Step provisions – What, when and why?

No doubt you will have noticed over the past few months that the third version of the Society of Trust and Estate Practitioner (STEP) provisions have now been released.

This article aims to look at what the STEP provisions are, when they can be used, and an overview of the changes brought about by the third edition.

What are STEP provisions?

The first set of STEP provisions were published in 1992 as a means of incorporating additional administrative provisions into a Will or trust document without having to expressly list all of the provisions in the Will or trust document itself. The provisions include technical powers and terms that assist the Personal Representatives (or Trustees) with administering the estate (or trust). They can be incorporated by expressly saying which provisions apply (e.g. standard and/or special) in the Will or trust deed.

The first set of provisions are seven pages long and include just standard provisions. The second and third editions include standard and special provisions, with the option to include one or both set of provisions depending on what the drafter thinks best suits their client's needs.

The second edition was published in 2011, updating the original provisions in line with industry and legislative changes. The third edition was published in November 2023.

Drafters can use any version of the provisions that they feel are the most appropriate, however it is anticipated that the third edition will become the standard provisions in line with them being updated to reflect the current legal position.

In the event of a conflict of provisions, the terms of the document take priority over the STEP provisions.

Main provisions to be aware of

Whilst this article doesn't aim to list every change made by the third edition of the provisions, the main points that you may wish to be aware of are summarised below:

(Provision 5 in version 2) – Powers of Maintenance and Advancement– The Inheritance and Trustee Powers Act 2014 amended the position in law and it is not necessary to have this provision anymore.

4.15 – Appropriation of assets – the previous version referred to assets at the value at the date of death, which has now been altered to the value at the date of appropriation.

4.16 – Charitable receipt clause – this has been widened so that bodies like charitable incorporated organisations are included.

5 – Payment of funds when the beneficiary is a minor or a person without capacity – who can give receipt has now been listed as a standard provision (previously a special provision in the second edition). This is in line with s.3(3) Children Act 1989 as this states that for minors the person with parental responsibility can give a good receipt to the Personal Representative. In the absence of an appointed Attorney or Deputy, the trustees can apply income or capital for the benefit of a beneficiary who lacks mental capacity.

8.4.2 – If a Trustee is named as a beneficiary in the original document and there is an independent Trustee appointed also (who doesn’t have a conflict of interest), the beneficiary Trustee can now benefit from the trust.

10 – Trust Corporations – the wording on charges by a professional Trustee or Trust Corporation has been updated to reflect the wording of their standard terms and conditions from “time to time”. Previously a trust corporation could only charge in accordance with the terms and conditions in place at the date of the Will or trust document.

11 – Apportionment– includes changes from s.1 Trusts (Capital and Income) Act 2013 so that all income is treated as arising when it is paid.

15 – Powers in relation to companies now include the power to start up or promote companies, including entering into any agreements in relation to the winding up or liquidation of a company in which trust property is invested.

16 – Trust income to a beneficiary – where s.31 Trustee Act 1925 applies, the age of entitlement has been increased from 18 to 25. Special consideration will need to be given to whether the residential nil rate band allowance, if appropriate, can be applied to any inheritance tax calculations in these circumstances.

18 – Now defines when a Trustee lacks capacity, such as if a Deputy is appointed to manage their financial affairs or if a medical report is obtained to confirm they can no longer act.

Please contact our Charity Probate team if you would like any further information about the STEP provisions or any other provisions set out in wills which your charity may wish clarity on.

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