Will Substitutes Are Devices Hidden In A Blind Spot And Used With The Intention To Circumvent - Coursework Example

Name Professor Course Date of submission Will-Substitutes in England and Wales Introduction Will-substitute methods function equally as wills. They are common in places where most of the wealth is transferred on death through means different from the will such as the US. As a result, will-substitutes operate outside the traditional probate guidelines. Consequently, there have been increased legal authors citing “non-probate revolution”. These changes have been able to attract the attention of Restatement Third of Property and Uniform Probate Code (UPC) drafters. Their roles are to ensure adequate accommodation of the will-substitutes in various legal frameworks such as the law of donative transfers1. England and Wales tend to have similar structure in the legal succession and administration of estate. The paper aims to investigate whether there is replication of such similarity in development and assets transfer of wealth on death in England through will-substitutes. Based on comparison with the US, it is evident that legal scholars have paid less attention to the effect of will substitutes, which suggests that they do not play significant role in practice2. In England, the non-probate revolution is not evident considering that it is not the only method of transferring wealth on death. However, with increased testation in England, most of the testers are private pension scheme members, which stipulated the life insurance policy. Hence, other methods of passing gain on death complement the wills. In the recent years, will-substitutes as transfer of wealth mechanism has been gaining economic significance especially with increased investment in private pension schemes and life insurance policies. The will-substitutes majorly used in the US are the revocable trusts, pay-on-deaths (POD) accounts, and life insurance schemes. However, in England, the picture seems different as most of the transfers on death take place through private pension schemes, life insurance, and the survivorship that operate on death of a joint tenant. Types of Will-substitutes Private Pension Schemes Both US and England use private pension schemes in passing wealth on death. Collectively with the homes, financial assets of households are represented with pensions. insufficient retirement income. Death benefit types vary considerably depending on the pension schemes and death time: before or after the retirement. There are different types of benefits associated with pension schemes: death in services and after retirement3. If death occurs before retirement, the pension schemes need to provide death benefits in various forms: lump-sum payment or dependant’s compensation. Dependant’s compensation applies to spouses, cohabitant, child, or civil partner. However, in most pension schemes, the spouse or dependant receives the benefits automatically. If the member of the scheme dies after the retirement, some of the benefits might be payable through guaranteed compensation4. In such cases, if the member dies before the guaranteed period elapses, the remaining payments go to the estate and distributed depending on the will. The defined benefits often pay the proportion of the pension that the member was receiving before the death to the spouse or children. Initially, the insurance companies could make the payments for the guaranteed period. Most of the personal pensions pay the full value of the pension fund for considerable amount. In England, it is evident that most schemes allow the members to nominate their beneficiaries for the death benefits. However, such nominations are often required to be in writing form and signed by the member. Nominations are revocable depending on the rules associated with respective scheme, which is inexpressible in the will5. Most of the nominations do not bind to the trustees; hence, the letters of the wishes. Consequently, unlike the other jurisdiction law, the trustee through discretion takes the distribution role. Most private pension schemes provide trustees with the discretion of choosing the estate of the beneficiaries for inheritance tax. Even though the non-binding nominations are less like the wills, pension allows transferring of wealth on death as determined by the trustees. In the case of binding, they are will-substitutes. Statutory Nominations Statutory nominations represent the non-probate testamentary mechanism within the legislature. Initially, the statutory nominations aimed at granting the poorer members of the society the easier way of transferring the funds or investments under certain bodies like provident and industrial societies, trade unions, and outside the probate rules6. This is achievable through the written nominations instead of will, which needs signing before the witnesses. Even though at certain point, the schemes allowed the statutory nominations for large sum, they are nowadays only permitted for small sums, which could be the major reason why they are no longer common in practice. Statutory nominations differ from most pension nominations since it is binding on the administrators within the scheme. In such sense, the statutory nominations are closer to the wills although they differ since they could be validly made at the age of 16 years. In addition, they are expressed excluded from compliance with the formality requirements as enshrined in section 9 of the Wills Act 1837. Various statutes that regulate the nominations normal need writing and attest from witnesses. Besides, where there is compliance with formality requirements for wills, the statutory nominations might prove as a will7. People could dispose of the investments through the will instead of the using the statutory nomination which allows the testers to change their mind through will revoking or codicil8. However, in such case, the advantages associated with the non-probate transfer method are lost. Life Insurance Pension schemes are designed for retirement. The basis of life insurance is to transfer wealth and liquidity on death especially if the policyholder dies prematurely. Nonetheless, life insurance is regarded as a saving device, which makes it equally important as will in providing protection. The transfer of benefits on death might not be on the forefront of the person taking the life insurance policy; however, the proceeds from the insurance policies usually form vital means to provide for the deceased family. There has been decline in life insurance popularity due to decline in benefits and risks that the insurance company might not pay out or insured might be unable to remit the payments. Just like pension schemes, many types insurance policies are resulting in different consequences for both the creditors and dependants9. “Own life for the benefit of another” are the only policies operating, as will substitutes. Since the passing of Contract (Rights of Third Parties) Act 1999, the beneficiaries no longer need trust to have direct claim