Estate planning during coronavirus
07 April 2020
12 May 2020
Here we look at estate planning during the time of the coronavirus outbreak.
The planned topic for this month's article was the use of complex inheritance tax (IHT) avoidance schemes, especially given the fact that, despite several threats to reform inheritance tax or at least abolish some of the IHT reliefs, not a word was said about IHT or trusts in the 11 March Budget. However, everything has changed since the pandemic, and in particular the lockdown, and there are more pressing issues to deal with right now.
Life goes on during this time of coronavirus crisis, and given that we don’t know how long it will last, not only is there no reason for people not to continue with sorting our their personal and financial affairs, there is in fact evidence that many more people are contacting professional advisers about drafting wills and executing powers of attorney. Many others will also want to put in place their plans for orderly estate planning which may well involve creating a trust and /or making gifts to trusts.
Unfortunately, things may get complicated when the individual in question is either in self-isolation or has to practice social distancing.
The general recommendation is that clients should be given the option of meeting via telephone or videoconferencing such as Skype. This method can easily be adopted to a discussion with the client, including making an appropriate recommendation. If a trust or a will is recommended, a suitable draft can be discussed and prepared as well. Unfortunately, when it comes to the execution of the relevant document, there may be difficulties, although plans are being made to simplify matters.
Let’s start with wills.
Requirements for a valid will
In England and Wales section 9 of the Wills Act 1837 (the 1837 Act), so far as material, provides:
‘No will shall be valid unless –
(a) it is in writing, and signed by the testator, or by some other person in his presence and by his direction; and
(b) it appears that the testator intended by his signature to give effect to the will; and
(c) the signature is made or acknowledged by the testator in the presence of two or more witnesses present at the same time; and
(d) each witness either—(i) attests and signs the will; or (ii) acknowledges his signature, in the presence of the testator (but not necessarily in the presence of any other witness), but no form of attestation shall be necessary.’
In Northern Ireland equivalent provisions apply under the Wills and Administration Proceedings (Northern Ireland) Order 1994.
Clearly, attestation by two witnesses present at the same time, while maintaining personal separation, is a particular difficulty, especially if the testator is in isolation and unable to ask independent witnesses into the room.
Witnessing a will from the next room or through a window might be challenged as not being formally in the testator's presence, although some very old case law (Casson v Dade 1781) suggests it may be sufficient to have two witnesses who are in line of sight though not in the same room.
The Requirements of Writing (Scotland) Act 1995 provides for the requirements for a will to be formally valid, i.e. self-proving. If a will is self-proving, there is no need to go to court to prove it is the person’s will it claims to be. The requirements are as follows:
- The will must be signed by the testator at the end.
- The testator must also sign each separate sheet (if there are multiple pages).
- The will must be witnessed by at least one other person. This person must know the person making the will, be over 16 years of age and be of a sound mind.
- The will must either be signed in the presence of the witness or the signature acknowledged by witness.
- The document must provide the name and address of the witness.
If a will is not self-proving, it may still be valid (e.g. if it is in writing and signed by the testator but not witnessed) but it will need to be proven (by affidavit evidence) in the court during the confirmation process that the testator did sign the document and had capacity and testamentary intention.
So, in Scotland the requirements for a valid will are less onerous (one witness instead of two) than in England, Wales and Northern Ireland. However, it is still not possible to make an electronic will and video wills are not acceptable either (yet). However, video witnessing may now be possible - see below.
In the case of deeds, in England we have the requirements of the Law of Property (Miscellaneous Provisions ) Act 1989 which also require a witness to be present during execution.
The Law Commission, in its Report published last September, stated that their “view is that the requirement under the current law is that a deed which must be signed "in the presence of a witness" requires the physical presence of that witness”. This therefore would eliminate, for the time being at least, witnessing by video-links, something that had been considered during the consultation.
This view has now been followed by the First-tier Tribunal in Man Ching Yuen v Landy Chet Kin Wong ( FTT (Property Chamber) 2020 ref. 2016/1089).
The case involved an allegation that a transfer of property had been forged; alternatively, that the transfer was not validly executed.
The signing of the transfer deed took place in Hong Kong, in a meeting between the applicant and respondent. The respondent’s solicitor, based in the UK, joined the meeting by Skype. She had taken steps to verify the applicant’s identity before he signed the transfer and viewed the signing remotely. When the transfer had been posted to her in the UK, the solicitor then added her own signature and details to attest the signature.
Although the applicant’s claim failed on other grounds, the Tribunal judge held that there was an arguable case that the transfer had not been validly executed. In the absence of judicial authority, the tribunal judge decided that, given the views expressed by the Law Commission, the courts might conclude that a deed was not validly executed where the witness viewed the signature remotely.
