The key trust and estate issues from 2020 - Part II
22 April 2021
22 April 2021
Barbara Gardener, Personal Finance Society
Last month we considered two aspects of important issues from 2020: the new rules on will execution; and the extension to the Trust Registration Service (TRS). This month we will look at the introduction, or the expansion, of online processes for powers of attorney and the electronic execution of documents, including trusts.
Indeed, let's start with the latest developments in relation to electronic execution of trusts. This article is based on English law.
Electronic execution of trusts, deeds and other documents
The Covid-19 pandemic and the resultant requirements to isolate and/or social distance has had a fundamental impact on the progress of the use of digital (electronic) methods of executing documents. Of course, electronic execution of certain documents is accepted as legally valid and is not new but it has been accelerated during the last year.
We need to start by saying that there are different legal requirements for a valid execution of documents depending on the type of document. For example, simple contracts require no formalities, while certain agreements must be in writing and certain others must be executed as a deed to be legally valid.
In terms of financial services, it is now common practice that investment contracts, applications for life assurance and similar contracts are executed electronically as there are no additional requirements to ensure legal validity of such contracts. Those involved with advising on estate planning will, however, be aware that matters are not quite so simple when it comes to trusts and certain trust-related documents such as deeds of appointment, advancement or assignment. This is because there are special requirements that need to be satisfied to ensure that a deed is legally valid (section 1(3) of the Law of Property (Miscellaneous Provisions) Act 1989), namely that a deed must be signed and witnessed and it must be delivered, and these are not so easily satisfied electronically.
In 2019, the Law Commission recommended a review of the law of deeds and suggested that the Government may wish to consider codifying the law on electronic signatures in order to improve the accessibility of the law. The Law Commission has also recommended an industry working group be established to consider the question of video witnessing of electronic signatures. While there has been no formal progress on this front, providers of "standard" trust documentation such as life assurance companies and investment platforms, have been taking steps to simplify the process of execution of certain documents using signing platforms such as DocuSign. The platforms provide a means of signing documents electronically and provide a digital audit trail as well as secure cloud storage. Obviously, special system requirements need to be in place as well as a subscription to the platform, and there is evidence that companies have been investing in this area.
The key problem with execution of trust deeds (which is the type of deed most commonly used with financial products), as with any other deeds, is that the witness must be physically located at the same place as the signatory at the time that the signatory signs. There is no flexibility on this. The witness cannot witness the signing in any other way, for example by videolink (as is now possible when executing a will).
However, a signatory and a witness (while present at the same location) can sign by hand (a so-called wet ink signature) or electronically or a combination of both. When using e-signing, it will be important that the audit trail records the same location of the signatory and the witness, and this should ideally be the same IP (Internet Protocol address) location. But this may not always be possible, say if one of the parties uses VPN (Virtual Private Network). Conversely, if both parties use the same VPN they may appear to be at the same address when in fact they are not. This could become very relevant if there were a dispute.
Clearly, a number of issues surrounding the use of e-signing platforms for witnessing remain. One such potential problem is that processes used by platforms differ in relation to witnessing, and some of these may not be suitable when executing a trust deed for reasons of security and confidentiality. For example, in some cases the witness who is about to attest the document is emailed the entire copy of the deed, whereas they should only be seeing the signature page. So, such a system would not be ideal.
Two more means of simplifying deed execution have been introduced by some providers into the process of creating a trust. The first concerns the choice of witness. Although in England there is no legal requirement that a witness must be independent, this is normally recommended to ensure the lack of bias should a dispute arise. It is noted that during the pandemic many providers of "standard" trust documents and associated deeds relaxed this requirement so as to allow a relative (say someone who is shielding in the same property) to be a witness.
Another development has been to allow deeds to be executed in counterparts. This is nothing new as such but has become popular during the pandemic and it simply means that each party to the deed will be signing different, but identical, copies of the deed. All of the different copies, together, will complete a single deed and any of the copies can be treated as an original for evidentiary purposes. This method is clearly useful during restrictions on the number of people being allowed to be in the same locality.
Online creation of trusts of life assurance plans
Whilst in the first part of this article we considered electronic execution of trust deeds, there is another method of creating a trust if the asset in question is a life assurance policy.
Namely, it is well settled that under English law a valid trust of a life policy can be created without a deed, online, and even without a signature and without appointing additional trustees. (In Scotland there are additional requirements for delivery which in practice means appointing at least one additional trustee). In practice, of course, it is always advisable to appoint additional trustees but that's another matter.
Typically, an online trust would be set up at outset, i.e. by means of a trust request accompanying an application for a policy. Such a request does not require any particular form and a signature of the settlor does not need a witness. A request may include an appointment of additional trustees or it may not.
