Testamentary Capacity, Holographic Wills and Living Trusts vs. Wills

A few years ago I acquired more information regarding making a valid will in the Cayman Islands.

The execution requirements for making a valid will in the Cayman Islands are set out in the Wills Law (2004 Revision).

It is also a requirement of Cayman Islands law that a testator must have testamentary capacity at the time of creating his or her will.

The test for testamentary capacity, known as the “golden rule,” was first explained in the English case of Banks vs. Goodfellow and it remains good law in the Cayman Islands today. Here are the facts:

(a) Does the testator understand the nature and effect of what he/she is doing;

(b) Is he/she aware, broadly, of the extent of his/her estate;

(c) Does he/she appreciate the claims of those who might reasonably expect to benefit from his/her estate; and

(d) In considering (c), is there any disorder of the mind or insane delusion that will influence the disposition of his/her property or poison his/her affections such that he/she would make a disposition of property that he/she would not otherwise have made.

In summary, the Wills Law provides that a will must be in writing; it must be signed by the testator or by some other person in his/her presence, at his/her direction.

If the latter, the testator must acknowledge such signature in the presence of two witnesses present at the same time.

If the former, the testator’s signature must be attested to by two witnesses present at the same time in his/her presence.

Subject to only two exceptions for soldiers and sailors on active service, the execution requirements must be complied with; if not, it will be invalid.​

Holographic Wills

Unfortunately, the Cayman Islands law does not, as a general principle, permit holographic wills.

Holographic wills are documents that are usually handwritten and do not comply with the strict requirements for proper execution as a will but have nevertheless been written as testamentary documents, often in extreme circumstances.

​Famous Holographic Will

The most famous holographic will was that of Cecil George Harris, a Canadian farmer who in 1948 suffered the misfortune of becoming trapped under his tractor and fearing that he was about to die, carved a will into the fender which read, “In case I die in this mess I leave all to the wife. Cecil Geo. Harris.” The fender was submitted to probate as his valid holographic will.

Testamentary Capacity

Apparently in the common law tradition, testamentary capacity is the legal term of art used to describe a person’s legal and mental ability to make or alter a valid will.

This concept has also been called sound mind and memory or disposing mind and memory. Cool!

I also learnt that Testamentary intent refers to a testator’s intention with respect to a particular instrument that functions as his/her last will.

Testamentary intent is required for a will to be valid.

Then we have to consider the person’s legal capacity to enter a contract:

Here is a definition and example:

One of the elements of a contract is capacity. Capacity means that a person is legally able to enter into a contract.

There are several things that make a person legally able to do so, including age and state of mind.

A person who is in the end stages of Alzheimer’s disease probably does not have the requisite capacity to sign legal documents.

However, a person with a diagnosis of dementia may very well be able to sign legal documents. Generally speaking, capacity is usually analyzed situationally.

The other way to change your will is by adding what is called a codicil. A codicil is like an amendment or addition to your will.

Use a codicil to revoke part of your will or add a new provision.

To be valid, they must be dated, signed, and witnessed just like a legal will.

I learnt that it is extremely important to keep your will updated. As life changes, so do potential beneficiaries and heirs.

Updating Your Last Will and Testament

If you do not keep your last will and testament updated, it may not reflect your wishes given your new circumstances. The following are good situations in which changing a will may be wise.

  • Marriage:
    • When you get married, both you and your spouse should each create a new will.
    • Most states have laws that award a percentage of your estate to your spouse upon your death.  
    • However, if you want to devise your will differently, you should specify this in your will.
    • Furthermore, adding your spouse to your will may change the percentage of your estate, or of a specific asset, that another beneficiary or heir was previously written to receive.
    • Changing a will should reflect this new proportion as you see fit.
  • Common Law Marriage:
    • The following information was all I could find that would classify eligibility:
    • Any person who has been married to a Caymanian-

v      for at least five years immediately preceding the application, where the marriage took place prior to the 1st January 2004; or

v      for at least seven years immediately preceding the application, where the marriage took place on or after 1st January 2004

v      whose marriage is not a marriage of convenience;

v      who is not living apart from his spouse under a decree of a competent court or under a deed of separation;

v      who has not lived apart from his spouse for an aggregate period of three months

v      out of the five years immediately preceding the application where the marriage took place prior to 1st January 2004; or

v      out of the seven years immediately preceding the application where the marriage took place on or after 1st January, 2004.

