Coronavirus – Wills, Lasting Powers of Attorney and Estate Planning Update
How is the current social distancing and self-isolation guidance affecting the traditional private client practice of will making, lasting powers of attorney and estate planning?
As the legal profession continues to adapt to the disruptions and uncertainty caused by COVID-19, private client professionals have seen a significant increase in the volume of enquiries from individuals looking to make sure their personal affairs are up to date, most notably in the areas of will and lasting powers of attorney preparation.
Taking instructions for new wills and lasting powers of attorney, and the subsequent signing of completed documents, are the greatest challenges that have arisen for private client practitioners in response to the COVID-19 crisis. This is evident in all areas of the client retainer from assessing a client’s identity and capacity when taking new instructions, to the physical delivery of documents. With the valid execution of wills and lasting powers of attorneys still explicitly excluded from electronic signatures, arguably the biggest challenge is how clients can effect valid execution for these documents, whilst being mindful of official advice on self-isolation and social distancing.
At Freeths we have developed procedures to overcome obstacles, but they necessarily change the way we and our clients work together.
Currently, a will must be signed by the testator contemporaneously in the presence of two independent witnesses, who are over the age of 18, in accordance with Section 9 Wills Act 1837. The definition of ‘independent’ is very restrictive and the following should not act as a witness:
- Members of the testator’s family
- Beneficiaries named under the testator’s will or codicil
- The spouse of any beneficiary
It is not therefore difficult to see how the current government guidance to reduce social contact is causing a conundrum for private client practitioners arranging for wills to be validly signed.
There is no easy solution and, in response to these concerns, the Law Society is currently in urgent discussion with the Ministry of Justice about possible changes to simplify the will signing process and reduce the risks of contagion carried by it during the unprecedented COVID-19 crisis. A further Bulletin will be circulated to update the position if any legislative changes are brought in by the government to get around this apparent legal emergency.
In the meantime, much of the legal discussion in this area is focused around the eighteenth century case of Casson v. Dade. In this case, Miss Honora Jenkins signed her will in the solicitor’s office but retired to her carriage with her maid, before the witnesses had signed the will. The witnesses to the will remained in the office when they gave their signatures to the will. The maid gave evidence that, at the moment the witnesses were signing, the carriage horses reared up, causing the carriage to move into a line of sight with the office window. The maid stated that, had Miss Jenkins looked through the window, she could have seen the witnesses sign. This case established the ‘line of sight’ test, although there is no further case law to determine how the now two hundred year old principle may be interpreted and applied in today’s society.
Some reports suggest that Miss Jenkins had health issues that meant she did not want to stay in the solicitors’ offices – a possible parallel to now?
Although no formal guidance has as yet been provided by the Solicitors Regulation Authority, if clients are unable to have their wills executed while adhering to social distancing, based on the ruling in Casson v. Dade, it may be permissible for witnesses to witness a testator’s signature (and vice versa) through a window. However, as there is still uncertainty surrounding the line of sight test in these circumstances, we would be mindful to recommend that a video recording is taken of the execution with a separate contemporaneous note from the testator to record the circumstances of the execution and to show that no evidence of coercion or undue influence is apparent.
For more information on making wills during the pandemic, and avoiding challenges to a will being made after your death, please see our Wills and Estate Planning Considerations during the Pandemic article.
Lasting Powers of Attorney (LPA)
The Office of the Public Guardian (OPG) has published guidance confirming that the OPG will continue to deliver its services and support to those who are at most risk in society during the current crisis, although their response times may take longer than usual.
While it is reassuring that the OPG are maintaining their service to the most vulnerable in society, donors are now faced with the increased logistical difficulty of getting the LPA signed and witnessed. The execution of an LPA must be carried out in accordance with strict regulatory signing procedure, which dictates that the Power must be signed (and witnessed) in the strict order of: donor, certificate provider and attorney(s).
Before the COVID-19 crisis took hold, the government was due to ask the Law Commission to undertake a review into the use of electronic signatures for the signing and witnessing of LPAs, with the question of video witnessing also being examined. The main focus being whether the phrase ‘in the presence of a witness’ requires the physical presence of that witness and not a remotely executed signature. It will be interesting to see whether this review is brought forward, given the current climate and the restrictions on witnessing while maintaining social separation.
Notwithstanding the more onerous practicalities of completing the signing process, the main concern arising from the current climate is the difficulty in obtaining professional capacity reports, or assessments from medical experts, where there may be doubt over the donor’s capacity to execute the Power. This is likely to affect some of the most vulnerable in society who require more urgent LPAs, or those who have conditions in which their capacity is likely to deteriorate quickly or over time. We could therefore see an increase in the number of deputyship applications in the months to come, as ‘capacity windows’ are lost for those waiting for professional capacity assessments.
The impact of the COVID-19 pandemic has severely affected the global market economy, which has caused a significant decline in the value of certain asset sectors such as real estate and, most notably, the stock markets.
Whilst the fall in value of one’s estate is not ordinarily seen as a positive, it could now be the optimum time to take advantage of the potential capital gains tax savings for those individuals looking to make gifts for tax planning purposes.
Gifts made during a donor’s lifetime are subject to capital gains tax on the difference in value between an asset’s base cost and its market value at the date of the gift (subject to the deduction of certain expenses and reliefs). Donors could therefore act now to mitigate their potential exposure to capital gains tax by passing assets that have seen a sudden fall in value on to the next generation.
It must not be forgotten that capital gains tax rates are still relatively low at 20% (28% for residential property) and escaped a hike in the recent Budget. With public finances bound to be under strain going forward, there has to be a risk of a capital gains tax rate increase.
Furthermore, if the donor fails to survive the gift by seven years, it is the value at the date of the gift that is taken into account for inheritance tax purposes. If the market were to recover, any increase in value post gift would accrue outside of the donor’s taxable estate.
Dependent on the size and composition of an individual’s estate, there could be significant tax savings for clients who are wanting to engage in succession planning at this time.
And finally… The Statutory Residence Test (SRT)
HMRC is always keen to establish where people belong – literally on a daily basis!
HMRC has issued guidance for non-UK residents on circumstances that will be considered exceptional under the SRT during the COVID-19 pandemic.
HMRC’s new guidance notes that whether days spent in the UK can be disregarded due to exceptional circumstances will always depend on the facts and circumstances of each individual case. However, during the COVID-19 pandemic, the following circumstances are considered exceptional:
- An individual is quarantined or advised by a health professional or public health guidance to self-isolate in the UK as a result of COVID-19.
- An individual is advised by official government advice not to travel from the UK as a result of COVID-19.
- An individual is unable to leave the UK as a result of the closure of international borders.
- An individual is asked by their employer to return to the UK temporarily as a result of COVID-19.
The new guidance and HMRC’s current published guidance on exceptional circumstances should be read in conjunction.
If you would like to talk through the consequences for your business, please email us and one of our team will get in touch.
The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
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