Insights

Most people put off planning their estate. This is often due to the common misconception that this involves how one’s estate will devolve after death, too morbid an idea for most to entertain. However, the concept of estate planning also captures the management of one’s assets over his lifetime. This is the primary objective of estate planning.

An estate consists of all one’s assets (including donations or inheritance) and liabilities. An estate does not cease to exist upon death. It rather merges with the estate of one’s successors. The assets of the deceased become their assets, and likewise the liabilities.

Maltese law provides several mechanisms for planning one’s estate. The most popular of these mechanisms is the will that becomes effective upon the testator’s death. Other popular mechanisms include regimes for the regulation of estates between spouses. These include the separation of estates and the community of residue under separate administration. Yet other increasingly popular mechanisms include trusts and foundations wherein property endowed is administered by a fiduciary. These may operate both during the lifetime of the planner himself, and also following his death.

There is a preliminary step before deciding on the mechanism to adopt. The starting point is the compilation of an inventory of all one’s assets. This inventory should include all assets, movable and immovable, tangible and intangible. One should give due importance to both the title by which the property is held and the share held therein. The inventory must also list scrupulously all the liabilities of the estate otherwise it would not constitute a comprehensive record of one’s estate.

Once the inventory is drawn up, the next step is to identify one’s purpose for planning the estate as clearly as possible. The clearer one’s purpose, the more successful the planning. Several general purposes that one may adopt are:

• to provide for one’s present and future, and the changing circumstances of life, including the possible loss of mental capacity. Mental incapacity prevents a person from direct involvement in the administration of his estate. In this case, the estate is administered by a fiduciary for his benefit.
• to provide for a loved one, be he vulnerable or otherwise. Vulnerable persons include minors and persons with a disability. The parents of vulnerable persons are commonly concerned with the prospects of their vulnerable children once the parents, generally the main caregivers, pass away or lose their capacity. To this end, they seek to ensure their financial security. In some cases, the planner should be aware that he cannot dispose of his estate in whichever way he wishes. Under Maltese law, the spouse and children are reserved a portion of one’s estate. This is the “reserved portion”, previously known as the “legitim”. It is futile for the testator to attempt to work around this obligation for in such cases, the testamentary dispositions will have to be abated so that the spouse and children may receive the portion due to them at law.
• to take necessary precautions to provide clarity, and in consequence the smooth devolution of one’s estate. The risk of contestation is not the only one for which a wise planner may wish to take precautions. Other such risks include the fear that a profligate heir might squander the inheritance on harmful and illegal activities. In such cases, a planner may appoint a fiduciary to administer the assets for the benefit of such person that would otherwise live a dissolute life if he had direct and unlimited access to the estate.
• to achieve some wider purpose. Such purposes are generally of social or public benefit. These commonly include causes such as education, health, the environment, or religion. An estate planning mechanism, such as a trust or a foundation, may be established for such purpose, with the planner specifying exactly how the desired objectives are to be achieved. For example, a foundation established for the advancement of education may be required to deliver specified courses at particular intervals.

Once the purpose has been defined with the maximum of clarity possible, the identification of the right mechanism becomes much easier, and a bespoke plan possible. However, estate plans should not be thought of as static and the law provides for the planner to revise and amend his plan according to the changing circumstances of his life. Indeed, the wise planner will view the planning of his estate as a lifelong process. However, it is his prerogative to determine the frequency with which he revises the plan. Nonetheless, his capacity to revise his plan is contingent upon his mental capacity at law.

Should a person fail to plan his estate, it shall devolve onto his successors through the dispositions in the Civil Code regulating intestate succession. In such cases, the legislator has established a mechanism whereby assets (and also liabilities) devolve onto the deceased’s next of kin according to the order of proximity. If a person wishes his estate to devolve according to a different order, insofar as the law permits, he would be well advised to make the necessary dispositions before mental incapacity or death.