STEP Diploma key terms

The person who creates a trust by transferring assets to trustees on stated terms. Also called grantor or trustor. The settlor's intentions, evidenced in the trust instrument, govern how the trust is administered.

A trust deliberately created by a settlor, either during life (inter vivos) or on death by will, with terms stated in a written instrument. Contrasted with trusts arising by operation of law.

A trust arising by operation of law where beneficial ownership reverts to the settlor or their estate, typically because an express trust failed or was incompletely disposed of. It is not created deliberately.

A remedy imposed by law, not intention, compelling a person holding property in unconscionable circumstances to hold it for another. Often used to recover assets obtained by fraud or breach of fiduciary duty.

The requirements for a valid express trust: certainty of intention (the settlor meant to create a trust), certainty of subject matter (the trust property is identifiable) and certainty of objects (the beneficiaries are ascertainable).

A person or class of persons entitled to the benefit of trust property or income under the trust terms. Beneficiaries hold equitable interests and may enforce the trust against the trustees.

The person or entity holding legal title to trust property and administering it for the beneficiaries in accordance with the trust instrument and the general law. Trustees owe fiduciary and statutory duties.

A duty of loyalty and good faith requiring a person acting for another to put that other's interests first, avoid conflicts of interest, and not profit from the position without authorisation. Trustees are core fiduciaries.

The written document setting out the terms of a trust, including the parties, trust property, beneficiaries, powers and administrative provisions. It is the primary source of the trustees' authority.

A trust in which trustees have discretion over which beneficiaries within a defined class receive distributions and in what amounts. No beneficiary has a fixed entitlement until the trustees exercise discretion.

A trust giving a named beneficiary (the life tenant) the right to income or use of trust assets for life, with the capital passing to other beneficiaries (remaindermen) afterwards. Also called an interest in possession trust.

The beneficiary entitled to trust capital once a prior interest, such as a life interest, ends. The remainderman's interest is vested but postponed in enjoyment until the prior interest determines.

An informal, non-binding document in which a settlor records guidance for trustees on how discretionary powers should be exercised. It informs but does not legally compel the trustees' decisions.

The position where a person dies without a valid will, so that statute determines who inherits the estate and in what shares. Intestacy rules vary by jurisdiction and depend on surviving relatives.

A court-issued document confirming the validity of a will and authorising the named executors to administer the deceased's estate. It is evidence of authority to deal with estate assets.

The grant issued where there is no valid will, or no willing executor, appointing an administrator to collect and distribute the deceased's estate under intestacy or statutory rules.

A person named in a will to carry out its terms: gathering assets, paying debts and taxes, and distributing the residue to beneficiaries. Executors owe fiduciary duties similar to trustees.

The total property, rights and liabilities of a deceased person that pass to personal representatives for administration. It includes assets passing under the will or intestacy, subject to debts and taxes.

The formal legal process of proving a will and confirming the personal representatives' authority to administer the estate. Probate also refers to the court procedure validating testamentary documents.

What remains of an estate after specific gifts, debts, expenses and taxes have been paid. The residue passes to the residuary beneficiaries named in the will or, on intestacy, under statute.

A gift in a will of a particular identified asset, such as a named painting or a stated sum of shares. It is distinguished from a general legacy of money or a share of the residue.

A tax levied on the transfer of wealth on death and on certain lifetime transfers, commonly charged on the value of an estate above a statutory threshold. Rates and reliefs vary by jurisdiction.

The threshold below which an estate or lifetime transfer bears no inheritance tax. Transfers above it are taxed at the applicable rate, subject to reliefs and the transferable band between spouses.

A transfer of value that falls within the inheritance tax regime, whether made during life or on death. Lifetime transfers may be immediately chargeable or potentially exempt depending on the rules.

A lifetime gift that escapes inheritance tax if the donor survives a set period, often seven years. If the donor dies within that period, the gift is brought into the tax calculation.

A tax on the gain realised when an asset is disposed of for more than its acquisition cost. Trusts and estates may be chargeable persons, with reliefs and annual exemptions applying.

The legal and regulatory regime requiring trust and estate practitioners to identify clients, verify beneficial ownership, monitor transactions and report suspicious activity to the authorities.

The due diligence process of identifying a client and verifying their identity, source of funds and beneficial ownership before accepting an engagement. It underpins anti-money laundering compliance.

Situations where a practitioner's personal, financial or related-party interest could improperly influence their professional judgment. They must be identified, disclosed and managed or avoided.

A transaction in which a trustee or fiduciary deals with trust property for their own benefit, such as buying trust assets personally. It is generally prohibited unless expressly authorised.

A statutory record identifying the individuals who ultimately own or control a company, trust or other entity. Registers support transparency and are used in anti-money laundering and tax compliance.

The financial records showing trust assets, liabilities, income and distributions, kept separately from the trustee's own funds. They must be accurate, complete and available for inspection by beneficiaries.

The reporting of receipts, disbursements and distributions in a way that distinguishes income from capital and demonstrates stewardship of trust or estate assets to beneficiaries and courts.

The allocation of receipts and expenses between income beneficiaries and capital beneficiaries, often governed by statute or the trust instrument. It determines who bears a particular cost or gains a receipt.

A standard requiring trustees to invest as a prudent investor would, considering the portfolio as a whole, diversification, risk and the trust's purposes rather than isolated investments.

Spreading trust investments across asset classes, sectors and geographies to reduce unsystematic risk. Trustees are generally expected to diversify unless the trust terms or circumstances justify otherwise.

A bilateral agreement allocating taxing rights between countries to prevent the same income or gain being taxed twice. Trusts and estates with cross-border assets rely on such treaties.

The status determining which country may tax a person or entity on worldwide income or gains. For trusts, residence may attach to the trustee, the trust itself or the settlor under different rules.