v      who is legally and ordinarily resident* in the Islands immediately preceding his application; and

v      who has not in any country been convicted of an offence for which a sentence of imprisonment not exceeding twelve months has been passed other than for non-payment of a fine unless-

1.      the conviction has been quashed on appeal or has been the subject of a free pardon;

2.     the act or omission giving rise to such conviction would not be an offence if done or omitted in the Islands in similar circumstances; or

3.     the conviction is one which, in the interest of justice, the Board directs to be ignored for the purposes of this section,

  • Obtaining a new partner, without marriage:
    • Only if married will your partner automatically receive assets from your estate.
    • So, if you find yourself with a new loved one, changing a will to reflect what you would like to leave that partner is necessary.
  • Divorce:
    • Upon divorce, some states revoke any gifts you leave your spouse in your will. Other states do not.
    • Changing a will upon a divorce is very important.
    • You will want to either specify what you want to leave your former spouse, or else specify how those gifts should now be distributed.
  • A new baby:
    • There are laws in some states that give children some portion of your assets upon your death.
    • However, not everyone wants their property to be distributed the way the state laws specify.
    • If you welcome a new baby into your family, be sure to specify what gifts, the baby shall receive, by changing a will.
    • Perhaps more importantly, be sure to appoint a guardian for the baby.
    • This will be the person who will care for your baby should anything happen to you.
  • New stepchildren:
    • Stepchildren are not automatically entitled to inherit a share of your property in many states.
    • Therefore, if you would like for your stepchildren to inherit any of your property, be sure to specify your wishes by changing your own will.
  • Moving from a community property state to a common law property state:
    • The laws governing what each spouse owns vary depending on whether the couple lives in a community property state or a common law property state.
    • Therefore, if you are planning on moving to a new state, check that states laws.
    • If it differs from the one you currently reside it, be sure to change your own will, according to your new property ownership status.

i.e.    Persons of independent means:

The Cayman Islands Government offers five Immigration products for wealthy, private investors and senior executives who are seeking long-term residence in the Cayman Islands.

1.      Certificate of Permanent Residency for Persons of Independent Means (Form R5) – Persons who invest a minimum of two million Cayman Islands’ Dollars in developed real estate in the Cayman Islands may apply for a Certificate of Permanent Residence for Persons of Independent Means.

As the Certificate title denotes, a holder has the right to reside indefinitely in the Cayman Islands.

A holder will also have the option of seeking naturalization as a British Overseas Territories Citizen and, thereafter, the right to be Caymanian.

A holder and his spouse may also have their permission to remain varied to allow the right to work in the Cayman Islands.

2.      Residency Certificate for Persons of Independent Means Form R2 – This facility is for persons who wish to reside long-term in the Cayman Islands without the right to work.

Applicants will be required to demonstrate that they have invested a prescribed minimum amount in developed real estate in the Islands and that they meet certain financial standing requirements.

A successful applicant will be granted permission to reside in the Islands for a period of 25 years (renewable). This residence type cannot be varied to allow the right to work.

3.      Certificate of Direct Investment Form R8 – The Certificate of Direct Investment is for persons who invest, or propose to invest, a minimum prescribed amount in a licensed employment generating business in the Cayman Islands and in which he/she will exercise substantial management control.

An applicant must demonstrate a substantial business track record or an entrepreneurial background, including specific professional, technical and other knowledge relevant and necessary to carry on the business.

4.      Residency Certificate (Substantial Business Presence) Form R6 – This facility is for persons who invest in, or who are employed in a senior management capacity within, an approved category of business in the Cayman Islands.

A successful applicant is granted a Residency Certificate valid for 25 years (renewable) which entitles him to reside in the Islands and to work in the business in which he has invested or is employed in a senior management capacity.

  • Changing your mind about heirs: Of course, things can happen in life that cause people to change their minds about the way in which they’d like their property distributed. Changing a will to reflect these new wishes is important.
  • New or disposed of assets: Perhaps in your will you would like to leave all of your property or a percentage of your property to your heirs, then what you own changes and there is no need to change your will. However, if you have willed certain gifts to people in your will, and you no longer have those properties, be sure to remove said property from your will. Additionally, when you acquire new property, be sure to account for that in your will.

Ways of changing a will

The easiest way of changing a will is simply to make a new will. It is imperative that you revoke the old will.

To do this, simply write a statement in the new will that states that you revoke all wills and codicils that you have previously made.

This is sufficient to revoke any previous wills, but it is wise to also destroy any of your previous wills in order to avoid confusion or challenges to your new will.

