Originally published in Private Client Practitioner Guernsey Supplement, December 2011
In June 2011 Guernsey's government, the States of Deliberation, abolished its forced inheritance law, a rule heralding the way for more freedom for those making wills. Nerine Group executive chairman, Keith Corbin, examines the impact the new law could have on wealthy individuals considering relocating to the island and international clients selecting Guernsey as a jurisdiction for their estate succession planning.
When the new inheritance law comes in it will see the end of an ancient Norman law in Guernsey where Guernsey domiciled residents with a spouse and/or children, were forced to leave at least part of their property to them.
Under the provisions of the new law (Inheritance (Guernsey) Law 2011) there will be two major advantages for testators; firstly, all forced heirship provisions are abolished and a testator may leave his or her property to whomsoever they wish and secondly, the differentiation which exists under the forced heirship regime between the rules applying to real and personal property will be abolished for testamentary purposes.
On the face of it, for persons considering moving to Guernsey, this could be an attractive additional factor in their decision-making. The concept of testamentary freedom was first considered by the States in 1950 when the Martel Committee commented: "We consider that full testamentary freedom is the ultimate end towards which public opinion has been tending for many years" and some might argue that the introduction of the new law is long overdue.
In an age when family and personal wealth arrangements are often complex and not entirely suited to forced heirship rules, testamentary freedom would appear to be a laudable and progressive step in Guernsey.
Prospective immigrants might find this freedom of choice is an additional attraction on top of the income tax cap, no estate or death duties, no capital gains tax, no wealth taxes and no VAT or GST.
A further additional advantage is that the new law will also abolish the rule established in re Davis (1962) - when the Royal Court ruled that a testator could not create a testamentary trust of his or her Guernsey real property if he or she has descendants.
Not without risk
However, not all senior trust practitioners in Guernsey are convinced that the new law is entirely without risk and potential problems.
The new law contains numerous family provisions that enable wills to be challenged and applications to be made by heirs for financial provision. One notable provision is that a disposition at under value made by the deceased during a period of up to six years before the date of death may be challenged on the grounds of an intention to defeat an application for financial provision under the new law. A disposition could include a gift or the creation of a trust. Therefore, when drafting wills governed by the new law, there will need to be a review of previous dispositions made by the testator.
At the time that the new law was debated by the States, in June 2011, strong representations were made by a number of senior advocates pointing out that there could be significant more litigation under the new law whereas forced heirship provided certainty in this area with no opportunity for dispute.
It should also be noted that for persons with a Guernsey estate but who are not domiciled in Guernsey, there is no practical change in their position – the law, which would govern his or her will, continues to be the law applicable in their country of domicile.
Personal investment companies
However, many experienced trust and estate practitioners will bear witness to having encountered situations where clients have neglected their succession planning by assuming they have overcome the problem through ownership of assets by personal investment companies (PICs) only to overlook the fact that the shares of a PIC, whether owned directly or beneficially by the deceased, form part of his or her estate.
For internationally-mobile clients who own assets situated in a number of different countries holding those assets through an offshore incorporated PIC, or perhaps several different PICs, can provide advantages over holding those assets in the person's own name. In this case he or she would need to either execute a will dealing with the worldwide assets or a separate will in each country where the assets are held. A will dealing with worldwide assets would need to have a grant of probate issued in the "home" jurisdiction but would need to be resealed in the other countries where the assets were situated.
If the assets are held within a PIC then it is only the shares of the PIC owned by the testator that become the assets in the testator's estate and this can considerably simplify the probate process. However clients do overlook the need for the PIC shares to be the subject of a will unless properly advised.
The move to testamentary freedom in Guernsey may prove attractive to internationally-mobile expatriates , who are not domiciled in Guernsey, looking upon Guernsey as a safe domicile for assets, held through a PIC or held directly in his or her name, including bank deposits or investment portfolios.
The new law also contains rules for intestate succession based on an order of inheritance by heirs starting with a spouse or civil partner down to the remotest seventh degree of relationship to the deceased.
One further point to bear in mind is that until the effective date of the new law, wills can continue to be executed subject to the present forced heirship rules and they will continue to be governed by those rules unless a codicil is executed, under the new law, changing the terms of the will.
Overall, the message is that testamentary freedom will be welcomed by those for whose succession planning is not best served by forced heirship but careful consideration needs to be given to the family provisions in the new law when drafting a will, and professional advice taken accordingly, both in Guernsey and other jurisdictions where necessary.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.