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A Global Standard for Incapacity: STEP’s GRP Proposal and Its Implications
Introduction
Planning for loss of capacity can be challenging at the best of times. Lasting Powers of Attorney (LPAs), or their international equivalents, enable an individual (technically, a donor in the case of LPAs) to appoint representatives (or attorneys) to carry out their wishes should they become incapacitated or unable to make decisions to protect their own interests.
Each jurisdiction has its own regulations and formalities in relation to questions of incapacity and some jurisdictions have no framework in place at all. Even where there is a framework, as with the UK’s system, representatives (or attorneys) often encounter difficulties in obtaining recognition of their LPAs for use abroad, as this article will explore.
An Illustration
Let us consider a donor who works in the UK, as this is where his business is headquartered. The UK is not his country of origin, and nor is it the jurisdiction where his family and most of his assets is situated. His business has offices worldwide and he personally has multiple bank accounts and properties in those jurisdictions too.
This individual has registered both types of LPA (i. Property & Financial Affairs and ii. Health & Welfare), but when he sadly develops an illness which inhibits his decision-making powers, the attorneys discover that the LPAs are not recognised in the other jurisdictions where he operates his business interests and owns assets.
STEP’S Global Representative Power
In an attempt to address this issue, we illustrate above, the Society of Trust and Estate Practitioners’ (STEP) has proposed a model for an internationally recognised power of attorney, with the intention that it may be accepted worldwide.
In August 2023, STEP’s expert members set out their proposal for a so-called ‘Global Representative power’ (GRP). STEP hopes that the GRP will serve as a global benchmark when reviewing or implementing new legislation, particularly in jurisdictions where the laws surrounding cross-border incapacity fail to exist or are not as robust as can be. In effect, this is an effort at achieving harmonisation on questions of incapacity in a manner which reflects and accommodates our globalised world.
The proposed GRP is not intended to replace any existing framework (at least for now), but instead it seeks to offer additional security by capturing the strengths and characteristics of LPAs in a single ‘catch-all’ guide, which if adopted accurately, will enable donors and their representatives, the ease of managing their affairs in a harmonised global manner and without jurisdictional issues.
The GRP is still a template at present, which is likely to be subject to change. The model application forms can be viewed as part of the GRP toolkit published by STEP which includes guidance, considerations, and final certificate templates.
What Does STEP Aim To Achieve With Its Proposed GRP?
STEP conducted a survey in partnership with Alzheimer’s Society last year, which received responses from 756 members in 44 countries. Responses showed an overwhelming demand for further information and international discussion on how practitioners should offer advice to clients seeking to protect their assets, and for greater recognition and portability of LPAs across borders.
The key objective behind STEP’s proposal is to raise general awareness of the considerations behind incapacity and to encourage policy makers to:
- Ensure global legislation is robust and consistent;
- Safeguard against abuse; and
- Educate about capacity and associated planning.
Ultimately, STEP hopes to set a ‘gold standard’ which will be consistent in each jurisdiction. If successful, there is potential that the GRP will set the standard in minimising the time and cost constraints of registering multiple LPAs and appointing different attorneys in different jurisdictions.
Having a harmonious approach to incapacity globally should prevent donors from being left without attorneys in a jurisdiction where LPAs have no effect. In the UK, the absence of an LPA or some global equivalent with effect in the UK, would result in family members having apply, at some cost, to the Court of Protection.
Limitations Of The GRP
The GRP is limited to decision-making relating to property and financial affairs, whereas LPAs can also be used for matters relating to health and welfare. As such, even if the GRP is implemented, clients ought to consider their health and welfare needs in each jurisdiction where they spend any considerable time.
As always, donors should consider their chosen representatives in great detail. An attorney might be competent to manage the affairs in one jurisdiction but may be challenged with obstacles such as language barriers in another. An attorney who is fit to manage personal finances may not be equipped to manage the donor’s businesses. In these situations, it may be more practical to appoint different attorneys in different jurisdictions.
Whilst the GRP may be adopted worldwide, it is currently nothing more than a proposal and has no legally binding effect as things stand. STEP will urge jurisdictions worldwide to consider the GRP as far as possible, but it is down to the jurisdiction interpreting the GRP to ensure that standards are upheld, and suitable legislation is introduced to achieve the GRP’s core objectives.
