Essay Route to STEP Membership - 2019 Topics

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.

Topics

Question 1: Farming Will Dispute

Annie and Bert were farmers. Their large farm has been in their family for generations. Annie and Bert had two children, Charlotte and Dan. Charlotte is now 45 years old and she has worked on the farm since she was 16. Dan used to work on the farm when he left school, but many years ago, he set up an agricultural machinery business which involves buying and selling machinery. He stores his machinery for sale on a small part of the farm. The whole farm, if sold, would be worth in the region of £10,000,000.

Charlotte comes to see you quite distressed. Annie died 12 months ago, and Bert has just passed away. Charlotte is grieving their loss - but there is more. Charlotte has just discovered that Annie and Bert had both made wills in mirror terms. Annie and Bert left all of their estate to the survivor, and thereafter, to Dan. Charlotte tells you that it seems that Annie and Bert wanted to continue the farm through the male line. Charlotte tells you, however, that her parents had made an earlier will in which virtually the entire farm was left to her, excluding only the relatively small part of the farm that was used by Dan, which was to be left to him. Charlotte tells you that both Annie and Bert had told her that this earlier will was “set in stone”, and that they would never change it. Charlotte tells you that she has witnesses who can confirm this arrangement. Not only this, but Charlotte says she had stayed working on the farm since she was 16 years old for a very low salary. She did this, she says, because her parents had said, “one day all this will be yours”. Annie had also said, “you can’t have it now and then”, meaning that she should work for a low wage on the grounds that she would eventually inherit the farm.

What is your advice to Charlotte and what would be the expected outcome? For the avoidance of doubt, you have no concerns about the validity of the last will. It is properly executed and there is no doubt about capacity or undue influence etc.

Question 2: Cross-Border Planning

You have been contacted by Mr Russell. Mr Russell would like you to prepare a new will for him. Mr Russell is a professional rugby union player from your jurisdiction, who has recently left to live and play professional rugby in France.

You have been told that Mr Russell has already purchased a property in France and that he has a two-year contract with his new team.

Examine the issues that you should consider in the preparation of Mr Russell’s will and in particular his domicile and the purchase of a property in France.

Question 3: Trust Option Analysis

Your client, Sally, wishes to set up a trust for estate planning purposes, the beneficiaries of which will be her three minor children. Sally herself will not be a beneficiary. Sally plans to settle £10,000,000 into the trust. Sally is currently married, but she informs you that the marriage is not a happy one. Sally is an entrepreneur who invests in and then runs businesses; some are successful, others not, and from time to time she has businesses that fail and become insolvent.

Sally is adamant that the trust funds are invested very conservatively in cash and government bonds. Sally is not prepared to allow the trustees to have any discretion over the investments chosen, nor for them to able to appoint a professional investment manager to invest on a discretionary basis. She is also interested in retaining a power to revoke the trust.

(a) Taking into account the information provided, identify the trust options available in your jurisdiction in relation to Sally’s wishes and investment needs. List the pros and cons of each option.

(b) Which option would you recommend to Sally, and why?

Question 4: Discretionary Trust Advice

Tom is the trustee of a discretionary trust for the benefit of Xavier (who was the settlor) and his 3 children Anna, Ben and Colin. The trust is revocable by Xavier but otherwise reserves no powers to Xavier. There are powers for Tom to pay all or any part of the trust fund to any one or more of the beneficiaries, and for Tom to transfer all or any part of the trust fund to the trustees of any other trust, which again has one or more of the beneficiaries as a beneficiary. The current letter of wishes states that Xavier is the primary beneficiary during his lifetime and that after his death, the trust fund should be held equally for Anna, Ben and Colin. The trust fund represents 90% of Xavier’s wealth. As far as you are aware, Anna, Ben and Colin have no wealth of their own and are entirely reliant on the trust fund.

Xavier has approached Tom and has asked to transfer the entire trust fund to a new trust of which Xavier and Colin will be beneficiaries, but not Anna or Ben. Xavier explains he has fallen out with Anna and Ben. Xavier has stated that if Tom does not do this, he will revoke the trust and create a new one with a different trustee.