from life insurance policy. However, it is still important to include policies in trusts to prevent avoidance of inheritance tax. With trust, the beneficiaries receive proceeds directly without entering the estate of the deceased. Principally, they neither are unavailable within the creditors of the deceased nor fall within the net estate due to Inheritance (Provision for Family and Dependants) Act, 1975 unless there is invoking of provisions outlined in section 10(7). Holding Property in Joint Names Joint Tenancy of Land Joint tenacity is important in England as method of holding, and therefore for passing the actual property on death mainly because of increased level of home ownership and house prices in the recent years. In most cases, the husband and wife hold propriety, especially for their homes, as joint tenants10. Viewed from the common law perspective, it is common for the parents to purchase or transfer their property into joint names with one of the children. However, if one dies, then the surviving tenant becomes entitled to the whole property. For efficient and effective land register, there is change in registration after provision of the death certificate, administration letter, and grant probate Joint Bank Accounts In England, the banks do not provide account for the wills through POD form as in the US. However, it is common for people to transfer their bank accounts to joint names with an aim that the surviving holder would benefit on death of the other. The number of joint bank accounts in the UK has been on the rise. According to the Office of Fair Trading, 28% of the adults have joint accounts while probation has been on the rise. Even though the bank accounts could be held in joint names, it does not mean that if one joint tenant dies, then the survivor enjoys the beneficial interest especially with the unclear intention of the transferor11. People transfer or establish joint accounts for various reasons with the common motive being administrative convenience. For married couples, the reason is to enable the other draw from the account of the other and enjoy associated benefits should one die. There are also cases in which the elderly transfer the accounts into the name of a child with an intention that the transferee could undertake withdrawals or payments on their behalf. Provisions Regulating Succession To ensure the existence of adequate formality in the US, will-substitutes are viewed as non-testamentary. Nonetheless, in various respects, they are considered functionally equivalent to the will and the provisions applicable to the will are extended. Though the approach is not uniform, similar regulations shall apply for the protection of interests of third parties12. Unlike in the US, there have never been debates on the manner of treating the instruments allowing the transfer of wealth outside the probate in England and whether or not the law wills need to be applicable to them. As a result, England’s state of the law is always equivocal, and the used approach is piecemeal. Formality Requirements for Wills One of the forms of testamentary disposition, which do not require compliance with the formalities outlined in section 9 of Wills Act 1837, is the donatio mortis causa. For such reason, it is considered to have anomaly nature with suggestions on the need to place it within the proper bounds to enable it used as a device for validating ineffective gifts. Moreover, the statutory nominations are also exceptions though introduced by the statutory law. In England, the courts have been able to address the increasing questions associated with the applicability of section 9 of the Will Act 1837 in regards to the pension scheme nominations and the joint bank accounts and concluded the Act was not applicable. With the pension schemes, few decisions address the questions focusing on the control type, which the deceased exercises over the invested money. Although in many cases, the pension nominations are present some aspects of testamentary, they fall out of the provision’s scope13. According to the Privy Council, there is need to capture nominations by the Wills Act in instances where the interest of the scheme members is indefeasible and absolute. Nonetheless, considering that the current nominations are mere letter letters of wishes, which do not bind the trustees, the initial challenge no longer carries similar relevance. In joint bank account, the major issue of whether section 9 of the Wills Act is applicable has been on the rise14. Young v Sealey is the case in England in which the issues has been discussed in which Romer J made a conclusion that although the intention was for to benefit the transferee on the death of the transferor, the disposition was invalid for reasons of failing to comply with the needs of Wills Act. Provisions Applicable to Wills Without focusing on the formality requirements, it is unclear of the extent and whether other rules apply to wills especially those related to capacity, revocation of wills, undue influence, or the interpretation and rectification of the wills apply to the will-substitutes. At such point, the state of the law might seem incoherent. As it is in the case of wills, some of the statutory nominations are revocable through subsequent marriage of the nominator; however, it is unclear of what happens where there is property transfer through other means. Married Women ’ s Property Act (MWPA) 1882 trust of the life insurance policy is not invalidated automatically through the divorce of the married couples. As with the joint tenacity and mortis causa, divorce or marriage has not effected. However, with compensation nominations, the trustees could pay out other beneficiaries although they do not have to15. In fact, it could happen that the trustees make decisions even with the express intention of the scheme member. However, there is need for consideration when the nomination is binding. It is uncertain whether the lapse rule extends to such mechanisms. The statutory nominations could fail especially when the nominee predeceases the nominator, which is also true in the donatio mortis causa. The insurance policies could require the holder to select a contingent as well though if the trust holds the policy, the problem might not arise. Furthermore, it is uncertain on the extent to which the rules operate in unlawful killing applies to the will-substitutes considering the little authority at such point. Reasons behind the Use of Will-Substitutes Changes in the Investment of Wealth Accurate accounting of the reasons behind the choice of the manner in which wealth is transferred after death is difficult considering that the motives could vary depending on the applicable will-substitutes. Besides, there could be several reasons underpinning a given choice, which makes the process speculative. However, some of the information could be gleaned from the analysis of the merits and demerits of the known devices from the perspective of the deceased and the beneficiary. The aim of pension schemes is