The ongoing coronavirus pandemic has recently put a spotlight on estate planning. In this article, we provide a broad overview of some key legal mechanisms for estate planning. It is never easy discussing one’s own mortality, but in this article we strive to take candid and open approach to the subject.
Traditionally, estate planning was viewed as taking steps during your lifetime to prepare for events after your death. However, we think estate planning should be addressed holistically, with measures taken to ensure that you are taken care of in end-of-life scenarios as well as after death.
The reason for this is simple – most people assume that their current quality of life will remain static until they pass away. However, the reality is that as people age, their medical expenses are likely to rise, and if they are retired or no longer have a steady source of income, their quality of life may decline. Therefore, steps should be taken early to mitigate issues.
There are various tools you can use in estate planning.
Insurance policies and financial planning are two of the most common non-legal tools available. For example, medical insurance can be used to manage increasing healthcare costs as you age, while careful financial planning can be used to provide an ongoing stream of income even after you retire. Your insurance agent and financial adviser will be best placed to advise on these.
There are also various legal tools that can be used for estate planning, the most common of which are:
A Will is a roadmap that provides instructions on how to distribute a person’s assets after the person’s death. The person making the Will is called the “testator”. The person appointed to distribute the assets is called the “executor”. The persons who are gifted the assets are the “beneficiaries”.
A Will must be made while you are alive and have mental capacity. It only crystalizes (i.e. comes into effect and cannot be changed) after you pass away. It must be witnessed by two adults who are not beneficiaries under the Will.
A trust is the legal separation of ownership and benefit. One person (the “trustee”) legally owns and manages the asset for the benefit of another (the “beneficiary”).
Trusts are typically used to provide benefits for someone who cannot manage an asset themselves. Some scenarios include where the beneficiary:
Trusts can be created as stand-alone deeds, or through Wills (“testamentary trusts”).
Trusts can also be used to protect assets belonging to high-net-worth individuals or families, so that they are more difficult to contest in the event of a divorce or separation.
A trust can be created while you are alive or upon your death. It can be revocable or irrevocable. A trust typically ends upon an end-date being reached, certain conditions being met, or upon the trust assets being fully distributed.
A Power of Attorney is a legal mechanism by which you empower someone else to make legally binding decisions on your behalf. There are two types of Power of Attorney: General Power of Attorney and Lasting Power of Attorney.
A General Power of Attorney is used where you (the “donor”) have mental capacity but are unable to act in person, and therefore wish to empower someone else (a “donee”) to carry out your instructions on your behalf. An example of this might be where a donor is physically disabled, or movement is painful and challenging, and the donor wants someone else to help with tasks like going to the bank to withdraw money, accessing safe deposit boxes, etc.
By contrast, a Lasting Power of Attorney (“LPA”) is used by a donor to pre-emptively appoint a donee. The donee will be able to make legally binding decisions on the donor’s behalf if the donor loses mental capacity in the future. The donee will only be able to exercise his or her powers when the donor lacks mental capacity.
There are two types of LPA forms. A Form 1 LPA is a standard form allowing the donee(s) broad powers over the donor’s personal welfare and/or property and affairs. A Form 2 LPA allows the donor to customize the scope of powers conferred upon the donee(s). A Form 2 LPA must be drafted by lawyers to ensure that the scope of powers is adequately restricted, to protect the donor’s interests.
Both Form 1 and Form 2 require a certificate issuer to assess and certify that the donor has the mental capacity to make an LPA, understands its content, and is not under undue pressure to apply for the LPA. A certificate issuer can be a practicing lawyer, medical practitioner accredited by the Office of the Public Guardian, or a registered psychiatrist.
Powers of Attorney, whether General or Lasting, can only be made while a donor has mental capacity, and only have effect while the donor is alive.
Deputyship is similar to an LPA in that both are used to empower someone else to make legally binding decisions on a person’s behalf.
The key difference is that in an LPA, the donor has the mental capacity to appoint the donee, whereas in deputyship, no mental capacity exists and an application to the courts must be made so that the courts can appoint someone (the “deputy”) to make the decisions.
Some examples of where deputyship may be useful are:
As with LPAs, your deputy’s powers only have effect while you are alive.
An Advance Medical Directive (“AMD”) is a pre-emptive instruction to any doctor treating you in the future that no extraordinary life-sustaining treatment should be administered to you if you are terminally ill and if you are unconscious or incapable of exercising rational judgment.
“Terminal illness” means an incurable condition caused by injury or disease for which there is no prospect of a temporary or permanent recovery, and death would be imminent even if an extraordinary life-sustaining treatment were administered. In other words, the treatment would merely postpone the moment of death.
An AMD has effect only in the above-described circumstances. You can only make an AMD while you have mental capacity. An AMD must be witnessed by two persons, one of whom must be a doctor.
We hope you find this overview useful. If you have any questions about estate planning, please feel free to contact our estate planning lawyers. We will continue to be available via video-conferencing, teleconferencing, and email throughout this challenging period.