As Xavier is an important client, Tom wishes to go along with his wishes.

Tom asks for your advice as to how he can (if at all) fulfil Xavier’s wishes and the issues he needs to consider.

Question 5: Charities and Trustees

You have been asked to become a trustee of a local charity for the elderly that you have not heard of before.

(a) What due diligence would you carry out before you accept the role?

(b) You have accepted the role and are asked to prepare the annual accounts;

i. What are your responsibilities as trustee to consider?

ii. What types of funds you would expect to find upon review?

(c) Due to your tax background you have been asked to explain to the charity’s employees the tax benefits that are available to charities.

Question 6: Business Succession Planning

A wealthy family is seeking long-term succession planning of their flourishing and growing operating business, which has a presence in different markets worldwide.

(a) What elements should be considered in the trust deed, in order to shelter any trustee liability in the conduction of the operating business?

(b) What factors should the trustee consider during the trust administration in relation to the underlying operating business?

(c) Examine the reasons why a trust could be a valid succession planning tool from a tax perspective.

Question 7: The EU and Tax Information Exchange

“International cooperation on automatic exchange of information within the European Union”

(a) Review the framework established for exchange of information within the European Union and its historical evolution;

(b) Describe the traditional mechanisms of exchanging tax information within the EU;

(c) Compare the EU standards of international administrative cooperation and exchange of information with other international standards for automatic exchange of tax information.

Question 8: Trusts and Care Home Fees

You are consulted by an elderly couple who are long-term clients of your firm. They have read an article in their newspaper saying that you can create a trust to protect their home and other assets, in the event they have to go into care.

To what extent is this correct, and what advice would you give them?

Question 9: Post-Death Estate Analysis

John and Emma have made mirror wills, each leaving their half share of the matrimonial home to the children from their previous marriages, with residue to the survivor.

Upon the death of the survivor, their estate is given to all their children, per capita.

John has one daughter, living in Canada, and Emma has four sons, all living within the UK.

John has now died, aged 87.

The matrimonial home is held by John and Emma as joint tenants.

Discuss the issues that now arise, and how, if at all, they could be remedied.

Question 10: Estate Planning and Variation

Catherine died leaving her entire estate of £700,000 to her husband Edgar, which includes the family home and a rental property from which she receives income. However, Edgar believes that Catherine would have preferred to leave her estate to her childhood friend, Heathcliff. Edgar is trustee and executor of Catherine’s will.

(a) Which options could Edgar use in his capacity as beneficiary of Catherine’s will to divert the estate to Heathcliff? Give brief descriptions and positive and negative implications of the different options and any requirements thereof.

(b) If instead, Catherine had left her estate on trust for Edgar, what options does Edgar have as trustee of Catherine’s will, if different from above? Are there any favourable tax implications? If the trustees’ action in altering the will results in a higher tax liability, does Edgar have protection under the Hastings-Bass rule?

(c) Outline the tax implications of varying a will under a deed of variation.

Question 11: Trustees’ Risks and Responsibilities

Lord Hardwick, in the case Knight v Earl of Plymouth in 1747, described the role of trustee as “an office necessary in the concerns between man and man, and which, if faithfully discharged, is attended with no small degree of trouble and anxiety. It is an act of great kindness in anyone to accept it”.

(a) Describe the main duties of a trustee, including statutory references or examples, as appropriate. You should include 3-6 examples of case law detailing specific points in relation to trustees’ duties.

(b) The role of trustee is described as one of “no small degree of trouble and anxiety”. What potential risks should trustees be aware of before accepting such a role?

(c) Briefly outline the position in relation to trustee fees.

Question 12: Trustees’ Duties to the Trust and Beneficiaries

(a) Discuss the trustees’ duties and responsibilities in relation to the trust and its beneficiaries, with regards to the following:

i. Trust Investments

ii. Trust Accounting

iii. Special Assets & Underlying Companies

iv. Forced Heirship

(b) Comment in some detail on the laws relating to asset protection and the creation of trusts to protect settlor assets.