provision of retirement benefits for the members. Life insurance is also a valuable device for saving. The decision of transferring the property into the joint account names could as well be motivated by the reasons of administrative convenience. Thus, the transfer of benefits on death might be an auxiliary motive. In fact, most of the mechanisms could perform better than the will. Pension death benefits and proceeds from life insurance could be allocated about the provisions of the respective schemes. It therefore follows that, in England, it might not be open for the testor to utilize the will in disposing such benefits and proceeds. From the analysis, the main theme is the change in the manner people hold and invest their wealth. Considering that investment in the financial assets is common, it is inevitable to dispose of the wealth invested in manners foreseen through the individual financial provider instead of the will. In fact, most of the methods represent ways used to pass wealth that is restricted to asset type a financial intermediary tends to offer. Avoiding Some Probate Effects Within the US, it is evident that the increased proliferation of the will-substitutes is the urge of avoiding probate and the supervised administrators with the aim of reducing the fees and delays associated with administering estate and preservation of privacy16. In England, the desire of circumventing the probe procedures does not seem to appear as the motivation for people. This is majorly due to differences in the probate procedures between the US and England. Besides, the English system used in the administration of estates tends to involve less the court interferences with the representative of a person and do not need legal professionals to anticipate. As a result, the practice is expensive17. Moreover, in England, time could be the factor that makes most people prefer the probate transfer methods. Even though for most of the people, the probate process would seem complete within six months; however, it is important to note that the personal representative cannot be forced with distribution of estate before one year elapses from the time of death. Considering that application under Provision for Family and Dependants (PFD) Act 1975 could be made up to six months after the death, the distribution might not be made within such period especially where the claim is claimed is likely18. The non-probate is normally direct and speedier transfer method that provides the immediate survivors with the immediate resources. Generally, it is known that probate protects the creditors. For example, the pension schemes and life insurance policies tend to shelter the assets from the creditors on death. Tax Advantages Tax avoidance is not the reason behind the increased popularity of the non-probate methods in the US. In England, the major concern for estate planners and testers is tax mitigation. However, in the UK, the concept differs. For example, if the value of the estate is more than the current inheritance tax threshold of £325,000, then the inheritance tax is payable at 40% although with the dispositional of spouse or civil partner with permanent home in the UK exempted from the tax. However, if the person’s estate exceed the threshold, then he/she might the incentive of searching for the alternative means of wealth transfer with people considering the private pension schemes as they offer tax-sheltered savings mechanism19. Before the changes that occurred in 2015, the deceased member could define the contribution pension paid as the lump sum tax-free especially if the death occurred before 75 years and had touched the pension pot. There are tax advantages associated with taking the pensions which are not applicable to the new National Employment Savings Trust (NEST) scheme. The life insurance held on the trust is also tax saving device. These devices assist in avoiding inheritance tax since they prevent proceeds from life insurance to from pushing the value of the estate over the threshold of tax. Nonetheless, by contrast, the benefits associated with transferring using the statutory nominations form part of the nominator’s estate for inheritance tax. Protecting the Interests of Creditors The will-substitutes highlighted operate in a manner that a direct transfer to the beneficiaries takes place and property does not; hence, they fall within the estate. Principally, creditors are unable to satisfy their credit against the property20. Such cases are relevant to pension death benefits, which are unavailable irrespective of estate insolvency unless there is payment of the estate. In addition, wealth transfer through the statutory nominations are unavailable to the creditors while own life insurance policy is as long as they are under trust. Where there is trust and the policyholder becomes bankrupt, the trust nature determines the protection. If the trust is affected under MWPA, then protection of the proceeds from policy bankruptcy becomes available from the start unless the creditors have the ability of showing that the policy had been taken with the intention of defrauding them. As a result, they obtain the premium paid21. Once the satisfaction of creditor’s claim, the remaining amount is for the beneficiaries. In case the property is transferred using donatio mortis causa, then it is liable for debt payment upon exhaustion of the assets22. For the insolvency administrators, the presented orders that commenced after the Insolvent Act 2000 could make trustees in bankruptcy to apply for an order that requires the joint tenant to make payment to the trustees’ amount that does not exceed which would restore the position of the trustees23. Conclusion Based on the revisions on the decisions made regarding section 9 of Wills Act to the pension scheme nominations and joint bank accounts, it is evident that the England courts have been to take favourable view towards the alternative methods of transferring wealth on death. This is reflected in the recent changes to the tax regime associated with the defined contribution of the pension schemes. However, England differs from the US considering its law reforms has been able to show little interest in the development on issues associated with will-substitutess which the paper examined based on the succession law perspective or generally transfers outside the probate. The legislative intervention within the area has been piecemeal as there have not been any attempts of integrating non-probate methods into the succession laws in a systematic manner. US is such a case; however, it does not mean that England has to follow the American system which creates two separate but parallel systems which involves the probate and non-probate system. The major problem experienced in England is that it is unclear on the manner in which the will-substitutefit within the legal transfer methods irrespective of whether they belong to lifetime or the mortis causa transactions. Works Cited Bowley, Gordon. 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