Essay Route to STEP Membership - 2020 Topics

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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: Estate planning & Will Trusts

You have represented Anton for some years and he is now a retired successful businessman.  He has been married to Barbara for over 30 years.  He and Barbara have no children together but Anton has adult children by a former wife – Carla and Daniella.  Anton is close to Carla and Daniella.

Anton tells you that his home is worth about £1.5 million and that he has a further £2 million in savings and shares.

Anton tells you that Barbara is almost 15 years younger than him.  He already owned the family home before they met and it remains in his sole name.

Anton tells you that he wants to prepare a Will.  He wants to appoint you as an Executor.  He tells you that Barbara has no income or assets of her own, so he wants to give her the right to stay living in the family home until she dies or remarries.  He wants Barbara to be a Discretionary Beneficiary of his estate together with his daughters.  He wants to make sure that Barbara is properly taken care of during her life or until she cohabits or remarries.

What advice would you give to Anton and what steps would you take to give effect to his wishes?

Would your answer be different if, rather than marrying Barbara, Anton had lived with her for 30 years instead?

For the avoidance of doubt, you have no doubt about the ability of Anton to give you instructions; he has capacity and is free from undue influence. His accountant will advise separately on tax consequences.

Question 2: Trustees’ Duties of Disclosure

Trustees have a fundamental duty to “account” to their beneficiaries. This is considered to be part of the so-called “irreducible core” of a trustee’s duties. Using the law in your own jurisdiction as the basis for your answer:

  1. Set out the basic legal position in your jurisdiction concerning the right to information in a trust relationship;
  2. Address how far can this duty to account be ousted, modified or in any way limited;
  3. Consider how far any such ouster, modification or limitation is appropriate in the light of the so-called irreducible core;

You are to consider this question

      (a) Firstly in the context of the disclosure of information to beneficiaries;
      (b) Secondly in the context of the disclosure of information to third parties including governmental authorities; and
      (c) Thirdly in the context of litigation and requests for disclosure as part of those litigation proceedings.

If data protection legislation is relevant in your jurisdiction, address the implications, if any, of that law. Your answers should refer to both relevant statue law and case law.

Question 3: Discretionary Trusts & Trustees’ Powers

Angela and Marco were trustees of a discretionary trust settled by John.  The objects of the discretionary class are John’s nephews and nieces, the nephews and nieces of John’s wife, together with, in both cases, their spouses (including civil partners) and issue.  The trust instrument includes the usual settlor and spouse exclusion clause.

The original trustees had retired following a fee dispute with John, who appointed Angela and Marco as their replacement.  Angela and Marco were married to each other at that time and are, respectively, a niece of John and nephew of John’s wife.  As a result of Angela and Marco’s acrimonious divorce, John removed them as trustees 5 years ago and appointed in their place J Limited, a company with £100 issued capital and of which he is the sole director.  J Limited has since excluded Marco, but not Angela, from the beneficial class.

In the last couple of years, J Limited has made significant distributions to some beneficiaries, including Angela.  Marco objects to Angela receiving any benefit when he does not.  He is now concerned about the administration of the trust generally and, in particular, the way in which John and J Limited have acted.

How would you advise him?

The only administrative provisions within the trust instrument are:

  • John has power to appoint, and to remove, trustees (no other powers are reserved to him);
  • The trustees have power to exclude beneficiaries (without the need for any consents);
  • The trustees’ powers may only be exercised by at least two trustees or a trust corporation; and
  • A “Conflict of Interest” clause, as set out below:

Conflicts of Interest

  1. In this clause:

(a) A Fiduciary means a Person subject to fiduciary duties under this settlement.
(b) Person includes a person anywhere in the world and includes a Trustee.
(c) The Trustees means the trustees of this settlement for the time being.
(d) An Independent Trustee, in relation to a Person, means a Trustee who is not:

(i) a brother, sister, ancestor, descendent of the Person;
(ii) a spouse of the Person or of (i) above; or
(iii) a company controlled by one or more of any of the above.

  2. A Fiduciary may:

(a) enter into a transaction with the Trustees, or
(b) be interested in an arrangement in which the Trustees are or might have been interested, or
(c) act (or not act) in any other circumstances even though their fiduciary duty under this settlement conflicts with other duties or with their personal interest; Provided that:

(i) The Fiduciary first discloses to the Trustees the nature and extent of any material interest conflicting with their fiduciary duties, and
(ii) There is an Independent Trustee in respect of whom there is no conflict of interest, and they consider that the transaction arrangement or action is not contrary to the general interests of this settlement.

  3. The powers of the Trustees may be used to benefit a Trustee (to the same extent as if they were not a Trustee) provided that there is an Independent Trustee in respect of whom there is no conflict of interest.

Question 4: Post-Death Estate Administration

Robin died in November 2019.  He and Maria were married for 50 years.

His estate consists mainly of bank accounts (£650,000), held jointly with Maria.  However, in his sole name are the matrimonial home, currently valued at £200,000, and £10,000 in savings accounts.

