Plan to avoid a ‘will’-ful mess
PUTTING your affairs in order, more commonly known as estate planning, is a crucial step in ensuring that your assets are distributed according to your wishes, and not left to chance with potentially devastating legal consequences. According to attorney-at-law Bruce Levy, estate planning before the inevitable will ensure that the assets of an estate are distributed with minimum fuss and delay.
“Of course the good news is that you will not be around to deal with the consequences of failing to do so. Even better news is that you will not be able to blame your lawyers,” he said humorously to a room of sterling asset investor clients during an estate planning seminar at Jamaica Pegasus Hotel in St Andrew.
In a presentation meant to give exposure to the considerations, both legal and practical, that go into the estate planning process, he started by giving a few real-life examples where wills were created with good intentions but not done properly, resulting in the opposite effect of what was meant to happen, unbeknownst to the person who died.
“Wills allow you to decide how your assets are to be distributed, and it is a simpler and faster process. If you don’t leave a will, or aspects of your will are not covered by a will, you’ll end up with an intestacy situation, or a partial intestacy situation,” he said, emphasising a will’s importance.
An intestacy situation arises when an individual dies without a will, in which case the Intestates, Estates, and Property Charges Act will apply — this sets out how the assets of the estate are to be divided among your next of kin. In the event of intestacy the distribution of assets follows a specific hierarchy. The surviving spouse is first in line, inheriting personal belongings, $10,000, and a percentage of the estate depending on the presence of children or parents. If there’s one child then the spouse gets two-thirds but if there are two or more children it’s reduced to 50 per cent. If there’s no surviving spouse, the children inherit equal shares. If there are no children the estate passes to grandchildren, then parents, aunts, siblings, half-siblings, and their children, followed by grandparents, aunts, and uncles.
“If there are none of these, it goes to the crowd called Bono Macanche. You definitely don’t want that. Better you leave it to your lawyers,” Levy said jokingly.
Bono Macanche is a term used in Jamaican law to refer to the state or the Government as the ultimate beneficiary of an estate when there are no surviving relatives or heirs. It is essentially the last resort beneficiary.
In summarising basic considerations in preparing a will Levy pointed out that the most important consideration is that a will must be executed under certain statutory formalities.
The principal one is that it needs to be executed in the presence of two witnesses. It’s advisable to have an attorney prepare this, especially in a complicated situation.
“In my view, in any event, if there are minors or situations where you have contingent situations — such as if somebody passes or you’re creating trusts — you’re definitely in need of an attorney. My own view is that you should have an attorney to drop your will in any event, but others disagree,” he shared.
He also noted the importance of appointing executors under a will, as they are the ones who will carry out the instructions outlined in the document. Without named executors, he said, the process of settling the estate is delayed until administrators are appointed, which can lead to unnecessary complications. He recommends appointing multiple executors as some legal requirements, such as executing land sales, necessitate multiple parties. Furthermore, it’s essential to establish a decision-making mechanism to avoid potential stalemates. This can be achieved by appointing an odd number of executors or specifying a tiebreaker, such as designating the older or younger executor to make the final call in case of disagreements.
Levy also highlighted a crucial detail: marriage automatically revokes a will but divorce does not. Additionally, the revocation of wills is subject to specific rules, including the physical destruction of the document which can be a complex and nuanced issue. For instance, if a will is partially damaged or has been altered, the rules surrounding revocation become increasingly complicated. Levy emphasised the importance of exercising caution in this area to avoid legal pitfalls.
“My father is also a lawyer, and it amuses him every time he talks about this because he says, ‘There’s no better time to die than now because duties, taxes, and death duties have gone down dramatically,’” he said, opening a new line of discussion.
Levy revealed that stamp duty is no longer a significant factor, capped at $25,000. Transfer tax, however, is payable at 1.5 per cent on properties, leases, stocks, and shares, with a one-year deadline to avoid six per cent interest. The family home is exempt, and recent changes exempt the first $10 million from transfer tax. This means estate duties are now relatively low, at 1.5 per cent, plus professional costs. A comparison of lifetime transfers versus transfers after death shows that lifetime transfers are slightly cheaper, with transfer tax at two per cent and legal fees at two per cent, compared to 1.5 per cent transfer tax and 3.5 per cent probate fees after death.
Touching on his final point, he turned to joint bank accounts which are designed to automatically pass funds to the surviving account holder, but attorney Levy noted that banks are increasingly reluctant to allow withdrawals without probate.
“A practical consideration from this, which I tell clients or families, considers online access to the bank account for particular beneficiaries so that you can start to access the monies before the bank realises that the test date has passed,” Levy advised.
This caution comes as banks in the UK and abroad are requiring proof of probate before granting access to joint accounts, despite the intended rule of survivorship.