For these reasons, and until the principles held within the GRP become wholly enforceable, it is still recommended that donors should seek advice on the requirements pertaining to the laws of incapacity, as they currently stand (both relating to property and financial affairs and health and welfare) in each jurisdiction of interest.
Conclusion
There is a long way to go despite STEP’s efforts to address a grey area that is cross-border incapacity, and the uncertainties that currently stand in the way of ensuring donors and their representatives have a thorough and effective process of managing their assets overseas.
Acceptance or even mere discussion of the GRP can be regarded as a step in the right direction. However, guidance may not be enough, and some degree of harmonisation brought about by legal measures is more likely to deliver on these stated objectives.
As matters stand, we continue to advise and recommend clients that the appropriate LPAs are registered, both in terms of assets and health. Further guidance can be found in the following briefing note on LPAs.
For tax and private client advice and services, please contact Ben Rosen via our contact form below.
Digital Makeover: Estate Planning Edition
To avoid disappointment at the outset and be totally up front, I’m not here to announce some digital asset rebooted version of Extreme Makeover: Home Edition, although the mere thought of that show does bring a flood of youthful nostalgia my way.
I do, however, find bricks and mortar terminology useful when discussing estate planning with clients. First, you have to prepare the site, then lay the foundation, build the structure (comprising several levels perhaps), and eventually construct the roof to enclose and protect the entire structure. Sometimes, in estate planning, we build ab initio. In other cases, it’s an extension or perhaps just a much needed facelift or renovation.
So why do I mention digital assets? This is not simply a consideration for crypto enthusiasts and proponents of all things decentralisation. Digital is going mainstream, not simply by reference to the current value of BTC or ETH but also by the more widespread adoption of blockchain technology through areas like tokenisation and the use of NFTs to determine the provenance and authenticity of goods.
Digital may even mean simply the passwords to access your moderately successful side hustle business on eBay or Amazon.
So, as we move into an era of increased digitisation both in terms of how we store personal information and, of course, store value, enquiries from clients are building on how to approach digital assets from a trust and succession planning perspective. So, let’s see how the good old world of law is adapting and navigating in this space.
Wills: The Foundation
Enter the foundational piece of estate planning – the Will. A Will is not simply for old people as, sadly, it is not just the elderly who are vulnerable to kicking their mortal coil. Some might ask what a document, which derives its essential legal framework from the year 1837, has to say on digital assets. However, this is not about making bequests of the ancient family heirlooms or even preventing an intestacy scenario, but about ensuring that your cryptoassets do not end up in the digital abyss.
Without access to the access key, where is the value? Fundamentally, without a key to the safe, its contents are rendered worthless.
Lifetime Trusts: The Next Level Of Protection
Now, let’s talk about lifetime trusts. The word gets thrown around, but what exactly is a trust?
In short, a trust is a legal arrangement where one person or entity (the trustee) holds and manages assets for the benefit of another person or persons (the beneficiary), in accordance with certain rules or terms.
With a trust, as with a Will (albeit in a more existential sense with a Will), you have to accept a degree of control being lost. Setting up a trust for your cryptoassets means appointing a trustee, a guardian or custodian for your digital fortune. The trustee will navigate the crypto maze, ensuring your assets are in safe hands, and held for the benefit of your loved ones.
This trust might be established with tax, asset protection and succession planning in mind, or perhaps even a combination of all these factors.
Communication: The Roof
Legal structures and documents do not serve merely as the framework for rules. If done correctly with the advisor understanding the asset class, the legal work also serves as an effective communication tool. Whether it’s a traditional family business or the family home, communication is arguably as important as the legal framework itself. What good is the structure without the roof on top? So remember, communication is the key to a smooth transition and this is no less applicable to digital assets.
Create a digital treasure map, an inventory of your cryptoassets, passwords, and access codes. Share this map with your chosen executor or trustee. It’s like passing on the key to the crypto kingdom, ensuring your heirs do not end up in a digital maze brought about less by your doing and more by your inaction.
Let that oft-quoted crypto term be true, WAGMI. We’re All Gonna Make It, indeed, but what is your legacy plan and is it time for a digital makeover…estate planning edition?
For tax and private client advice and services, please contact Ben Rosen via our contact form below.
