Column: Executives & HNWs Should Make A Will
[Written by Ashley Fife]
Bermuda executives and high net worth individuals should make a will to ensure that, upon death, their wishes are implemented, their family members are sufficiently and promptly provided for, duties and taxes are properly considered and chaos and stress minimised.
Often significant lifestyle developments such as changes to one’s residency, domicile or citizenship, purchase of a home or other material assets, marriage, divorce and/or having children mobilise individuals to make a will and meaningfully consider their estate planning.
For those in business, it is also important to consider the impact that death, absences, retirement and incapacity may have on the business and what appropriate business succession arrangements can be considered and implemented in advance to minimise disruption. In particular, consideration ought to be given in respect of shareholder voting rights and, if you are a director or authorised signatory, decision-making and the operation of bank mandates for example.
A will is just one part, albeit generally a very important one, in the wider context of your estate and business succession planning.
This briefing only relates to the law of Bermuda as at the date of this briefing. The briefing is of a general nature only and is not a substitute for legal advice.
What happens if you die without a will?
If you die without a will [i.e. intestate], your “Bermuda deceased estate” [your deceased estate] will be distributed in accordance with Bermuda intestacy laws, which may not be as you expect or wish. The intestacy rules also apply to the extent that your will does not distribute all of your deceased estate.
The intestacy rules do not take into account factors that may be important to you or your family, including:
- your wishes regarding who you would like to administer your deceased estate [you can appoint executors of your will, but administrators of a deceased estate are appointed by the court- depending on who survives you and other factors, your spouse and/or or adult children or other adult beneficiaries of your estate, may be appointed upon application]; this can also result in the administration process [no will] taking longer than probate [will];
- your wishes to provide for a partner with whom you are not in a recognised marriage or registered domestic partnership that is recognised under Bermuda law;
- benefits that you have provided outside of your deceased estate to your spouse, children or others that you might wish to have taken into account following your death to ensure a fair allocation of your estate between beneficiaries – whether they be: outright gifts; distributions from trusts that you have established during your lifetime; life insurance death benefit payments; pension fund death or other benefits;
- the financial, tax residency or other circumstances of beneficiaries of your deceased estate [e.g. if they are or become incapacitated or divorced, bankrupt or otherwise vulnerable to claims from their creditors];
- immigration issues and ownership restrictions that may impact on gifts from your deceased estate of Bermuda real estate or shares in Bermuda local companies to non-Bermudian beneficiaries;
- any wishes you had to make philanthropic or charitable gifts from your deceased estate; and
- ensuring an appropriate, smooth transition and continuity for your business.
Foreign wills
It is often preferable to have a will made under the laws of each jurisdiction in which you hold material assets, particularly real estate. This can enable the executors of the foreign will to proceed to gather in and distribute property situated in the foreign jurisdiction without first having to, for example, apply to probate of a Bermuda will in Bermuda and then applying for resealing or probate of the Bermuda will in the foreign jurisdiction.
A will is revoked by a subsequent will. Care needs to be taken to ensure that a will made in, for example, Bermuda in respect of property in Bermuda is not unintentionally revoked by a will you subsequently make in another jurisdiction, or vice versa. Problems can also arise if wills made in different jurisdictions cover the same property and are inconsistent. It is therefore a good idea to ensure that your adviser in each jurisdiction in which you make a will be provided a copy of the wills you make in other jurisdictions.
Marriage and divorce
It is also important to remember that a will is automatically revoked by a subsequent marriage or registered domestic partnership, unless expressly made in contemplation of that marriage or domestic partnership.
In contrast, divorce does not invalidate a will. However, an order of divorce of the testator’s marriage will have the effect of nullifying the appointment of the former spouse as executor and any gifts to the former spouse, unless otherwise expressly provided.
Powers of attorney
An enduring power of attorney grants your attorney authority to continue for the matters designated in circumstances where you become incapacitated. The attorney’s authority ceases upon your death.
It may also be practical to consider granting a power of attorney to your business partners or trusted advisers in relation to matters pertaining to the business in circumstances where you may become incapacitated or unavailable due to leaves of absence for medical or other reasons. For a power of attorney in connection with the business of a company, the company’s governing documents, shareholder agreements and, in some cases, agreements between the company and third parties, may need to be checked to ensure that the appointment will not breach any of their terms and will be recognised and effective.
Family trusts you establish during your lifetime
You might consider forming a discretionary family trust during your lifetime to:
- protect assets from creditors;
- provide for flexible succession planning over multiple generations;
- provide continuity of administration of assets in the trust following your death;
- minimise or eliminate stamp duty charges that would otherwise be payable upon your death;
- facilitate tax efficiency for you and your family; and
- many other reasons.
In most cases, assets held in such a trust do not form part of your deceased estate and thereby are not subject to a process such as probate [and stamp duty charges on the affidavit of value] following your death. An important exception is that, if you held a general power to direct distributions of property from the trust [or perhaps a power to revoke the trust], the trust property would generally form part of your deceased estate.
