1. WHY MAKE A WILL?
The law governing succession and taxation seems to be surrounded by more than the average number of myths. Unfortunately, many people have died believing a myth and leaving a legacy of disaster. The law of intestacy (the situation in which a person dies without a Will) is governed by the Succession Act 1974 (the "Act"). The Act provides for the distribution of your assets on death when you have not made a Will in a manner that may or may not be acceptable to you. It is important to make a Will and then to review it regularly.
More recently, the Perpetuities and Accumulations Act 2009 (the "2009 Act") which came into operation on 1 August 2009 abolished the rule against perpetuities and excessive accumulations (previously being 100 years) in relation to instruments taking effect on or after 1 August 2009, except to the extent that the instrument or power of appointment relates to land in Bermuda. As a result, Wills executed prior to 1 August 2009 will not benefit from the 2009 Act, which is not retrospective. Therefore, it is advised that those individuals who have executed their Wills prior to 1 August 2009 re-execute their Wills in order to benefit from the 2009 Act or perhaps review their Wills to determine whether a testamentary dynastic trust is more appropriate to satisfy the testator's wishes.
2. THE COST OF MAKING A WILL
An estimate can generally be obtained in advance. However, if you come prepared to the meeting with your attorney, you can keep the costs down. One way to do this is by completing our Will Questionnaire before your meeting.
Your executors are your business managers after your death. They are responsible for applying for probate from the Court and distributing your estate in accordance with the directions laid out in your Will. They receive your assets and are responsible for seeing that your debts are paid out of those assets. Your executors normally also become your trustees if there is a trust in your Will, for example where you need someone to manage your assets until your children grow up. It is important to consider whether it is appropriate to designate alternate or co-executors. An executor can also be a benefiary under your Will. In some instances, it may be advantageous to use a corporate executor such as Appleby Services (Bermuda) Ltd.
You should consider your domicile (where you have your permanent home) and your nationality. If you have a foreign domicile or dual nationality, foreign taxes may have to be paid out of your estate. You should also consider where your assets are located. Some countries, e.g. the USA or UK, charge inheritance tax upon death which may be avoided if certain steps are taken while you are alive. Therefore, seek overseas tax advice from the outset, or have your lawyer assist in taking the advice. Remember to ask whether there are any forced heirship or community property laws which may affect your estate.
5. GUARDIANS FOR YOUR CHILDREN
Who is going to look after your children if you die while they are still under the age of 18? A direction in your Will naming guardians is legally binding under the provisions of section 11 of the Minors Act 1950 except against a surviving parent, if such parent objects to acting jointly with your appointee. Your guardians and your executors may be the same persons, although we usually recommend some separation of roles for the protection of both your children and your executors.
6. LEGAL OBLIGATIONS
The Court can make proper provision out of your estate for dependants, which includes your spouse, any former spouse, children and grandchildren should you not make adequate provision for them in your Will. Before making or reviewing your Will, we recommend that you draw up a list of those who depend on you to ensure, so far as possible, that you have made proper arrangements to support your dependants after your death.
7. EMERGENCY FUNDS FOR DEPENDENT BENEFICIARIES
Make sure that (if feasible) there is a fund to which any dependent beneficiary can have access in the event of your sudden death, e.g. life insurance (payable directly to the beneficiary) or a joint bank account.
8. WILL TRUSTS
If one of the intended beneficiaries of your Will has special needs, for example, is under a legal disability, or has a physical handicap, or a particular problem, e.g. as a result of divorce, alcoholism or drug abuse, you may need to consider structuring your Will in a special way by giving your assets to trustees rather than directly to the beneficiary under a disability. Furthermore, leaving assets to a trustee for minor beneficiaries is a responsible way of ensuring that minors' bequests will be handled by trustees of your choice and distributed in a manner and at a time of your choosing. If circumstances warrant, you can give your trustees discretion as to how beneficiaries may benefit. You can then record, in a non-binding letter of wishes, your views about the treatment of any beneficiary with such a special problem. This is called a discretionary Will trust and has the advantage of flexibility in difficult circumstances (for example, benefiting a second spouse as well as children from a first marriage).
9. FAMILY BUSINESS
Special consideration must be given to the succession of a family business. If you want your executors to continue to run a business, you must give special powers in your Will, particularly if there is to be an ongoing trust for any minors. Alternatively, if the business is to be sold by the executors, it may be appropriate to negotiate a buy/sell agreement with existing 'partners' or employees. Life insurance is often used as a funding mechanism in such arrangements.
