STEP Practice Test Video Answers

1. D
The three certainties required for a valid express trust are certainty of intention, certainty of subject matter, and certainty of objects. Certainty of duration is not required for validity, although trusts may be subject to perpetuity rules in some jurisdictions.

2. C
When a settlor retains the power to revoke a trust, there is no effective transfer for inheritance tax purposes. Under the reservation of benefit rules, the assets remain part of the settlor’s estate because they retain control or enjoyment of the property.

3. B
The rule in Saunders v Vautier allows beneficiaries who are all sui juris and absolutely entitled to the trust property to terminate the trust and demand distribution of the assets.

4. B
The duty of impartiality requires trustees to balance fairly between different classes of beneficiaries, such as income and capital beneficiaries. Trustees may not favor one class unless authorized by the trust instrument.

5. B
Discretionary trusts are subject to a ten-year anniversary charge for inheritance tax purposes. The charge is calculated at up to 6% of the value exceeding the nil rate band, regardless of whether distributions have occurred.

6. B
Professional trustees are held to a higher standard of care under the Trustee Act 2000. They must exercise reasonable care and skill in light of any special knowledge or experience they claim to possess.

7. C
The Variation of Trusts Act 1958 allows courts to approve trust variations for beneficiaries who cannot consent, but not where the sole purpose is to defeat the settlor’s intentions without benefit to the beneficiaries.

8. B
Trust and company service providers must comply with money laundering regulations, conduct due diligence, and submit Suspicious Activity Reports to the National Crime Agency. They are supervised by HMRC.

9. B
A protector oversees trustees and may have powers such as appointing or removing trustees or vetoing certain decisions. Protectors do not normally receive trust benefits to avoid conflicts of interest.

10. B
Business Property Relief at 100% may apply to shares in unquoted trading companies. Other reliefs listed apply to different assets or taxes.

11. B
Under English law, the term “children” includes biological and legally adopted children only. Stepchildren are excluded unless expressly included in the will.

12. A
A Benjamin Order allows personal representatives to distribute an estate on the assumption that a missing beneficiary has died, protecting the representatives from liability.

13. B
Discretionary trusts are classified as relevant property trusts for inheritance tax purposes and are subject to entry, ten-year, and exit charges.

14. B
Section 27 of the Trustee Act 1925 allows personal representatives to advertise for creditors and beneficiaries, limiting liability once the notice period has expired.

15. B
A general power of appointment allows appointment to anyone, including the donee. Special powers restrict appointment to a defined class, while hybrid powers exclude certain persons.

16. D
Jersey abolished the rule against perpetuities for trusts created after 2006, allowing trusts to exist indefinitely.

17. B
Beneficiaries with vested interests are entitled to trust information and accounts. Discretionary beneficiaries have more limited rights, as confirmed in Schmidt v Rosewood.

18. B
Succession to immovable property is governed by the law of the place where the property is located. French law therefore applies to French real estate.

19. B
The spouse exemption is unlimited only where both spouses are UK domiciled. If the surviving spouse is non-UK domiciled, the exemption is capped at the nil rate band.

20. A
A QTIP trust requires the surviving spouse to receive all income for life. The absence of a general power of appointment is essential to its classification.

21. B
The no-conflict rule prevents trustees from placing themselves in positions where personal interests conflict with their fiduciary duties unless authorized.

22. B
A Lasting Power of Attorney for Property and Financial Affairs must be registered before use and may be used while the donor has capacity unless restricted.

23. B
The Trusts (Capital and Income) Act 2013 allows trustees to adopt total return investment only where properly authorized, not automatically.

24. B
A Family Investment Company allows wealth transfer while retaining control through share structure, but it does not qualify for Business Property Relief.

25. B
Under the Common Reporting Standard, financial institutions report account information to local tax authorities for automatic exchange with relevant jurisdictions.

26. C
A deed of variation made within two years of death and complying with IHTA 1984 s.142 is treated as if made by the deceased for inheritance tax purposes.

27. B
When an express trust fails, a resulting trust arises in favor of the settlor or their estate, reflecting the presumption that the trustees were not intended to benefit.