18 April 2020
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. Discussing one’s own mortality is never easy, but in this article we strive to take a candid and open approach to the subject.
What is estate planning?
Traditionally, estate planning was viewed as taking steps during your lifetime to prepare for events after your death. However, our view is that estate planning ought to 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.
Mechanisms for estate planning
There are various mechanisms that can be employed to mitigate or address estate planning issues.
Insurance policies and financial planning are two of the most common non-legal mechanisms used in estate planning. For example, medical insurance can be a critical way of managing increasing healthcare costs as you age, while careful financial planning can be used to provide an ongoing stream of income even after you retire. These mechanisms are best discussed with your insurance agent and financial adviser.
There are also various legal mechanisms that can be employed for estate planning – the most common of which are:
What is a Will?
A Will is a roadmap that provides instructions for how a person’s assets are to be distributed 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.
What is a Trust?
A trust is essentially 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 where a trust may be employed include where the beneficiary:
Trusts can be created as stand-alone deeds, or through Wills (“testamentary trusts”).
Trust structures can also be used to ring-fence assets belonging to high-net-worth individuals or families, to protect them from becoming successfully contested 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, stipulated conditions being met, or upon the trust assets being fully distributed.
What is a Power of Attorney?
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 wishes to appoint a donee to carry out tasks such as 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 preemptively appoint a donee to make legally binding decisions on the donor’s behalf if the donor loses mental capacity in the future. The donee is only 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.
What is Deputyship?
Deputyship is similar to an LPA in that both are used to empower someone else to make legally binding decisions on your 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 where a person slips into a coma and cannot make an LPA so deputyship must be relied upon, or where an adult with severe autism lacks the requisite mental capacity needed for an LPA and therefore the caregiver needs to apply to the courts to be appointed as a deputy to take care of him.
As with LPAs, your deputy’s powers only have effect while you are alive.
What is an Advance Medical Directive?
An Advance Medical Directive (“AMD”) is a pre-emptive instruction to any doctor treating you in the future that if you are terminally ill, and if you are unconscious or incapable of exercising rational judgment, no extraordinary life-sustaining treatment should be administered to you.
“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 – the treatment would merely postpone the moment of death.
An AMD has effect only in the above-described circumstances and can only be made 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 the various legal mechanisms available for estate planning, please feel free to contact us. We will continue to be available via video-conferencing, teleconferencing, and email throughout this challenging period.
Associate Director, BR Law Corporation
Post date. Edit this to change the date post was posted. Does not show up on published site. 18/4/2020
The materials in these articles have been prepared for general informational purposes only and are not legal advice or a substitute for legal counsel. If you require legal advice for your particular circumstances, please consult a suitably qualified legal counsel. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. You should not rely or act upon this information without seeking professional counsel. Whilst we endeavour to ensure that the information in these articles is correct, no warranty, express or implied, is given as to its accuracy and we do not accept any liability for error or omission.
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