If trustees are appointed in a trust request (i.e. before the policy is in force) there is the question of vesting of the legal title to the policy in all the trustees. Unless the trust is a statutory trust, such as a Married Women’s Property Act (MWPA) trust, in order to legally vest the title, the policy would need to be assigned by way of deed and this can only happen once the policy is issued and will, of course, require witnessing. However, in practice the question of the actual legal vesting of the policy in the additional trustees may well be to some extent academic as most life offices tend to overlook it and accept a valid appointment in a trust request (so they are not likely to argue the point at the time of a claim).
Many life offices adopt a dual approach: a trust request and declaration approach for new policy trusts (i.e. where the settlor requests that the life assurance provider issues the policy subject to the terms of the trusts declared in the trust document completed as part of the application process); and a separate trust deed for trusts of existing policies, where a policy is assigned to trustees.
We have even come across some providers offering “online signature-less” trusts with some of their products. Typically this would be restricted to plans such as relevant life policies, the rationale being that such a policy must be in trust from the outset and, so, if a set of "standard" terms is incorporated in every policy, there is no need to have a separate, signed, trust request. Whether such "standard" trust provisions will necessarily be suitable to every client is another matter.
In some cases, we have even seen the inclusion of an appointment of additional trustees without requiring such a trustee to sign their acceptance, although clearly there are considerable risks attached to such offerings.
It is clear that many providers have been trying their best to help advisers with setting up trusts for their clients as efficiently as possible in the difficult circumstances.
Online powers of attorney service
In July 2020, the Office of the Public Guardian (OPG) launched a new digital Lasting Powers of Attorney (LPA) tool called the “Use an LPA service" to help those acting as an attorney to contact organisations, such as banks, insurance companies and healthcare providers, more easily. It is important to stress that this is only a tool for attorneys of certain registered LPAs. There is no proposal at present to digitalise the actual process of setting up an LPA.
The LPA tool works like this. Once an LPA is registered, attorneys and donors will be sent an activation key to allow them to create an account online and add the LPA to the account. They can then create an access code that they can give to any other relevant organisation, so that it can view an online summary of the LPA and authenticate its holder. This should enable attorneys to more easily confirm their authority to act where necessary, replacing the existing paper-based system that can take weeks, while maintaining the current safeguards to protect the donor from abuse by someone posing as an attorney, says the OPG.
The service was rolled out first for LPAs registered from 17 July 2020, but from 4 March 2021 it was extended to LPAs registered on or after 1 September 2019.
According to the OPG, since the service went live, they have provided activation keys for over 1 million LPAs, attorneys on 85,000 LPAs have registered to use the service, 27,000 access codes have been provided to organisations, and over 17,900 LPAs have been viewed online by hundreds of different organisations. With the recent extension of the service, its benefits will be available to many more clients.
Whilst on the subject of LPAs, it is important to remind that, as with wills, completing an LPA is still a paper exercise. Although the document can be prepared electronically, it is compulsory for the parties signing an LPA to do so in person using a wet ink signature. Digital signatures are not acceptable.
Also, remember that all the parties, i.e. the donor, the attorney(s) and the certificate provider, if required, must sign the same original document in a set order, although they do not need to sign it at the same time, so the document can even be posted.
And, while will signing may now be witnessed by videolink, the same is not proposed for LPAs. A witness must be physically present and watch the donor signing the LPA and then sign it themselves to say they have witnessed the signature. Similarly, each attorney’s signature must be witnessed. A friend or neighbour can do this at a distance outside the house. A signature can be witnessed through a closed window.
One of the effects of the pandemic has been to increase awareness of the need to put one's financial affairs in order. Just as there has been visibly increased demand for will writing, many individuals have wanted to make an LPA just in case their capacity, mental or physical, should become impaired. LPAs are often a useful topic to start a conversation about estate planning. Periodically, we hear reports of attorneys having problems with financial institutions refusing to accept copies of LPAs (they should in fact accept copies and not insist on seeing the original, needless to say) so having an online system to verify the attorneys is clearly helpful.
We have run out of space to consider online processes for probate and Land Registry so we will come back to this next month when we will also consider some significant 2020 court decisions relevant to financial services.
Finally, guess what next online: not everyone is aware that over the last few years, the HM Courts and Tribunals Service (HMCTS) has developed and piloted an online divorce service. It's called HMCTS Online Divorce Portal and the service has now been rolled out to the general public.
The portal offers the option to initiate divorce proceedings online, and it also facilitates the quick approval of financial remedy orders once a couple have agreed upon a financial settlement. What next indeed.
This document is believed to be accurate but is not intended as a basis of knowledge upon which advice can be given. Neither the author (personal or corporate), the CII group, local institute or Society, or any of the officers or employees of those organisations accept any responsibility for any loss occasioned to any person acting or refraining from action as a result of the data or opinions included in this material. Opinions expressed are those of the author or authors and not necessarily those of the CII group, local institutes, or Societies.