WillsThe STEP Provisions – Key Provisions

The STEP Provisions are a highly useful document for will practitioners. Trustees and executors have many administrative powers under general law, but these are often considered as insufficient for them to properly manage a trust or administer an estate. It has therefore been common practice for many years for wills to give executors and trustees additional administrative powers.

The STEP Provisions are essentially a set of common administrative powers available to executors and trustees. Rather than these powers being listed in the will itself, the will includes a clause which incorporates the STEP Provisions. This ensures that the trustees have sufficient powers, but avoids the will becoming longwinded unnecessarily. The powers are available in a separate document when the trustees need to see them.

There are a number of key provisions which often should be highlighted to clients when incorporating the STEP Provisions into a will. This article will cover 3 of those provisions.

Provision 11 – Trustee Liability

A statutory duty of care is imposed on trustees by S1(1) Trustee Act 2000 to take care to avoid causing injury or loss. This duty of care requires a trustee to exercise such care and skill as is reasonable in the circumstances. The trustee must have regard:

1. To any specific knowledge or experience that the trustee has or holds themselves out as having; and
2. If that trustee acts in the course of a business or profession, to any specific knowledge or experience that it is reasonable to expect of a person acting in the course of that business or profession.

This duty of care can be modified and excluded where required with specific clauses in the will. The STEP Provisions at clause 11 does include terms that limit a trustee’s liability.

11.1: A lay trustee shall not be liable to loss to the trust fund unless loss is caused by their own fraud or negligence.

11.2: A lay trustee shall not be liable to loss to the trust fund unless loss is caused by their own fraud provided that they are acting alongside a non-lay trustee.

11.3 and 11.4: Ensure that a trustee will not be liable for acting in accordance with the advice of counsel of at least five years standing apart from in specific circumstances.

These provisions will ensure that lay trustees are not liable for breach of trust provided that they have acted honestly and with reasonable care. A lay trustee who makes an honest mistake or is slow to act will not be liable for any losses they cause provided that they are not negligent or acting fraudulently.

All WillPack partners are members of the Society of Will Writers and therefore need to adhere to their Code of Practice. Where a clause limiting the trustee’s liability is included, clause 6.5 of the Code of Practice requires that attention is drawn to this clause and that confirmation is given to the client in writing of the consequence of this clause.

Provision 8 – Conflicts of Interest

Under general law, a trustee cannot act where there is a personal conflict between their trustee duties and their personal interests. Given that it is very common for a person to appoint a beneficiary as a trustee, for example a testator appointing their children of a trustees of a discretionary trust in which they can benefit, this could put the trustees in a position of conflict.

Provision 8 includes specific conflict of interest provisions on how a trustee who has a conflict of interest can still act. These clauses allow a trustee who has a conflict to interest to enter into administrative matters in certain circumstances and also use their powers to benefit a trustee who is a beneficiary in certain circumstances.

Under provision 8, a trustee with a conflict of interest can enter into administrative matters if:

• The conflict is disclosed to the other trustees;
• There is an Independent Trustee who has no conflict of interest who considers it not contrary to the trust; and
• The trustee is not the settlor acting in connection with their powers as settlor.

An administrative matter could for example be where the trustees are selling the trust property, and the purchaser is one of the trustees in a personal capacity.

In addition to this, the trustees may use their powers to benefit a trustee who is also a beneficiary provided that either:

• The benefitting trustee was originally appointed in the trust document; or
• There is an Independent Trustee

So using the discretionary trust example previously, if we have a trust appointing two children as the trustees and themselves as beneficiaries, as the original appointed trustees they could benefit themselves.

The STEP Provisions include a definition of an Independent Trustee which is as follows:

‘Independent Trustee’, in relation to a Person, means a Trustee who is not:

(i) that Person;

(ii) a brother, sister, ancestor, descendant or dependant of the Person;

(iii) a spouse or Civil Partner of (i) or (ii) above; or

(iv) a company controlled by one or more Persons within (i) (ii) or (iii) above.

Provision 20 – Relationships unknown to Trustees

This provision provides that trustees may distribute a trust fund based on what information they actually know, even if there are other unknown beneficiaries who exist but whose relationship has not been disclosed to the trustees. This protects trustees where they have no knowledge of a beneficiary, or could not have become aware of, despite making reasonable enquiries. The trustees are not protected if they have knowledge of circumstance which call for enquiry.

This may happen where the will refers to a wide class of beneficiaries by their relationship to the testator. For example, if a will leaves a gift to ‘my grandchildren’ and there is an unknown grandchild from one of the testator’s children that none of the family are aware of. The executors even with reasonable enquiries wouldn’t be able to find existence of that grandchild and may be protected.

 

 

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