STEP Client Advisory & Consultation 3 — Questions and Answers
Question 1: A client with assets in multiple jurisdictions asks about the most appropriate trust situs. Which factor typically carries the MOST weight in this determination?
- The jurisdiction where the trustee is located
- A combination of legal environment, tax treatment, and the trust's purpose and beneficiary locations (Correct answer)
- The currency in which assets are denominated
- The nationality of the settlor's parents
Correct answer: A combination of legal environment, tax treatment, and the trust's purpose and beneficiary locations
Situs selection requires holistic analysis of legal framework, tax efficiency, political stability, and alignment with the trust's objectives and stakeholders.
Question 2: A client requests advice on using a Qualifying Domestic Trust (QDOT) in their estate plan. This structure is most relevant when:
- The client wants to minimize income tax on trust distributions
- The surviving spouse is not a U.S. citizen and the couple wants to defer estate tax (Correct answer)
- The client wishes to benefit a domestic charity
- The trust assets consist primarily of real property
Correct answer: The surviving spouse is not a U.S. citizen and the couple wants to defer estate tax
A QDOT allows a non-U.S. citizen surviving spouse to benefit from the estate tax marital deduction by deferring estate tax until distributions or death.
Question 3: When should a practitioner recommend reviewing or updating an existing estate plan?
- Only when the client requests a review
- Only when tax laws change
- Following major life events such as marriage, divorce, birth of a child, or significant asset changes (Correct answer)
- Every ten years as a standard interval
Correct answer: Following major life events such as marriage, divorce, birth of a child, or significant asset changes
Estate plans should be reviewed after major life events that may affect the client's objectives, family structure, or asset base.
Question 4: A practitioner suspects that a client is being financially exploited by a family member who accompanies them to every meeting and answers questions on the client's behalf. What is the best response?
- Accept the family member's answers as they have the client's best interests in mind
- Insist on meeting with the client alone to assess their instructions and capacity independently (Correct answer)
- Refuse to continue acting for the client
- Ask the family member to provide written authority to speak on the client's behalf
Correct answer: Insist on meeting with the client alone to assess their instructions and capacity independently
Best practice requires meeting privately with vulnerable clients to assess undue influence and ensure instructions genuinely reflect the client's own wishes.
Question 5: Which of the following BEST describes the 'know your client' (KYC) obligation in a trust and estate context?
- Verifying only the client's identity for anti-money laundering purposes
- Understanding the client's full financial picture, family structure, objectives, and risk tolerance (Correct answer)
- Confirming the client's legal capacity to enter into a retainer
- Checking whether the client has prior litigation history
Correct answer: Understanding the client's full financial picture, family structure, objectives, and risk tolerance
KYC in estate planning encompasses AML identity checks plus a comprehensive understanding of financial circumstances, family dynamics, and planning goals.
Question 6: A client wants to leave the bulk of their estate to a domestic partner rather than their adult children. The children are financially independent. What should the practitioner's primary focus be?
- Discouraging the client from this distribution to avoid future disputes
- Ensuring the client has testamentary capacity and their wishes are clearly documented and legally effective (Correct answer)
- Advising the children of their potential claim before the will is executed
- Requiring the client to obtain independent legal advice before proceeding
Correct answer: Ensuring the client has testamentary capacity and their wishes are clearly documented and legally effective
Practitioners must respect client autonomy and focus on ensuring testamentary capacity is documented and the plan is legally robust.
Question 7: In a cross-border estate involving US and UK assets, the practitioner advises the client that the US estate tax exemption and UK inheritance tax nil-rate band operate:
- As a combined single exemption available in both jurisdictions
- Independently in each jurisdiction, and the client may be subject to tax in both (Correct answer)
- As offsetting credits so no double taxation ever arises
- Only for citizens and not for domiciled non-citizens
Correct answer: Independently in each jurisdiction, and the client may be subject to tax in both
The US estate tax and UK IHT are separate regimes; a double tax treaty may provide relief but each country applies its own exemptions independently.
STEP Client Advisory & Consultation 3
A client with assets in multiple jurisdictions asks about the most appropriate trust situs.
Which factor typically carries the MOST weight in this determination?