In his will, he gives legacies of £5,000 to each of their 3 children and creates an 80 year balance of nil rate band discretionary trust, the beneficiaries of which are Maria, their children, spouses and issue. Residue is given to Maria absolutely.

Robin’s full nil rate band is available.

Discuss:

(a) How the estate should now be administered, identifying the applicable principles and any tax consequences

and

(b) How Robin’s estate should be dealt with following the death of Maria some 15 years after Robin, identifying the applicable principles. She was the sole named executor and trustee of his will, but had taken no steps to administer his estate.  The matrimonial home is valued at £1 million at that time. You should assume the relevant legislation in 15 years’ time remains the same as it is currently in your jurisdiction.

For the avoidance of doubt, Robin had a pre-paid funeral plan and debts due to death and administration expenses are to be ignored.

Question 5: Purpose Trusts & Private Trust Companies

A wealthy family is seeking an innovative solution aiming to own shares in holding companies (incorporated outside of family residence country), which in turn hold operating companies in the steel industry worldwide.

(a) Analyse the opportunity to adopt a purpose trust, by selecting a specific jurisdiction offering such a solution.
(b) What factors should be considered in setting up a private trust company (PTC) for the purpose trust?
(c) Examine the elements to be taken into consideration in terms of governance of the PTC and implementation of the structure.

Question 6: Private Trust Companies

Private Trust Companies are often advocated as the perfect solution for client problems. But are they truly a panacea for all ills?

Your answer should refer to both relevant statute law and case law in your jurisdiction.

Question 7: The Role of Executor

You have been consulted by Pedro, who has been recommended to you as a TEP. He tells you that his friend has died recently appointing him as joint executor with another person. He gives you the following facts about her estate:

    • He thinks there will be inheritance tax to pay and there may be assets abroad
    • The deceased was elderly and frail when she changed her will recently by reducing the share to her brother from 100% to 50% and leaving the rest to charity

Given the information above, Pedro and his co-executor seek your advice on the following:

(a) What are their duties, obligations and potential liabilities when acting as executors?
(b) How, if at all, can they reduce the risks involved when acting as executors?
(c) Are they obliged to act and if they do can they charge for undertaking the work?
(d) If they were to instruct you to act for them, what, if any, would be your professional duties?

Question 8: Trusts and the Family Home

Your client Dorian has told you that, some years ago, he transferred his home into a trust but continued to live there. He has a trust deed that states the house was transferred “upon trust to permit Dorian Gray of that address to reside therein for so long as he shall desire free of rent but he being responsible for general rates, water rates, insurance and maintenance repairs of an income nature”. The ultimate beneficiary is named as Dorian’s son, Oscar. The trust was established in 2005 and the trustees are Oscar, and a family friend, Fingal

(a) Discuss the nature of the interest provided under the terms of the trust
(b) Discuss the tax implications for Dorian and for the trust
(c) Dorian’s father suffered from a genetic illness and Dorian is concerned he will suffer some future incapacity that means he will require care, potentially for many years. Are there any other issues of which Dorian should be aware?

Question 9: Post-Death Estate Analysis

Ross lives with his partner Rachel, and has an ex-wife named Carol. Carol is the mother of Ben, who is 10. Ross pays Carol spousal maintenance as well as maintenance for Ben. Ross and Rachel have one daughter, Emma, who is 3. In addition, Ross’ adult sister Monica also lives with the family. Monica has been out of work for a number of years, and helps with looking after Emma as Ross and Rachel both work. Ross also pays his friend Joey a monthly stipend as he has been unable to work since he was badly injured in a car accident while Ross was driving and Ross feels responsible. Ross is also godfather to his friend Phoebe’s three children.

Ross dies unexpectedly. His Will, which has not been updated since the one he made whilst married to Carol, leaves the majority of his Estate to Carol, with any remainder to the Paleontological Society of Ross’ home town, a registered charity.

(a) Discuss how assets will pass under Ross’ Will
(b) Detail who may make a claim for provision under any relevant dependency provisions in your jurisdiction, on what grounds, and what might be deemed ‘reasonable’ provision.
(c) Explain what would happen if the Paleontological Society of Ross’ home town is no longer in existence at the time of Ross’ death.

Question 10: Golden Visa Programme

Residence and citizenship by investment (RBI/CBI) schemes: the Golden visa programmes

(a) Describe the key features of the Residence and Citizenship By Investment (RBI/CBI) schemes.
(b) Review and compare some of the different golden visa programmes available today. You should make special reference to the European Union countries, USA and other relevant countries.
(c) Analyse the risks and misuses of the golden visa schemes. What are the general actions aimed at preventing abuses? You should make special reference to the OECD measures.

Question 11: CRS and Trust Reporting Obligations

There have been major recent initiatives to enhance global transparency with the Common Reporting Standard (CRS) being one of the main drivers.

Trusts in particular are targeted by CRS. Please explain the process when determining the reporting obligations in relation to a trust.