Interestingly, the later addition of the witness’s signature was not a reason for holding that the deed was invalidly executed. In another recent case the court had held that the witness could witness the signature (whilst physically present) and then add their own signature later.
None of the above helps us with cases where clients self-isolate as even if witness does not immediately attest, he needs to be present.
In Scotland the 1995 Act also applies to documents other than wills and it prescribes certain formalities depending on the nature of the document. This is largely beyond the scope of this Article. However, it is important to state that as far as Scottish trusts are concerned, what is more important than the form of the document creating the trust is the requirement for delivery (or an equivalent act such as intimation) of the trust property to the trustees which, in practice, requires an appointment of at least one additional trustee.
Typically, a trust in Scotland would be set up using a form of deed with the settlor and the trustees signing the document and their signatures being witnessed. This is because under the above-mentioned 1995 Act, a deed is self-proving if it is subscribed by a granter and also a witness and details of the name and address of the witness are added to the deed. But, as with wills, if a Scottish deed is not self-proving, it does not necessarily mean that it is invalid, just that it may have to be proven by other means.
Where there are two or more parties to a deed, it can be executed in counterparts which allows each party to execute separately (a copy of an identical document). However, this does not resolve the problem of witnesses. This applies in England as well as in Scotland.
An electronic solution?
The Government recently confirmed its position on electronic signatures being in line with the Law Commission’s recommendations. The position is that electronic signatures are perfectly acceptable in most commercial transactions but not yet in wills. Deeds may be executed electronically provided the formalities relating to their execution are satisfied. This would be the case if a secure system using an “advanced” or “qualified” electronic signature is used (such as Docusign). But even using this system the presence of a witness is needed.
Both wills and deeds are now subject to a separate consultation with a view to clarifying and simplifying the position, but such projects usually take time.
As far as trusts are concerned, whilst in England there are no special legal formalities to satisfy in order to make a trust (other than for trusts of land or equitable interests), most trusts will be set up by means of a trust deed, with the usual formalities having to be complied with. It should be remembered though that trusts of life assurance policies may be created by means of a trust request, if done at the time the policy is applied for, which does not involve a deed, so no witnesses should be necessary. Indeed, most life assurance providers who offer so-called "online trusts" allow for trusts of new protection policies to be set up without the need for witnesses, and indeed in the case of some trusts, even without the need for the settlor's signature.
Many providers of draft trusts are actively looking for ways to simplify the process of executing documents, whilst ensuring their legality.
Addressing immediate concerns
Given the extraordinary situation in which we find ourselves and the real need to address the issue, professional bodies, such as the Law Societies, have already either issued guidelines or are in discussions with government about how to deal with this problem.
The Law Society and the Ministry of Justice are discussing ways to deformalise the signing of wills and to make it quicker to register lasting powers of attorney.
Solicitors for the Elderly and STEP are also asking for temporary legislative measures to help them deal with the current problems, both on wills and other instruments such as powers of attorney. These involve reducing the number of witnesses and other solutions such as video witnessing.
Among the options for wills are an Australian-style approach which would give judges more flexibility when deciding what constitutes a will; a European-style system where testators could write wills by hand without witnesses; and a process where wills could be witnessed electronically.
A suggestion has also been made that legislation could be introduced that mirrors the process of will making for those in the armed forces under section 11 of the Wills Act 1837 which allows for members of the armed forces to draw up a will quickly when they do not have the time, resources or capability to comply with the formalities that are otherwise needed. They are able to make either a written or an oral will and, if written, there is no requirement for witnesses to its execution.
On 25 March the Law Society of Scotland issued temporary practical guidance on the preparation and signing of wills in Scotland taking account of suggestions that instructions can be taken over a video conference call.
While the guidance states that the identity checks, assessments of capacity and checks for undue influence cannot be taken solely over the telephone, it suggests that a will can also be witnessed by the solicitor using video technology, with suitable protections.
The solicitor should witness the client signing each page, or have someone else on the video call do so. The client should then post the paper back to the solicitor witness, who should sign it as soon as it reaches them. The video conference recording should be kept in case the will is later challenged. If this process is followed, the client will have signed a fully valid will.
The guidance also confirms that if a video link cannot be set up, and witnesses cannot be physically present, then the client can be told that their signature alone at the end of the will is effective to make a valid will under Scots law, although not self-proving (see above).
The speed of reaction from the professional bodies is most welcome and let's hope that the Government responds equally speedily and sensibly, maybe even by the time this article reaches you, so watch for updates.
However, until a decision is made, if people sign wills without witnesses (electronic witness in Scotland) , or using videoconferencing or any other variations, then they risk the will being invalid or ineffective. And we have yet to see any proposals on how to deal with the witnessing of other documents, such as deeds.
Read more in part 2 of Estate planning during coronavirus here
This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), the CII group, local institute or Society, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the CII group, local institutes, or Societies.