax implications of any planning you recommend.

Question 6: Financial crimes and tax evasion

Anti-money laundering (AML), ultimate beneficial owner (UBO) registers, FATCA, CRS and DAC2 are some of the key elements that exist to fight financial and economic crimes in domestic and international jurisdictions.

  1. Analyse the current AML policies, standards and directives, and discuss their effects on financial crimes and predicate offences.
  2. Explain how UBO registers work, including how they assist with combating tax crimes and related offences.
  3. Review the current international exchange of (tax) information standards, and determine their impact on the international community.
Question 7: Mixed domicile

Phileas Fogg is married to Anne Fogg. Although both born in London, to British parents, Phileas and Anne spent much of their life travelling around the world with their friend Gulliver, before settling permanently in Lilliput in their early 50s.

Unfortunately, while visiting family in the UK, Anne suffered a stroke at age 78 and was taken into hospital. While she survived the stroke, she did not recover sufficiently to leave hospital, and eventually died. Neither Anne nor Phileas were considered tax resident in the UK at the time of her death.

Anne’s funeral was held in London, and her coffin was brought in on an elephant, as a homage to her childhood spent in India. Her father had been stationed there from when she was a baby until Anne’s return to the UK when she was 18 to attend university, where she met Phileas. She was buried in her family burial plot where her parents and sister were already interred. Phileas felt unable to return to their family home in Lilliput as it had too many memories, and instead moved to Timbuktu, where he intends to remain for the rest of his days, even having purchased a ceremonial burial plot.

Phileas and Anne’s main residence was a Lilliput estate valued at GBP800,000 at the time of Anne’s death. They also owned a UK home valued at GBP1.2 million. The Lilliput estate contained most of their possessions, but five of their most valuable artworks, worth approximately GBP400,000 each, were displayed in their UK home owing to security risks in Lilliput when they spent longer holidays in the UK. Phileas also had Anne’s favourite sculpture, a bronze figurine worth GBP350,000, sent over from Lilliput while he waited for Anne to recover. After her death, this was donated it to the British Museum in accordance with Anne’s will. Everything else was left to Phileas.

Phileas and Anne also owned some significant value in investments held in portfolios both in the UK and globally. They also ran a successful Lilliputian trading company with each of their 50% shares worth approximately GBP500,000. Phileas has continued to act as CEO while in the UK and has held board meetings in London for the past five years.

There is no inheritance tax or estate duty in Lilliput. All assets described are held jointly by Phileas and Anne.

a) Discuss the domicile status of both Anne and Phileas.
b) Consider the situs of Phileas and Anne’s assets and advise the family on the potential inheritance tax implications of Anne’s death. Consider any pertinent tax elections that might be in point and the effects thereof.
c) While you are not required to consider the conditions for any reliefs in detail, identify and comment on what reliefs or exemptions may be available and their effect on the tax liability.

Note: This question is only applicable to candidates who practice UK tax and/or who are based in the jurisdictions of England & Wales, Scotland or Northern Ireland.

Question 8: Crypto assets

Logan, a wealthy businessman, dies in the local hospital. While Logan would not be considered domiciled in your jurisdiction, he was currently temporarily tax resident there having taken advantage of the tax opportunities available to him over the past two years. The townhouse he was living in was owned by one of his offshore companies.

Logan owned several million in cryptocurrency, of various kinds, held in a digital wallet. The access to this digital wallet was controlled by a physical ‘key’, and as part of a family agreement, this key was held at all times by one of his four children, although which child that was varied frequently. At the time of his death, Logan’s daughter Shiv held the physical key in Portugal, where she has lived and been tax resident for three years. Logan also held some particularly sought after NFTs.

At the time of Logan’s death, one of his cryptocurrency holdings, ROY, was valued at USD2.4million but by the time the wallet was accessed, the value of ROY had dropped to USD300,000. It never recovered the lofty heights it had achieved.

