STEP Documentation & Legal Requirements 3

Question 1

A trustee seeking to avoid personal liability for trust contracts should ensure that all contracts are signed in what manner?

Accepted Answer

As 'John Smith, Trustee of the ABC Trust' or similar fiduciary capacity notation

Answer

Signing in a fiduciary capacity (e.g., 'as Trustee') clearly identifies that the obligation belongs to the trust, not the individual, protecting the trustee from personal liability.

Question 2

Under the Hague Convention on the Law Applicable to Trusts and on their Recognition, which document is critical for establishing that a trust is recognized internationally?

Accepted Answer

A notarized copy of the trust deed with an apostille

Answer

For international recognition under the Hague Convention, a notarized trust deed with an apostille is the standard method of authenticating the document for use in signatory countries.

Question 3

Which type of documentation is specifically required when a trustee wishes to delegate investment functions to an external investment manager under the Uniform Prudent Investor Act?

Accepted Answer

A written delegation agreement specifying scope, terms, and standards

Answer

UPIA requires a written delegation agreement that covers the scope of authority, investment standards, and terms of the agent's compensation before investment functions can be delegated.

Question 4

When documenting a charitable remainder trust (CRT), which IRS requirement must be included in the trust instrument itself to maintain tax-exempt status?

Accepted Answer

A specific payout rate and term meeting IRC §664 requirements stated in the document

Answer

IRC §664 requires that the CRT instrument itself specify the payout percentage (at least 5%, no more than 50%) and term (fixed years up to 20 or life) to qualify for tax benefits.

Question 5

What documentation is required when a U.S. person receives a gift or bequest from a foreign person exceeding $100,000 in a tax year?

Accepted Answer

Form 3520, Annual Return to Report Transactions with Foreign Trusts

Answer

Form 3520 must be filed by U.S. persons who receive gifts or bequests from foreign persons exceeding $100,000, or who have transactions with foreign trusts.

(STEP) Society of Trust and Estate Practitioners Certification Practice Test

(STEP) Society of Trust and Estate Practitioners Certification Practice Test

STEP Documentation & Legal Requirements 3