STEP Diploma cheat sheet

Three certainties for a valid express trust: certainty of intention (words/conduct showing a binding obligation), certainty of subject matter (identifiable trust property and beneficial interests), certainty of objects (identifiable beneficiaries or a valid class).

Beneficiary principle: a private trust needs ascertainable beneficiaries (or a valid class); charitable trusts escape this because the Attorney General enforces them.

Formalities: inter vivos trusts of land need signed written declaration (Law of Property Act 1925 s.53(1)(b)); testamentary trusts need a valid will; dispositions of subsisting equitable interests need writing (s.53(1)(c)).

Constitution requires transfer of title to the trustee (or a self-declaration of trust); a volunteer beneficiary cannot enforce an incompletely constituted trust absent consideration, reliance, or the rule in Re Rose.

Fixed trust: beneficiaries' shares are predetermined. Discretionary trust: trustees choose recipients and amounts from a class. Power of appointment vs trust power: a mere power is not mandatory to exercise.

Resulting trust arises where beneficial interest fails or is unaccounted for (presumed automatic or presumed purchase-money resulting trust). Constructive trust arises by operation of law to prevent unconscionable retention.

Trustee duties: duty to act unanimously (unless authorised otherwise), invest prudently, keep accounts, provide information to beneficiaries, avoid conflicts, and act impartially between beneficiaries.

Trustee powers derive from the trust instrument, statute and the court; delegation is limited and liability for agents depends on the instrument and statutory provisions.

Breach of trust remedies: reconstitution of the fund, equitable compensation, account of profits, tracing into substitute assets, and personal liability of knowing recipients or dishonest assistants.

Valid will requirements: testator aged 18+, signed by testator (or by someone in their presence and at their direction), signature made or acknowledged in the presence of two witnesses present at the same time, who attest and sign.

Testamentary capacity: testator understands the nature of the act, the extent of property, and the claims of those reasonably entitled (Banks v Goodfellow); no disorder of mind affecting these.

Knowledge and approval and undue influence: suspicion may arise from physical/mental weakness, blindness, illiteracy or a beneficiary-drafter; undue influence must be proved as coercion.

Revocation: by later valid will, by marriage/civil partnership (unless made in contemplation), or by physical destruction with intent to revoke.

Intestacy order (typical common-law model): spouse/civil partner first, then issue, then parents, then siblings, then grandparents, then aunts/uncles, then the Crown; fixed statutory shares apply.

Probate process: locate will, value estate, complete inheritance tax account, apply for grant of probate (executor) or letters of administration (administrator), pay tax, collect assets, pay debts, distribute.

Executor's year: personal representatives have a year from death before being compellable to distribute; creditors rank ahead of beneficiaries.

Ademption: a specific gift fails if the asset is no longer owned at death. Lapse: a gift fails if the beneficiary predeceases, subject to statutory substitution for issue.

Probate caveats and citations; contentious probate challenges include forgery, lack of capacity, want of knowledge and approval, and undue influence.

Identify the taxpayer: settlor, trustee, beneficiary or estate. Tax can apply at settlement (entry charge), during administration (income, gains, inheritance tax on distributions), and on exit.

Trust classification drives tax: bare trust (taxed on beneficiary), fixed interest in possession (often beneficiary), discretionary (trustee rate), and settlor-interested trusts (taxed on settlor).

Income tax on trustees: discretionary and accumulation trusts typically taxed at the trust rate (often 45% for dividends or equivalent top rate) with a standard-rate band; beneficiaries get credit for tax paid.

Capital gains tax: trustees pay at the rate applicable to trusts (often 20% or 28% depending on asset type); annual exempt amount may be halved or shared; hold-over relief is available for certain gifts.

Inheritance tax: relevant property regime charges discretionary trusts at 20% entry charge above the nil-rate band, periodic charges every 10 years (max 6%), and exit charges pro rata.

Inheritance tax on death: estate taxed at 40% above the nil-rate band; reduced to 36% where 10%+ of the net estate goes to charity.

Grossing up: where a gift is free of tax, the tax is calculated on the grossed-up value; where a gift bears its own tax, the beneficiary bears the tax.

Estates: income and gains during administration are generally taxed on personal representatives; inheritance tax instalments may be available for land and certain shares.

Transferable nil-rate band (where applicable) allows unused percentage of a predeceased spouse's nil-rate band to be claimed by the survivor's estate.

Core duties for trust and estate practitioners: integrity, objectivity, confidentiality, competence, and compliance with anti-money-laundering (AML) and client due diligence obligations.

Conflicts of interest: identify, avoid, or manage; obtain informed consent where permitted; do not act where a significant conflict cannot be managed.