Logan’s will leaves all of his assets to his family, although it is likely they will dispute their individual shares. None of Logan’s family are resident in your jurisdiction and are all domiciled outside of your jurisdiction.

Advise the family on the potential tax implications of Logan dying while tax resident in your jurisdiction. You should include commentary on which assets will be chargeable to tax, which would escape taxation, and any reliefs that may be relevant. You should explore in detail the landscape relating to digital (i.e. non-physical) assets and how those might be taxed on his death. You are not required to consider the claims on his estate that may be lodged by his family or any elections that may be considered.

Question 9: Forced heirship

Remy is a chef who was born in the UK to British parents and would have been considered UK domiciled at the time of his birth.

In 1969, as a young adult, he went to Paris to train as a chef and met a French girl named Collette, whom he married three years later when they moved to the UK to live. After living and working in the UK for a further 30 years, Remy and Collette retired to France, leaving their two adult sons, Alfredo and Horst, behind in the UK. Remy and Collette had permanently settled in France and only visited the UK to see family and friends on an infrequent basis.

Remy died in 2022 leaving a will prepared many years ago in England that was supposed to cover his worldwide assets and for UK law to apply to his estate. Remy’s will left everything on life interest trust to Collette, with Alfredo and Horst standing as remaindermen. However, during the probate process, it emerged that Remy had fathered another son, Ego, out of wedlock in France, to a Frenchwoman in 2002. Ego is making a claim in France against his father’s estate for his rightful inheritance.

Remy’s assets included residential property in the UK and in France, GBP500,000 in bank accounts in the UK, GBP500,000 in bank accounts in France and an investment portfolio that was invested in global markets.

Advise the family on the tax implications of Remy’s death. You should consider issues surrounding domicile and the definition thereof in different jurisdictions. You should also consider whether Remy’s assets will pass in accordance with his wishes and the tax implications in the relevant jurisdictions. You do not need to prepare calculations.

Question 10: Digital documents and capacity

Elizabeth, Ibrahim, Ron and Joyce all live in the same retirement home. One afternoon, when there was nothing good on television, the conversation turned to death and they discussed how their financial affairs were going to be managed after their death.

Elizabeth, who lives with her husband who suffers from dementia, announced that she had received a visit from their family solicitor just two weeks previously, as she liked to update her will regularly. They had prepared written wills, that had been duly witnessed, and the solicitor was holding a copy of the executed wills. Elizabeth noted that these things seemed to be done much more quickly than she recalled as she previously thought she would need at least two meetings with the solicitor but that this was deemed unnecessary.

Ibrahim said he hadn’t updated his will since 2021 when he had been on a video call with his friends Donna and Bogdan and they had watched him sign it during a COVID-19 related ‘lockdown’ period.

Ron said he remembered Ibrahim telling him about that and so had recently written his own will. He thought it was all a load of nonsense really, and his son Jason was wealthy enough, but Jason had been bugging him to do it so he had got a ‘Write Your Own Will’ pack from the local newsagents, filled it in when Jason came to visit and had taken it round to his friends Chris and Patrice to witness in 2022. Unfortunately, they had both been suffering from COVID-19 and had not wanted to infect him given his age, so he signed it on the bonnet of his car while they watched out of their front bay window, and he had posted the signed document though the letterbox for them to sign.

Joyce said that her daughter Joanna told her that everything was going digital now and that she was signing up for a digital power that would let Joanna sign things electronically on her behalf. She also said that she had written her will in the Notes app on her new iPhone that Joanna had bought her as she had heard that was now the done thing. Joyce didn’t tell the others, but she had left something in her will to her dog, Alan.

Advise the four residents on the legality and suitability of their estate planning. You should refer to global case law where appropriate.

Question 11: Regulatory and conflict of laws issues

You are employed by a trust company that acts as the professional trustee of common law trusts. It is established in and operates from a common-law jurisdiction and is subject to regulation in that jurisdiction. Consider the challenges it faces when the settlor and beneficiaries of trusts of which it is trustee are based in civil-law jurisdictions.