We are most certainly in unprecedented times in modern history. Many of us have already been affected one way or another by Covid-19 and are reminded round the clock by the media and our politicians of the immediate health, social and economic challenges that the world is now facing, as well as of the uncertain future that lies ahead.
The lockdowns that many countries are experiencing are having profound effects on our civil liberties, the way in which we interact with each other and, of course, on our finances. Fortunately, there is a good amount of guidance that is now available on the latter, in particular advice about employment rights in the face of job losses and wage cuts.
Worries about finances are inextricably linked to how we look after our loved ones both now and in the future. Estate planning, including the creation of wills and powers of attorney, is often seen as a taboo subject. However, now more than ever, it is worth considering how to protect and ultimately pass on our wealth to our chosen family members, friends or charities.
Testamentary Freedom in Gibraltar
As with England and Wales (but unlike many other European jurisdictions, where forced heirship applies) in Gibraltar there is “testamentary freedom” – the right to choose what an individual wants to leave, to whom and under what contingencies. To formally exercise that freedom, one must execute a valid will, although, rather shockingly, figures from the UK indicate that only around half of adults actually get round to doing this. Under Gibraltar law, where someone fails to leave a valid will, their assets that are subject to probate automatically pass on their death in accordance with the rules of intestacy set out in section 51 of the Administration of Estates Act 1933 (the “Act”) – a blunt tool that often does not reflect the person’s true testamentary intentions.
Gibraltar’s Intestacy Rules
Under the Act:-
If the deceased is survived by their husband, wife or civil partner (“spouse”) and leaves no lineal descendants (i.e. any children, or where a child died before the deceased, any grandchildren) (“issue”), the spouse will inherit the deceased’s personal possessions (“chattels”) and the first £150,000 of the deceased’s estate plus 5% interest from the date of death. The remainder of the deceased’s net estate (the “residuary estate”) also passes to the spouse on trust during their lifetime.
If the deceased is survived by their spouse and one or more issue, the spouse will, as above, inherit the deceased’s chattels and the first £150,000 of the deceased’s estate plus 5% interest from the date of death. However, only half of the residuary estate passes to the spouse on trust during their lifetime (after which what is left is held on trust for the deceased’s issue in equal shares until they reach the age of 18 (or until they marry or enter into a civil partnership before that age)). The other half of the residuary estate is held on trust for the deceased’s issue in equal shares until they reach the age of 18 years (or until they marry or enter into a civil partnership before that age).
If the deceased has no spouse at the time of death but is survived by issue, the issue will inherit all of the residuary estate on trust in equal shares until they reach the age of 18 years (or until they marry or enter into a civil partnership before that age).
If the deceased has no spouse or issue at the time of death but is survived by parents, the parents inherit the residuary estate on trust in equal shares.
The Act sets out further provisions where there are no surviving spouse, issue or parents and so on. For the purposes of this article, however, the important point is that the intestacy rules are
complex and often do not achieve what a person wishes to happen to their estate upon their passing.
Preparing a Will in Gibraltar
Where someone wishes to exercise their testamentary freedom, they should execute a valid will and keep it in a safe place. If the estate is relatively simple, for example where the only assets are funds held in a personal bank account, and where a person wishes to leave their estate to one or two defined individuals absolutely (without any conditions), it might be cost effective to purchase or download a template will with standard provisions. However, it is essential that the will is carefully completed and the requisite criteria for valid execution (as set out in the Wills Act 2009) are met.
As disputes regarding the validity of wills are surprisingly common, it would always be our advice to engage a legal professional to assist when preparing a will. An experienced private client lawyer can advise on the ways in which gifts can be left in a will, the suitability of certain executors and on any tax implications that may arise (especially where assets are held in multiple jurisdictions), can explain the risks around post-death claims being brought against the estate by those seeking reasonable financial provision, and can help to ensure that the will is executed and stored safely. They can also advise on the circumstances where wills are revoked (such as by express written intention or by intentional destruction by the testator) and the effect of divorce or annulment on the gifts included in the will.
Elliott Phillips is a Partner and Simon Everington is an Associate at the Gibraltar office of Signature Litigation.