The other way to change your will is by adding what is called a codicil.

A codicil is like an amendment or addition to your will. Use a codicil to revoke part of your will or add a new provision.

To be valid, they must be dated, signed, and witnessed just like a legal will.

Codicils were an efficient way of changing a will before there were computers and printing was a hassle.

Today, codicils should be avoided wherever possible. They can cause confusion, be lost, and are sometimes even a means to challenge wills.

That information is definitely worth remembering!

Changes to other estate documents

Much of your property passes by law to beneficiaries, despite what your will says.

Property such as retirement proceeds, life insurance proceeds, joint bank accounts, payable-on-death bank accounts, and stocks registered with a transfer-on-death form all pass directly to a specified beneficiary.

If you change your mind about who the beneficiary should be, change the names using the forms on which you named the original beneficiaries.

Do not change the named beneficiaries through your will, for it will have no effect.

Living trusts are also not affected by the terms of your will. If you decide to change the terms of your living trust, add an amendment to the original trust document. Then, transfer property in or out of the trustee’s name, accordingly.

You do not need to worry about having to revoke a trust and create an original one, like when changing a will.

Living Trust

What Is a Living Trust?

Aliving trust is a legal document, or trust, created during an individual’s lifetime where a designated person, the trustee, is given responsibility for managing that individual’s assets for the benefit of the eventual beneficiary.

A living trust is designed to allow for the easy transfer of the trust creator or settlor’s assets while bypassing the often complex and expensive legal process of probate. Living trust agreements designate a trustee who holds legal possession of assets and property that flow into the trust.

KEY TAKEAWAYS

  • A living trust designates a trustee to manage assets for the beneficiary, while the grantor is still alive.
  • Trustees with fiduciary duty manage trusts according to the beneficiary’s best interests.
  • Living trusts can be either irrevocable or revocable.

How Living Trusts Work

Living trusts are managed by a trustee who typically has a fiduciary duty to manage the trust prudently in the best interests of the trust’s beneficiary or beneficiaries designated by the trust settlor, also called a grantor. Upon the death of the settlor, these assets flow to the beneficiaries according to the grantor’s wishes as outlined in the trust agreement. Unlike a will, however, a living trust is in effect while the settlor is alive and the trust does not have to clear the courts to reach its intended beneficiaries when the settlor dies or becomes incapacitated. 

Types of Living Trusts

Living trusts can be irrevocable or revocable.

Living Revocable Trust

With a living revocable trust, the trust settlor can designate himself or herself as the trustee and take control of assets within the trust. However, this stipulation means the assets in the trust remain a part of the trust settlor’s estate, meaning the individual may still be liable for estate taxes should the estate be valued beyond the estate tax exemption at the time of death. The trust settlor also has the power to change and amend trust rules at any time. This means the trust settlor is free to change beneficiaries or undo the trust altogether.  

Irrevocable Living Trust

With an irrevocable living trust, the settlor relinquishes certain rights to control over the trust. The trustee effectively becomes legal owner, but the individual would also reduce his or her taxable estate. Once the trust agreement for an irrevocable living trust is made, the named beneficiaries are set and the settlor can do little to amend that agreement. 

Wills and Trusts

Wills and Trusts are both estate planning documents used to pass assets on to beneficiaries at death. … Here are five ways in which a Trust is better than a Will to pass your estate to your beneficiaries. A Trust can be used to Avoid Probate – a Will cannot.

When you die, this creates a change of beneficiary or beneficiaries. The person or persons you named in your trust documents to inherit from you become the new beneficiaries upon your death. They now own the assets you placed in your trust, according to the terms you decided when you made it.

Advantages to using a Trust over a Will

Wills and Trusts are both estate planning documents used to pass assets on to beneficiaries at death.  However, there are distinct advantages to using a Trust over a Will.  Here are five ways in which a Trust is better than a Will to pass your estate to your beneficiaries.