Confidentiality: client information is confidential; disclosure is permitted where required by law, court order, or with consent; privilege protects legal advice.

AML: customer due diligence (identify, verify, beneficial ownership), enhanced due diligence for politically exposed persons and high-risk jurisdictions, ongoing monitoring, and suspicious activity reporting.

Regulatory perimeter: will-writing, probate and trust administration may be reserved or regulated activities depending on jurisdiction; unregulated persons may be restricted.

Professional conduct: act within competence, maintain independence, avoid misleading the court or third parties, and keep accurate records.

Data protection: process personal data lawfully, fairly and transparently; retain only as long as necessary; safeguard against unauthorised access.

Complaints and remediation: acknowledge, investigate, remedy; escalate to the relevant regulator or ombudsman where required.

Trust accounts typically comprise a statement of financial activities, a balance sheet, and notes; estates use an estate account with capital and income columns.

Distinguish capital and income: capital receipts (sale of assets, original gifts) are not distributable as income; income receipts (interest, dividends, rent) are distributable per the trust instrument.

Double-entry bookkeeping: every transaction affects at least two accounts; debits increase assets/expenses, credits increase liabilities/equity/income.

Trustee accounts should record all receipts and payments, assets and liabilities, and distributions; reconciliation of bank accounts and investment holdings is essential.

Fair value measurement: investments are typically measured at fair value; unrealised gains/losses are recognised in the appropriate reserve or capital account.

Beneficiary distributions: record as a reduction of trust assets; maintain a distribution register showing recipient, date, amount and source (income or capital).

Reporting standards: follow the applicable financial reporting framework for trusts and estates (e.g., local GAAP or IFRS-style principles); disclose related-party transactions, fees and trustee remuneration.

Audit and review: independent examination may be required depending on size and jurisdiction; maintain evidence for all entries.

Engagement: establish the client's objectives, family circumstances, tax residency, asset base and risk tolerance; document the scope and any limitations.

Suitability: recommend structures only after assessing needs; compare alternatives such as outright gifts, bare trusts, discretionary trusts, life insurance and pensions.

Tax-efficient planning: use nil-rate bands, annual exemptions, spouse exemptions, charity relief and hold-over relief where available; watch anti-avoidance rules.

Asset protection: consider creditor risk, divorce, incapacity and succession; use trusts, powers of appointment and letters of wishes appropriately.

Family governance: letters of wishes guide trustees but do not bind; review trust terms and beneficiary classes periodically.

Review triggers: changes in tax law, family changes (birth, death, divorce), changes in residence or domicile, and significant asset changes.

Documentation: written advice, client instructions, and signed engagement letters; retain records for the required period.

Residence and domicile drive tax exposure: a trust may be resident where trustees reside or where central management occurs; beneficiaries may be taxed on residence or domicile.

Domicile: acquired by origin, dependency or choice; a change of domicile requires physical presence and intention to remain permanently.

Double taxation treaties allocate taxing rights; check tie-breaker rules, relief for foreign tax, and limitation-of-benefits provisions.

Offshore trusts: consider reporting obligations (e.g., CRS/FATCA), economic substance rules, and anti-deferral regimes for resident beneficiaries.

Foreign assets: identify situs for inheritance tax, capital gains tax and stamp duty; consider forced heirship rules in civil-law jurisdictions.

Exchange of information: automatic exchange under CRS, and on-request treaties; non-compliance triggers penalties.

Cross-border succession: determine the applicable law (habitual residence or nationality), recognise foreign grants, and consider the EU Succession Regulation where relevant.

Currency and valuation: translate foreign amounts at appropriate rates; document valuation sources.

Prudent investor rule: diversify unless inappropriate; consider the portfolio as a whole; balance risk and return against the trust's purpose and beneficiaries' needs.

Trustee Act investment powers: typically broad power to invest as if absolutely entitled, subject to the trust instrument and any express restrictions.

Suitability and risk profiling: match investments to the trust's time horizon, liquidity needs, income requirements and distribution policy.

Asset allocation: define strategic allocation across equities, bonds, cash, property and alternatives; rebalance per policy.

Diversification reduces idiosyncratic risk but not systematic risk; concentration in a single asset requires justification.

Valuation and performance: use independent valuations where possible; measure total return (income plus capital growth) against a benchmark.

Delegation: investment managers may be appointed where authorised; trustees retain duty to select, monitor and review.

Ethical and ESG considerations: permitted where consistent with the trust's purposes and beneficiary interests; document the rationale.

Liquidity: maintain sufficient liquid assets to meet distributions, taxes and expenses.