10. INFORMATION FOR EXECUTORS AND FAMILY
Much time and money is often lost after a person's death by executors having to search for assets. It is advisable to prepare a list of your assets and place a copy of it with your Will. You should keep this accessible and updated at least annually. The list should include: (a) property owned jointly and where the deeds are located (b) property owned by trustees and where the deeds are located and (c) property you have given away during your lifetime.
11. EXERCISE YOUR OWN FREE WILL
Make sure when you execute your Will that you are exercising your own free will and not signing under pressure from any person.
12. BURIAL WISHES
You may have special burial wishes or wishes concerning the donation of your organs to science or for beneficial purposes. These may be included in your Will. However, it is best to have communicated your wishes directly to your executors and family members to ensure that your wishes are immediately known. In practice, your Will may not be read until at least several days after your death.
After your death, your original Will will be submitted to the Supreme Court in order to obtain Probate. Once the Will has been probated it becomes a public document forever open to public inspection. It is, therefore, very important to consider carefully what you say in your Will.
The legal requirements for signing a Will are strictly defined and cannot be deviated from in any circumstances. It is important to ensure that you fully understand your Will and for you to sign it in the presence of two independent witnesses who are not receiving any benefit under your Will. The witnesses will then sign their names and acknowledge that they saw you sign. It is highly recommended that your Will only be signed under the supervision of your attorney.
Review your Will on a regular basis. When doing so, bear in mind changes in circumstances, i.e. births, deaths, inheritances, divorces, gifts, the transfer of assets to family or trusts, changes in domicile, nationality or government policies. Marriage automatically revokes a Will, unless you have signed a Will made in contemplation of a particular marriage. You will, therefore, need to make a new Will just before, or just after, getting married. Your Will is not revoked by a divorce but any appointment of your former spouse as executor or trustee of your Will and any property or interest left to your former spouse under your Will, will be treated as if your former spouse had died before you. Furthermore, if you have appointed your spouse to be the guardian of your children in your Will, this appointment will be revoked on divorce or annulment of the marriage, unless your former spouse is also the parent (whether naturally or by adoption) of your children.
16. LIVING WILL
If you do not wish to be kept alive by artificial means, then it is best to execute a "Living Will" or Health Care Directive giving directions to your family doctor and the hospital. Living Wills are not given statutory effect but they are recognized by the courts and should be used if you have strong views regarding actions to be taken in relation to your health and medical care. A Living Will is a very important guide to your family and doctor. The Living Will may appoint a health care proxy and tells your doctors from whom they are to seek directions concerning decisions of medical intervention and care. Ensure that your family members, family doctor and the hospital are aware of the existence of the Living Will and the location of the original. They may need it in the event of treatment abroad as a Living Will is legally recognised in most other countries particularly in North America and in the UK. It is important to prepare and sign an updated Living Will frequently, as some foreign states or countries only recognise a Living Will which is less than say a year old.
17. ILLNESS/ENDURING POWER OF ATTORNEY
It is possible to execute an Enduring Power of Attorney in addition to your Will to cover the situation where you become physically or mentally incapable of managing your financial affairs. You may appoint a trusted friend or relative to make and execute decisions for you, while you are indisposed. It may be revoked in the event that you regain capacity. An Enduring Power of Attorney does not affect the provisions of your Will. Should you become incapacitated without having executed an Enduring Power of Attorney, your next of kin would have to be appointed your Receiver by the Court under the Mental Health Act 1968. Under a receivership order, accounts must be filed with the Registrar of the Supreme Court on an annual basis. An Enduring Power of Attorney is quicker, less expensive method, maintains privacy, is more convenient and less stressful for the family. It is also a more secure arrangement than the holding of a joint bank account where abuse may go undetected or where the terms of your Will may not be carried out with respect to the assets in a joint bank account.
18. FOREIGN TAX CONSIDERATIONS
If you or any family member has dual nationality or if you have foreign assets or spend a significant amount of time in a foreign country, it is vital to get appropriate tax advice as some countries' tax legislation can have far-reaching effects.
When making your Will, think about:
- Assets (whether they are owned solely or jointly), gifts in your lifetime and debts owed to you
- Guardians for children, special provisions for children and emergency funds for dependent beneficiaries and persons to whom you have legal obligations
- Burial wishes and donation of organs
- A Living Will
- An Enduring Power of Attorney
- Tax considerations where there are assets outside of Bermuda
- Stamp duty
- Succession of a family business
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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.