‘Living will’ is a rather odd term. The Great Dictionary of the Dutch Language (Van Dale) After all, it defines the word “will” as: “a revocable statement setting out what a person wishes to happen after their death”.
A living will sets out what a person wishes to happen if, during their lifetime, they are no longer able or permitted to make decisions for themselves.
Living will = a (set of) power(s) of attorney
Legally speaking, a living will is therefore not a will but a power of attorney (or set of powers of attorney). The person drawing up a living will appoints one person (or more than one person) who can act on their behalf. These powers of attorney:
- relate to tax matters, banking matters, terminating tenancy agreements, and the like (financial power of attorney);
- ensure that interests as shareholders or business owners are represented (power of attorney for business purposes);
- ensure that this can be discussed and decided in consultation with doctors (medical power of attorney).
Within the legal framework, the principal determines the exact terms of the powers of attorney.
Living Will: A Practical Example
Father is an 80-year-old bachelor with a sizeable estate. The main asset in his estate is his own home. When Father passes away, a substantial amount of inheritance tax will be due. Is there anything that can be done about this?
Absolutely! For example, with donations Savings on inheritance and gift tax can be achieved. However, such gifts must be formalised in writing (acknowledgement of debt). After all, the bulk of the father’s assets is still tied up in the bricks and mortar of his own home. Such documented gifts must be recorded by a solicitor. The costs involved usually far outweigh the tax benefit to be gained.
However, at the notary’s office, it transpires that there is a problem. Father is suffering from dementia and is therefore unable to state his wishes. The notary determines that Father lacks legal capacity and is therefore not permitted to formalise the deed of gift.
The possibility of selling his own home is also thwarted by his father’s legal incapacity.
Is there a solution to this? Yes, there is: the father can be placed under administration. But then the court will be looking over the administrator’s shoulder. In practice, it appears that the court often does not grant permission for gifts (for example, in the form of an acknowledgement of debt).
Father could have prevented this by granting power of attorney to one (or more) of his children in a living will, before he became legally incapacitated, to formalise the gift deeds.
And more
Apart from making gifts, there are other conceivable situations in which tax-efficient arrangements cannot be put in place for a person who lacks the capacity to act, in the absence of a living will. These include, for example, actions such as:
- amendment of the terms of the marriage;
- making or amending interest arrangements in the event of a partner’s death;
- contribution of funds to a (savings) private limited company;
- taking out family loans;
- donate for the purpose of utilising the business succession schemes.
In addition, there may be many non-tax-related reasons for making timely arrangements through a living will. Your adviser to VWGNijhof can help you identify the matters you wish to have sorted out in the event that you become legally incapable. This is also important for young people, as they too may find themselves (temporarily) legally incapable for a variety of reasons.