The Nature and Role of Will-Substitutes

Alexandra Braun was funded by the University of Oxford's John Fell Fund from April 2013 to December 2015 and by a British Academy/Leverhulme Trust small research grant from November 2014 to April 2016. Alexandra is now Lord President Reid Chair of Law at the University of Edinburgh

In the course of the past decades, an increasing amount of wealth has been passed on death in ways other than by will or intestacy rules, that is to say through instruments that are functionally equivalent to wills. In the UK, among such mechanisms count, for instance, joint bank accounts, trusts, life insurance policies and, especially, pension schemes nominations. These mechanisms are employed primarily for tax considerations, but also due to a desire to avoid probate so as to speed up the transfer on death and to keep it confidential. In the US, these modes of transfer are grouped under the category of 'will-substitutes'.

This development questions the role and the scope succession law rules are having in the transfer of wealth, as many of these mechanisms are not subject to the same policy driven rules applicable to wills. Indeed, they do not comply with formality requirements necessary for wills, nor do rules concerning the construction or revocation of wills usually apply to these mechanisms. What is more, since much of the wealth disposed of in this way does not fall into the estate administered by the personal representative, the use of will-substitutes has an important impact both on creditors and potential claimants under the family provision legislation. Thus, the use of will-substitutes risks undermining the whole purpose of having rules regulating succession. This development has been recognised as problematic in the US, where the drafters of the Uniform Probate Code and the Property Restatement have tried to accommodate will-substitutes within the law regulating testamentary dispositions. By contrast, in the UK, will-substitutes have been largely neglected by legal scholars and legal reformers, so that little is known about the instruments used in practice, the rationale behind them, their implication for the functioning of succession rules but also the practical difficulties they raise.

The principal aim of this research project is to investigate the nature of the instruments used in the UK and beyond, and to explore the motives behind them, in an attempt to compare the findings with developments in other common law as well as in civil law countries and mixed legal jurisdictions. The project explores the social, economic and legal consequences that flow from the employment of will-substitutes and looks at how law-makers are responding to their use. In doing so it analyses the problems that are raised by a transfer of wealth outside the rules and confines of succession law.

Oxford’s John Fell Fund has been providing funding for research assistance for this project which was carried out primarily by Professor Alexandra Braun together with Ms Victoria Coleman. The research has shown interesting trends and revealed some unexpected results. It has demonstrated the timelines of this project, which is also confirmed by recent announcements by the current government concerning changes to pensions funds and their tax treatment.

The research has further highlighted how little is known about developments in other European countries. For this reason, Professor Braun organised an international conference together with Professor Anne Röthel from the Bucerius Law School in Hamburg. The conference took place on 27/28 March 2015 at Lady Margaret Hall (Oxford) and was funded by the British Academy/Leverhulme Small Research Grant.

Participants included academics, research students, tax advisors and legal practitioners including from the pensions, estate planning and financial sectors joining from sixteen different jurisdictions. They came together to discuss the role and the impact of the use of various instruments for the transfer of wealth on death outside probate, such as pension scheme nominations, life insurance, different types of bank accounts, trusts and foundations, the donatio mortis causa, clauses in partnerships and corporations, conditional gifts and post-mortem mandates.

The purpose of the conference was to shed light on the scale and the complexity of the transfer of wealth on death by means other than wills and intestacy. Its aim was to investigate not only how and why people transfer their wealth through alternative devices, but for the first time also to compare how different legal systems respond to the proliferation of will-substitutes. The papers explored the tensions will-substitutes create within the policy considerations underlying succession law, as well as ways of tackling their use, which is gaining increasing practical relevance, and has the potential of undermining the purpose and scope of current succession rules.

On the first day, legal experts from various common and civil law jurisdictions introduced the approaches to recent trends in the transfer of wealth, and discussed potential problems and perils, from the perspective of their own varied legal system. Reports from individual countries were followed by papers addressing overarching themes such as the transfer of wealth from the perspective of business, and on the second day, the impact of the developments on creditors and family members and dependants. Papers were followed by lively discussions which highlighted the importance of the topic.

The proceedings of the conference were published by Hart Publishing in May 2016 in a collection entitled Passing Wealth on Death: Will-Substitutes in Comparative Perspective and edited by Professors Alexandra Braun and Anne Röthel in the series Studies of the Institute of European and Comparative Law at Oxford.

Professor Braun has presented the oucome of the research at the Global Congress of the Society of Trusts and Estate Practitioners (STEP) which was held in Amsterdam on 29 June to 1 July 2016.

(EW 20150609)