During uncertain times, it’s natural for people to start thinking about whether they have properly taken care of their affairs. People want to guarantee, should something happen to them, that their loved ones and assets will be protected. Whilst we think estate planning should always be in the forefront of people’s minds, it is especially pertinent during these unprecedented times.
Fortunately, most of us have never dealt with anything like this before – extended periods of work-from-home arrangements and long-term social distancing. Not even during the SARS pandemic in 2003, did Hong Kong experience a situation with such a mass global impact. Many people are reaching out to execute estate plans that they have put off finalizing and signing. Others are beginning to set up estate plans they should have put in place years ago. Solicitors are offering customised solutions to make sure that estate planning documents are signed and in order.
Is this a good time to make or update your Will?
You should review your estate planning, your Will and any Letter of Wishes to ensure they still reflect your intentions. It would also be wise to make sure your family has copies of important documents, like your Will, Enduring Power of Attorney and any Advance Health Directive you have made in relation to life-sustaining treatment.
Should you wish to prepare a new Will, swift action ought to be taken. Valid execution of a Will needs at least two physically present witnesses (who preferably are not beneficiaries under the Will – or married to/in a civil partnership agreement with the testator of the Will). The witnesses must witness the testator sign the Will and see each other sign. The testator must also see the witnesses sign the Will. Given the current situation, physical presence may prove difficult. However, it might be possible for the witnesses to witness you signing your Will through a window (and vice versa). Practical steps such as using different pens and wearing disposable gloves and masks should help protect those handling the Will. Preparing a contemporaneous note confirming how execution was validly achieved will help provide clarity should issues arise down the line, while potentially avoiding future contentious issues related to the estate. We have already discussed some highlights in our previous article “Executing Wills During the COVID-19 Pandemic“.
You should also ensure that beneficiary designations for insurance policies, pensions and death-in-service benefits are up-to-date.
Letters of Wishes
Letters of Wishes to individuals and Wills should be reviewed to ensure they accurately reflect your current wishes, family circumstances and are consistent with one another. Unlike Wills, Letters of Wishes do not need to be in a specified form or be witnessed – what is important is that the trustees can satisfy themselves that the document came from you. Letters of Wishes are not legally-binding, however they provide valuable guidance for trustees.
Guardianship of children
Fortunately, the mortality rate of COVID-19 is relatively low, hence the chance of parents’ infection leading to young children becoming orphans is low. However, it is nevertheless good practice to have a Deed of Appointment of Guardianship in place to make sure that your children will be looked after.
If parents are separated from their children due to quarantine requirements, they only need to ensure that there will be someone looking after their young children’s daily needs. There is no legal documents required for such arrangement, as the parents should still be able to make important decisions regarding their children from quarantine.
Volatile investment values and unpredicted loans
Careful thought should be given to shares or other assets which have fallen in value but are likely to increase in value once the current crisis has passed. It may be worthwhile passing those shares/assets to children or grandchildren. Specifically, if the assets and shares are held in other countries which potentially expose them to capital gain taxes, any deemed gain made on the gift will be reduced and the future increase in value will be outside the estate.
It is likely that many beneficiaries have been financially impacted by COVID-19. Help in the form of loans from family trusts or trustees may be sought as a result. As well as ensuring that they have power to make such loans, trustees faced with such requests should check the potential tax implications of making a loan.
Enduring Power of Attorney
If you lose capacity, only an attorney appointed under an Enduring Power of Attorney (commonly known as “EPOA“) will be able to take decisions on your behalf. It is important that an EPOA is registered once made, as an attorney under an EPOA may not act until it is registered.
You can make an EPOA in respect of your property, financial affairs. However, the attorney appointed by an EPOA cannot make health decision for you. You can set up instructions related to your wishes in case of incapacity during an irreversible issue, as we have already extensively discussed in our previous article “Living Wills and Advance Health Directives“.
The impact on Family Offices
The COVID-19 pandemic has caused a lot of uncertainty and disrupted the investment plans of many Family Offices who control a massive amount of private capital in the market. Currently, new investments seem undesirable to many, however it is critical for Family Offices to take immediate action to review their existing funding strategy and determine how their current portfolio will be affected.
When reviewing, key elements to consider include the required liquidity needed to maintain family assets and business during the pandemic, while also preparing for the market recovery.
In the short term, many Family Offices – like other businesses – will try to maintain strong liquidity. In achieving this, they should first review their investment portfolio and rank the assets by types of volatility and liquidity. Real estate, luxury assets and certain types of investment funds with a lockup period are illiquid, while there will be a cost for maintaining the assets. During this difficult time a shift towards more liquid assets or instruments, with lower risk and stable returns, seems likely.
Many Family Offices could be looking for an opportunity to acquire stressed assets in the market. Investors will possibly act fast to seize opportunities in the current situation. Therefore, it is important for Family Offices to discuss investment strategies and directions early, particularly when the decision-making process is more prolonged. Now is a good time for Family Office managers to start reviewing their portfolio and talking to their advisors to plan ahead for any investment restructuring initiatives.
Changing financial situations and divorce settlements
Some individuals may seek to change divorce settlement arrangements, given the impact of the pandemic on asset values and levels of expected income. It could be conceivable for financial settlements reached on divorce/dissolution to be changed, in particular, maintenance and child support payments.
Whether there is room for arguing that a financial settlement should be varied will depend on a number of factors including:
- needs and general resources (notwithstanding that the COVID-19 outbreak may have reduced a party’s earnings);
- if it is subject to certain conditions;
- if independent legal advice was obtained;
- if full financial disclosure was given;
- the time when the agreement was finalised; and
- whether the change in circumstances was foreseen or foreseeable (arguably unlikely in the case of COVID-19).
Market uncertainty doesn’t just pose challenges for a family business, it also presents essential questions around how it will affect the value of family wealth and assets. The safety and wellbeing of family members and employees will be paramount, but as the crisis develops and passes, it remains important to monitor and manage not just family business interests but also family wealth in general, including non-business assets.
Precise considerations and appropriate legal advice should be borne in mind when faced with volatile markets and reduced/uncertain asset values.
Our team at Hugill & Ip has extensive experience in dealing with Wealth and Estate Planning issues – so kindly get in touch with us to find out how we can help.
This article is for information purposes only. Its contents do not constitute legal advice and readers should not regard this article as a substitute for detailed advice in individual instances.