Wills, Probate, and Modern Estate Planning: Navigating the Shift Toward Testamentary Substitutes

When setting out how their assets should be distributed after death, the last Will and Testament has always played a crucial role in helping individuals. Yet in recent years, there has been a noticeable shift towards testamentary substitutes caused mainly by concerns over the probate process being too costly and time-consuming.

In this article, we will explore the benefits and drawbacks of testamentary substitutes and why it is important to seek advice from legal professionals when considering estate planning strategies.

For many years, the traditional Will has been a popular method of estate planning. A Will enables the Testator (i.e. the person creating the Will) to leave directions for who gets what in their Estate, on what terms and how taxes are paid. Strict procedures are put in place to prove the terms of the Will – i.e. probate – to safeguard against any forgeries. In order for the Will to be valid, it must be signed by the Testator in the presence of two independent witnesses over the age of 18.

While many clients still rely on Wills, testamentary substitutes are assets or arrangements that pass to beneficiaries outside of a Will meaning they do not go through the Probate process. These could offer a more proactive and flexible method in estate planning and include the following:

1. Lifetime Trusts;
2. Lifetime Gifts; and
3. Joint Tenancy Assets.

What are lifetime trusts?

To circumvent assets going through probate, testators can leave their Estate on discretionary trust and nominate Trustees to manage it. A discretionary trust provides trustees with powers to decide who should inherit amongst the beneficiaries or class of beneficiaries specified in the Trust document, how much and when. Often, a non-binding letter of wishes is prepared to provide guidance to the Trustees.

Provided gifts into Trust do not take place within seven years of the Testator’s date of death, the Discretionary Trust might be a helpful way of avoiding the probate process since the assets within the Trust do not form part of the testator’s Estate.

The drawbacks of setting up discretionary trusts is that it can be quite expensive to set up and run. There will be various tax compliance duties to carry out which could prove complex and time-consuming for Trustees to handle. Additionally, beneficiaries do not have an automatic right to the trust assets and often this restriction could lead to beneficiaries becoming disappointed and cause delays in accessing their inheritance.

What are lifetime gifts?

Giving away gifts during your lifetime is another way of reducing the value and assets within your Estate which could help to avoid the probate process. Gifts include money, property (houses), shares and household and personal goods.

When giving away gifts to people during your lifetime and these gifts are given less than seven years before you die, they might be taxed. Therefore, it is important that you obtain professional advice from a solicitor or a tax advisor about what you can give away during your lifetime.

What are joint tenancy assets?

Having assets in your joint names as joint tenants could also help these assets avoid the probate process since these assets pass by survivorship to the surviving joint tenant.

It is important to bear in mind that whilst testamentary substitutes could help an Estate avoid Probate, it is difficult to prevent any undue influence and forgeries that could take place when setting up testamentary substitutes.

Additionally, giving away too many lifetime gifts and holding the majority of assets as joint tenants could potentially leave the Estate insolvent and unable to pay the Deceased’s debts, administrative expenses and tax. All this could leave the Estate vulnerable to contentious claims from disappointed individuals which could prove costly and time-consuming for all involved.

One of the many celebrity estates that has drew public and legal attention was pop icon Michael Jackson, whose death initiated a number of legal proceedings concerning his estimated $500 million estate. He had established a revocable living trust intended to transfer his assets to his children and his mother upon his passing. However, the trust was never funded. Consequently, his entire estate remained outside of the trust, necessitating the probate process.

So, whilst Testamentary Substitutes might be an effective method in estate planning and could bypass the probate process, it is always important to obtain professional advice from a Solicitor. This will help to ensure that you proceed with estate planning methods that best meet your objectives, and which will help to minimise the risk of complications (legal and financial) to your Estate and your family when you pass away.

If you have any questions, call us today on 020 7940 4060 or email at mail@anthonygold.co.uk.