To the extent you hold powers under the terms of a trust [e.g. power to revoke, power to appoint trustees], are a trustee or an owner or board member of trustee [e.g. private trust company], we recommend you give consideration regarding who will hold those powers and positions following your death and what may occur in the event of your incapacity. The terms of the trust’s terms should also be reviewed to ascertain whether your death triggers a change to the beneficial class, dispositive, investment or other powers and, if so, whether that is, or continues to be, appropriate. To the extent that amendments may be desirable, consideration may need to be given to whether the trust’s terms contain amendments powers and the procedure for effecting a valid amendment.
Unlike probated wills, deeds forming trusts and supplemental trust instruments are not accessible by the public.
Testamentary Trusts
Wills may incorporate provisions creating extensive testamentary trusts that, for example, grant the trustees of the testamentary trusts flexible powers to make investments and time distributions to take into account the evolving circumstances of the testamentary trusts’ beneficiaries.
Business succession
The governing documents and existing shareholder and/or business succession agreements and relevant insurance policies may contain provisions that are triggered by your death, incapacity or other circumstances.
It may not be ideal if shares and other interests you hold in companies and other business entities form part of your deceased estate for distribution to family members. Your business partners may find it difficult to fund and progress the business with your personal representatives, executors or beneficiaries of your deceased estate. Without your involvement in the company, the directors might not pay dividends or other distributions that are sufficient for the needs of the beneficiaries of your estate. Beneficiaries of your estate [perhaps your spouse and children] may not be engaged in the business or wish to retain an interest in it.
If the governing documents or other binding documents require a sale of your interest by the executors or administrators of your deceased estate upon your death, questions may arise regarding to whom the interest may be sold, its valuation and funding of the purchase price. Your business partners may not have funds readily available to purchase your interest at that time.
Shareholders agreements, governing documents, business succession agreements [including cross purchase and entity purchase agreements] and other arrangements [often making use of life insurance] can take into account and help mitigate funding, operation, valuation, succession and conflict concerns that may arising in connection with an owners’ exit from the business [whether through retirement, incapacity, death or other reasons].
Stamp duty and other tax considerations
The Stamp Duties Act 1976 [the Act] essentially imposes stamp duty on executed documents that are identified in the Act’s schedule, at the rates and within the timeframes prescribed in that schedule.
The Act imposes stamp duty on the affidavit of value that is filed at the Supreme Court with an application for probate in respect of your deceased estate by your executors [if you have a will] or your administrators [if you die intestate].
Subject to certain nuances and exemptions, stamp duty on the affidavit of value is calculated based on the value of your property [i.e. ad valorem] situated in Bermuda and Bermuda registered vessels and aircraft [notwithstanding they may have been outside of Bermuda at the time of your death] [Bermuda Property]. Affidavits of value are charged with rates of up to 20% in respect of the Bermuda Property in your estate over $2 million in aggregate, subject to exemptions.
Affidavits of value may not be inspected by any person unless ordered of Bermuda’s Chief Justice, on application.
The value of gifts to your spouse and Bermuda registered charities and Bermuda real estate designated as your primary homestead are deducted from the value of your deceased estate for these purposes.
During your lifetime, instruments that you execute in Bermuda or bring into Bermuda to make gifts of Bermuda Property may be chargeable with ad valorem stamp duty as voluntary conveyances or transfers, unless exempted.
When entering into shareholder agreements, option agreements and other business succession agreements care needs to be given to ascertain whether those documents are chargeable with ad valorem duty [for example as conveyances or transfers] on those documents and the timeframes within which such duty must be paid. Instruments executed by, or in respect of interests or property of companies incorporated as exempted companies under the Companies Act 1981 are [along with other exempted undertakings] exempt from stamp duty under the Stamp Duties [International Business Relief] Act 1990 provided the instruments do not dispose, or effect an agreement to dispose, of Bermuda Property.
If you own assets outside of Bermuda or are a tax resident or domiciled in another jurisdiction, or are unclear if you are tax resident or domiciled in another jurisdiction, advice should be sought from appropriate advisers in those jurisdictions to ensure that your estate and business succession planning in Bermuda is appropriate and coordinated to not give rise to unanticipated tax or other consequences in those jurisdictions.
Your estate and business succession planning
Estate and business succession planning requires circumstances and issues to be considered in the round to develop plans that are appropriately flexible and efficient. Often putting in place, even a simple will, is a valuable step that can help reduce stress to your loved ones during a time when they are coming to terms with your death. It can also form an important starting point to initiate meaningful thinking and action in respect of more substantive estate and business succession planning.
- Ashley Fife, Counsel, Carey Olsen Bermuda Limited, can be contacted at ashley.fife@careyolsen.com
The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only.
