Essay Route to STEP Membership - 2018 Topics

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


Question 1

(a) Describe some pre-FATCA US and offshore initiatives to combat tax evasion.

(b) Discuss FATCA’s relationship with Intergovernment Agreements.

(c) How does FATCA apply to trusts and what are the trustee’s reporting requirements.

Question 2

Your client is a citizen and resident of Russia, where his family also live. He is the settlor of an irrevocable and discretionary trust governed by the law of the British Virgin Islands. The trust holds an underlying company in the Bahamas, which holds bankable / income generating assets and property in several jurisdictions. He intends to relocate to Malta next year (without his family) and apply for a more beneficial tax regime.

The candidate should analyse:

(a) Pre-emigration aspects from trust and tax law (including double tax treaty - relevant article to be given) perspectives, considering what the trustee should take care of in case of a distributions to the settlor (as Maltese resident) and to his children, one of them still minor.

(b) Analysis of the differences between the case above and the situation when all beneficiaries agree to obtain a full distribution and terminate the trust: duty of trustee vs. any settlor reserved powers to oppose it.

(c) Potential role of the protector (as third person) in the above.

Question 3

In 16th century England, the Statute of Uses (27 Hen.8 c.10) preceded the modern day concept of a trust, yet contemporary Chief Justice Edward Coke wrote that there were only two reasons for requiring a ‘use’: fear and fraud; fear of losing inheritances and fraud to defeat debts and lawful actions.

How far do you think this accurately describes the purposes of different types of trust in your jurisdiction? In addition, what are some of the drivers for using a trust? Your answer should include reference to recent regulatory or other legislative or administrative measures as appropriate.

Question 4

Discuss, with examples, the factors trustees should consider before making a distribution from a trust in relation to

(a) The trustees

(b) The beneficiaries, and

(c) The tax consequences.

Question 5

Consider tax implications, advantages and disadvantages of creating a trust before moving from the UK to a civil law country that has not ratified the 1985 Hague Convention on trust. Discuss other tax efficient alternatives to trusts for inheritance purposes.

Question 6

(a) Explain how and why the CRS came into being and how does it differ from other regimes for automatic exchange of information in relation to tax matters?

(b) What is the framework for implementing the CRS?

(c) Explain how EU Member States have transitioned from automatic exchange of information under the EU Savings Directive to compliance with the CRS.  How is that transition handled as between EU Member States and non EU Member States (the so called "third countries") which have implemented the same or equivalent measures as the EU Savings Directive pursuant to bilateral agreements with EU Member States?

(d) How is the transition from the Intergovernmental Agreement between the UK and its Crown Dependencies and Overseas Territories to the CRS being handled?

Question 7

You are asked to see an 85 year old testator. How do you prepare a Will to ensure that:-

It is not invalid for:

(a) Lack of testamentary capacity

(b) Lack of knowledge and approval

(c) Undue influence

(d) Fraudulent calumny

Please explain the relevant legal tests and case law and describe any practical steps you would take.

Question 8

You are instructed by a trust company in relation to the creation of a new trust of which they will be trustee. The main asset of this new trust will be a significant group of trading and operating companies that trade in a range of jurisdictions and in many different business sectors across the globe.

The settlor, who has built up this group, is clear that she does not want the trustee to “interfere” in the running of the companies or indeed be involved in any way.

You are to start by setting out why the settlor’s wish creates an issue and what that issue is.

You are then to provide a minimum of three and a maximum of five different ways in which the trust structure could be set up to try to address the issue you have identified.

These options can include the type of trust chosen, the way the trust is drafted, the form of the asset that the trustees actually own or the use of bespoke legislation.

You should list the pros and cons of the options you choose before proposing with reasons the one you would recommend should be adopted.

Question 9

You are instructed in relation to the possible take-on of the trusteeship of an existing trust that was created in 1990. Your role is to ascertain whether the trust has been administered correctly so that your trust company may take on the trusteeship.

The trust has had three trustees, each acting solely, prior to the current trustees and, whilst the settlor is now deceased (and was resident in Utopia, a no tax jurisdiction) has beneficiaries in the UK, the USA and France. It holds investments in the form of cash, discretionary investment portfolios and UK real estate.

Detail the information and documentation you would request and list and explain the key issues you would want to address and why

Question 10

You are required to advise a well-known trust company.

It is the sole trustee of 3 trusts which hold 50%, 25% and 25% of a private company – an on-line retailer.  The settlors are the family patriarch and his 2 sons, respectively.  The settlors are the directors of the company.

Each trust is a discretionary trust for the benefit of the individual settlor’s widow, children and remoter issue.  The settlor and, during his lifetime, his wife, are excluded from benefit.

The directors have agreed to sell the company to a private equity firm.  It plans to float the company on the local stock exchange within 5 years, subject to meeting certain revenue and profit targets.

Consideration is:

  • Trustees: £80 million cash;
  • Each director: a “Golden handcuff” of £2 million if they are still a director of the company at the end of 5 years or, if earlier, the flotation of the company; and
  • if the company “floats” within 5 years and has an initial offer value in excess of £120 million, and if then still a director of the company, further consideration equal to 5% of the excess over £120 million.

The buyer is also arranging a £40 million credit facility to finance expansion.

You are required to advise the trust company on the proposed transaction, identifying and advising on the issues relevant to trustees and, in particular, with regard to this specific situation.

You should also consider how the advice might differ if the 3 settlors were also trustees of each of the trusts, together with the trust company.

You do not need to consider the issue of tax within the trusts or directly affecting the settlors or beneficiaries.

Relevant statute and case law to be quoted in support of discussion.

Question 11

Consider the merits of the creation of an offshore trust by a prospective settlor. What are the challenges that you foresee if the settlor is domiciled in a civil law jurisdiction?

Question 12

Describe the various events in a lifecycle of different types of trust and/or foundation, and the specific considerations trustees should consider at each identified event.

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