STEP Diploma flashcards

33 cards. Read the term and the definition here. The deck at the top of this page is optional.

Three certainties

Intention, subject matter and objects must each be certain for a valid express trust; uncertainty in any one renders the trust void or the gift a bare power.

Resulting trust

An implied trust where beneficial ownership returns to the settlor or their estate because the beneficial interest was not fully disposed of or was presumed not intended to pass.

Constructive trust

A trust imposed by law, independent of intention, to prevent unconscionable conduct, such as retaining property obtained through breach of fiduciary duty.

Trustee duty to invest

Trustees must invest trust assets prudently, considering diversification, suitability and the interests of beneficiaries, subject to the trust instrument and statute.

Bare trust

A trust where the trustee holds property for a beneficiary absolutely entitled, who may demand transfer at any time; the beneficiary is taxed on the income.

Testamentary capacity

The testator must understand the nature of making a will, the extent of their property, and the claims of those reasonably entitled, without disorder of mind affecting this.

Ademption

A specific gift in a will fails if the asset is no longer owned by the testator at death, for example because it was sold or given away.

Lapse

A gift fails if the beneficiary dies before the testator, unless a statutory substitution clause or the will provides otherwise for the beneficiary's issue.

Grant of probate

A court document confirming the executor's authority to administer the deceased's estate, collect assets, pay debts and distribute to beneficiaries.

Intestacy

The statutory distribution of an estate where the deceased died without a valid will, following a fixed order of relatives and prescribed shares.

Executor's year

Personal representatives have one year from death before they can be compelled to distribute; creditors and tax rank ahead of beneficiaries.

Relevant property regime

The inheritance tax regime for discretionary trusts, charging entry tax, periodic ten-year charges and exit charges on property leaving the trust.

Nil-rate band

The threshold below which no inheritance tax is charged on death; transfers above it are taxed at the death rate, subject to reliefs and exemptions.

Grossing up

A calculation used when a gift is free of tax: the tax is computed on the grossed-up amount so the beneficiary receives the stated net sum.

Settlor-interested trust

A trust where the settlor or their spouse retains an interest; income and gains may be taxed on the settlor rather than the trustees.

Transferable nil-rate band

A claim allowing the unused percentage of a deceased spouse's nil-rate band to be added to the survivor's estate on death.

Customer due diligence

Anti-money-laundering process of identifying clients, verifying identity, identifying beneficial owners and monitoring the relationship on an ongoing basis.

Conflict of interest

A situation where a practitioner's personal or other interest may compromise their duty to act in the client's best interests; must be avoided or managed.

Confidentiality duty

The obligation not to disclose client information except with consent, where required by law or court order, or as permitted by regulation.

Politically exposed person

An individual entrusted with prominent public functions, or their close associates, requiring enhanced due diligence due to higher money-laundering risk.

Capital and income

Trust accounting distinction: capital comprises original and realised capital assets; income comprises interest, dividends and rent distributable to income beneficiaries.

Double-entry bookkeeping

A system where every transaction is recorded with equal debits and credits, keeping the accounting equation balanced and enabling error detection.

Fair value

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

Distribution register

A record of trustee distributions showing recipient, date, amount and whether the payment came from income or capital.

Letter of wishes

A non-binding document expressing the settlor's preferences on how trustees should exercise discretionary powers, such as distributions among beneficiaries.

Suitability assessment

The process of matching a recommended structure or investment to the client's objectives, circumstances, tax position and risk tolerance.

Review trigger

An event prompting review of a trust or will, such as a change in tax law, family circumstances, residence or the value of trust assets.

Domicile

A legal concept linking a person to a jurisdiction; acquired by origin, dependency or choice, and requiring presence plus intention to remain permanently.

Double taxation treaty

An agreement allocating taxing rights between jurisdictions and providing relief, such as credits, to prevent the same income being taxed twice.

Common Reporting Standard

A global framework for automatic exchange of financial account information between tax authorities, requiring financial institutions to identify and report accounts.

Prudent investor rule

A standard requiring trustees to invest as a prudent person would, considering diversification, risk, return and the needs of the trust and beneficiaries.

Strategic asset allocation

The long-term target mix of asset classes chosen to meet the trust's return, risk and liquidity objectives, subject to periodic rebalancing.

Delegation of investment

Appointment of an investment manager by trustees where authorised, with trustees retaining duties to select, monitor and review the manager's performance.