A Tax Guide for Hong Kong Residents Moving to the UK
It is imperative that Hong Kongers seeking to relocate or invest in the UK ensure that they have a clear understanding of the UK tax system and seek pre-arrival tax planning advice. Income tax rates are generally much higher in the UK than in Hong Kong, and the UK also levies tax on capital gains and inheritance.
However, depending on eligibility, the UK permits non-UK individuals to benefit from a favourable tax regime while resident in the UK.
The UK’s tax system for individuals hinges on two crucial concepts: residence and domicile. These factors determine an individual’s liability to UK taxes, and they are distinct from immigration status.
Residence
An individual’s UK tax residency status is determined by the UK’s Statutory Residence Test, taking into account factors such as:
- The number of days spent in the UK
- Ownership of a home in the UK
- Employment inside or outside the UK
- Presence of UK-resident close family members
- Previous days spent in the UK in prior tax years
Non-resident individuals generally face limited UK tax liability, primarily related to UK-source income, such as earnings from UK properties, as well as capital gains on specific categories of assets.
Becoming a UK tax resident significantly expands this tax exposure to a global level; it is, therefore, crucial to plan carefully and far in advance to avoid inadvertently becoming a UK tax resident or becoming a UK tax resident having already put in place measures for UK tax optimisation for your global assets.
Domicile
Domicile, an English common law concept, centres on the place of an individual’s permanent home. A status generally inherited from one’s father at birth, domicile may change if a person relocates to a new jurisdiction with the intention to reside permanently/indefinitely. UK tax rules also deem individuals domiciled in the UK under specific circumstances, notably for long-term residents.
Domicile plays a vital role in UK taxation because:
- Non-UK domiciled individuals who are resident in the UK can claim the remittance basis of taxation for non-UK income and capital gains and
- Non-UK domiciled individuals are subject to inheritance tax only on UK-situated assets and certain offshore assets linked to UK residential property.
With longer-term residents of the UK, there is merit in building up evidence that they have not acquired a domicile of choice in the UK. Nevertheless, the UK tax authorities (His Majesty’s Revenue and Customs) may challenge domicile claims.
As Hong Kongers who relocate to the UK under the BNO visa program do so with the intention to settle in the UK indefinitely, their worldwide income and gains could be brought into the scope of UK taxation, including UK inheritance tax, highlighting the need for such individuals to obtain advice as soon as possible before they intend to come to the UK or shortly after.
Pre-Arrival Planning
Pre-arrival planning aims to arrange assets tax-efficiently in relation to their UK residence, including:
- Segregating accounts and creating a pool of funds for UK use without tax consequences, known as ‘clean capital’;
- Reviewing investments, trusts, and company holdings from a UK tax perspective; and
- Considering the tax benefits of the remittance basis of taxation for the first 15 tax years of UK residence.
The Remittance Basis
By default, UK residents are taxed on worldwide income and capital gains, known as the ‘arising basis’. However, UK resident non-UK domiciled individuals can elect to be taxed on the ‘remittance basis’. This means that such individuals are taxed on UK source income and gains as they arise, but non-UK source income and gains remain untaxed, unless remitted or brought back to the UK.
Under current rules, the remittance basis can be claimed for no charge during the first seven out of nine years of UK residence, making the UK an attractive destination in comparison to other jurisdictions. After this time, a charge applies, starting at £30,000 and increasing to £60,000. The remittance basis cannot be claimed after 15 out of 20 years of residence.
Property
For most individuals moving to the UK, purchasing a family home is a significant investment. Tax implications, as well as funding methods, should be carefully considered. Stamp duty land tax (SDLT) applies to property purchases in England and Northern Ireland, with higher rates for non-UK residents and additional rates applying for those who already own property worldwide. Seeking advice is crucial to navigating SDLT and other potential taxes related to property acquisition.
Conclusion
Relocating to the UK is a monumental decision with potentially far-reaching tax implications. The UK’s favourable tax regime, especially for non-UK domiciled individuals, presents a wealth of opportunities.
However, to ensure the most favourable tax outcomes, it is essential to seek expert advice and plan strategically, both before and after arriving in the UK. Whether you are considering the BNO visa route or other immigration options, understanding and optimising your tax position can significantly enhance your financial prospects in the UK.
To discuss any of the points raised in this article, please contact Ben Rosen or fill out the form below.