  1. A Trust can be used to Avoid Probate – a Will cannot. Probate is the process of changing the title on assets when someone passes away.  Assets that are owned in a deceased person’s individual name and for which there is no named beneficiary are no longer accessible once the owner of the asset has died. In order for family members to gain access to accounts or other assets in the deceased’s individual name, they must file a petition with the probate court and wait for the court to approve the Will and appoint the Personal Representative.  This can be a long and costly process during which bills cannot be paid and assets cannot be managed.  A Trust is an excellent probate avoidance tool because assets that are owned in the name of a Trust are immediately accessible to the trust-maker’s designated successor.
  2. A Trust can provide Creditor Protection for the Inheritance you Leave to Beneficiaries – a Will cannot. Many people worry that the inheritance they leave to their children will be lost to their children’s creditors such as a divorcing spouse, unpaid credit card bills, a bankruptcy, a business loss, or a lawsuit.  Sadly, this is often the case when assets are distributed to beneficiaries via a Will.  A Trust allows the maker to safeguard an inheritance from the reach of the beneficiaries’ creditors by keeping the assets out of the name of the beneficiary.  Ownership of the assets remains in the Trust.  The beneficiary will have access to the assets in accordance with the directions you leave in your Trust. You may also allow your beneficiary to serve as Trustee, allowing the beneficiary to manage her own inheritance.  By leaving assets to your beneficiaries via a Trust rather than outright via your Will, you can ensure that the assets you worked so hard for will be available to your children and future generations.
  3. A Trust can Protect Governmental Benefits for a Person with Disabilities – a Will cannot. If you have a child, grandchild or other beneficiary with disabilities, then a Trust is a must.  If you leave assets to a person who receives needs-based governmental benefits via your Will, it will place your beneficiary in the difficult position of either losing those benefits, or transferring the inheritance into a Trust of which the state must be the beneficiary at the beneficiary’s death.  Unless the inheritance you are leaving is so significant that the monetary and medical benefits available to the person through programs such as Social Security and Medicaid are no longer important, then making sure that those governmental benefits continue to be available is vital.  Leaving assets to a person with disabilities via a Trust is the best way to ensure those governmental benefits are preserved and that the inheritance you leave will be available to pay for expenses that are not covered by these governmental benefits, which while vital to many, are limited in their scope.
  4. Trusts can Reduce Estate Taxes – a Traditional Will cannot. Many married couples have so-called “I-love-you” Wills, which leave all assets outright to the surviving spouse upon the first death.  If you have an estate of more than $1,000,000, then using “I-love-you” Wills means that money you think you are leaving to your beneficiaries will in fact be going to the Commonwealth of Massachusetts in the form of estate tax payable at the surviving spouse’s death.  If you would prefer that your assets pass to your family, create Trusts to reduce estate taxes.  Estate tax planning via Trusts for married couples is standard planning and permissible under both state and federal tax laws.
  5. A Trust can Administer Assets for Minor Beneficiaries without Court Intervention – a Will cannot. Leaving money directly to a minor creates an administrative nightmare because the law provides that a minor does not have the legal capacity to receive assets. The parent of the minor also does not have the ability to act as the child’s legal representative until the court says so.  As such, if you die with a Will that leaves money to minor beneficiaries, the court will need to appoint a Conservator to receive that inheritance for your children.  The Conservator will be required to report annually to the court and the court will appoint an overseer (guardian ad litem) to make sure the Conservator is doing his or her job for your minor beneficiaries.  This means huge costs and long delays in administering funds for minors.  It also means that when the minor turns 18, he or she will be entitled to receive all of those assets and will be free to do with them as he or she wishes (think fast cars, spring break, and lots of shopping).  Creating a Trust to receive assets passing to a minor, or even to a young adult beneficiary, is the best way to ensure that the court is not involved in the process, that the person  you want to manage assets for the beneficiary is able to do so, and that the beneficiary can use  the assets only for purposes you decide are important and/or at ages that you dictate.

These are just five ways in which a Trust is superior to a Will.

When There is no Will

According to Robert Mack, HSM Chambers, most people know that making a will is the “adult thing” to do, especially when children and other dependents are involved.

However, like most unpleasant things in life, we tend to put it off for as long as possible.

In some tragic cases life can end suddenly and unexpectedly, or a person can be struck down by illness and lose their mental capacity which would otherwise prevent them from creating a valid will.

So, when there is no will, what is the way?

See the Journal’s  link below for more details:

Where there’s no will – there’s a way

Digital Assets

Let’s also not forget that digital assets fall into two broad categories: valuable and sentimental.

Valuable digital assets include such things as cryptocurrencies, online investment/bank accounts, online store credits, intellectual property, and anything else which has a tangible dollar value attached to it.

Sentimental digital assets, on the other hand, include photographs, personal videos, blog posts, social media accounts, and information held in email messages.

So how can a Will manage these two distinct types of digital assets?

See the Link below for more details:

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