The importance of making a Will is made clear in the case of "Maurice", whose failure to do so frustrated his own wishes – and left his widow with an unwanted, and unnecessary, stamp duty expense.
When Maurice died, he left a wife, Mary, and three adult children. Maurice was not a wealthy man, but he and his wife were able to acquire a beautiful family home during his lifetime and he was also fortunate enough to inherit a small cottage from his aunt.
Maurice thought he was on the right track when he obtained a Primary Family Homestead Certificate for the home he and his wife resided in. However, Mary would always tell him that obtaining such a certificate was not enough and that he should make a Will to be on the safe side. But stubborn Maurice would always say "Why should I make a Will, everything is going to go to you anyway."
Sadly, Maurice was wrong and he unwittingly left Mary with an utter headache. She discovered that, although her name was on the property deeds for the home they resided in, the property which Maurice inherited from his aunt was in his sole name as were a few other assets that required a Grant of Representation in order for the assets to be transferred out of his name.
She also found out that, because he died without executing a Will, she would have to share Maurice's estate with their children. This was most upsetting to her as she had not spoken to one of her children for more than five years. Mary would also have to pay a certain amount of stamp duty.
Had Maurice prepared a valid Will leaving his entire estate to his wife, she would not have had to pay any stamp duty on his estate (under the current law) as it would have benefited from the spousal exemption provided for under the Bermuda Stamp Duties Act 1976. Maurice could have also designated the cottage, instead of the family home, as his primary family homestead as the latter was owned jointly with his wife and would have benefitted from the spousal exemption in any event.
Had he made a Will, neither would Mary be sharing his estate with the children. Instead, the distribution of Maurice's estate was dictated by the Bermuda Succession Act 1974. This can be extremely burdensome and disappointing for the estate representatives and the beneficiaries involved if it was the intention of the deceased that certain individuals should not benefit from their estate. This was the case in our example – Maurice had said on many occasions that Mary was to inherit everything, but instead she had to share her husband's estate with their children.
Where an estate requires a Grant of Representation ("Grant"), the estate representatives must file an application to the Supreme Court, together with a supporting Affidavit of Value and Oath setting out the value of the deceased's entire estate.
An Affidavit of Value typically includes Bermuda real properties and bank accounts, among other assets. It also sets out all of the deceased's debts and liabilities which were outstanding at the date of death. There are also exemptions and deductions that are provided for, such as gifts to spouses and Bermuda charities and foreign real and personal property. Further deductions include the deceased's funeral expenses, the value of the property designated as the primary family homestead and the reasonable expenses in valuing the property of the deceased for estate purposes.
For persons dying after 1 April 2010, stamp duty rates are on a sliding scale as follows:
- The first $100,000 is nil and free of stamp duty;
- The next $100,000 is at five per cent;
- The next $800,000.00 is at ten per cent;
- The next $1,000,000.00 is at 15 per cent; and
- Anything thereafter is at 20 per cent.
Once the estate has been provided with the Grant, the estate representatives have three months from the date the Grant was issued to pay the stamp duty to the Tax Commissioner.
Unfortunately, it is a common occurrence in local estate matters for a deceased to be property rich but cash poor. As a result, the estate representatives often find that there is not enough available cash to pay the stamp duty. Normally, an asset of the deceased, typically the real property, is sold to pay the stamp duty -- or one or all of the beneficiaries pay the stamp duty in order to benefit from the gifts in the estate.
To avoid the issues faced by Maurice's widow, Mary, it is advisable to put in place an effective estate plan to ensure that the administration of your estate is an easy process not only for the estate representatives, but also for the individuals who are to benefit from your estate. Of course, proper advice should always be taken from a lawyer who is an expert in the field.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.