Issue 31, Spring 2020, Trust eSpeaking

Legal documents signed during lockdown

Best to sign again after lockdown to avoid later complications

During the COVID lockdown, special rules applied to the signing of some legal documents. Obviously it was, and is, not possible to have your signature witnessed by someone outside your bubble in Levels 3 and 4. So the law allowed signing over audio-visual link (AVL) and other similar arrangements. While these documents will remain valid in the future, it may be wise to have wills and enduring powers of attorney (EPAs) signed out of lockdown to avoid any time-consuming queries later on.

Many legal documents need to be signed in a particular way or before a particular person. For example, some documents such as affidavits must be signed in front of a JP or lawyer. As this was, and is, not possible during lockdown, special rules were put in place to enable people to sign documents such as wills, EPAs, affidavits and so on.

The Epidemic Preparedness Act 2006 had anticipated that some special changes might be needed depending on the nature of any emergency that might arise. This meant that while an Epidemic Notice is in force, special regulations can allow documents to be witnessed by AVL. The Epidemic Notice came into force on 25 March 2020 and was renewed later so that it will not expire until 24 September 2020. This does not mean that documents signed under the special regulations will not continue to be valid after 24 September 2020. It just means that the special dispensations from strict requirements for witnessing documents will no longer apply after 24 September unless the Notice is renewed again.

Witnessing documents

Normally a will, in order to be valid, must be witnessed by two people neither of whom benefits under the will. The will-maker and both witnesses all need to be together at the same time and see each other sign. During the period while the Epidemic Notice is in force, it is possible for all three people to be in different places and to see each other sign using an AVL[1]. That means each person signs a different copy of the will. But all three copies will together make up one document.

Similarly, EPAs can be signed using an AVL. The witness to an EPA needs to be a lawyer or qualified legal executive[2]. The special regulation[3] allows the donor of the EPA to sign in a different place from the lawyer or other person witnessing the EPA. Similarly, each of the attorneys can sign in a different location from the person witnessing the attorney’s signature. Effectively each of these people will be signing a different copy of the EPA but together all of these copies will make up one legal document. Similar rules apply to signing affidavits and affirmations[4].

Arrangements have also been made for some court hearings to be conducted remotely by AVL during lockdown.
 

How long will the documents last?

Even after the Epidemic Notice has expired, documents signed using the special arrangements put in place remain valid. From a purely legal point of view, there will be no reason to have to sign any of these documents again.

There may, however, be some difficulty later on in establishing that the document was correctly signed in accordance with the regulations. As time passes, memories fade and at some time in the future it may be difficult to remember exactly what was required for signing a will or an EPA during lockdown.

[1] Epidemic Preparedness (Wills Act 2007 – Signing and Witnessing of Wills) Immediate Modification Order 2020.
[2] Some staff of trustee corporations are also able to witness EPAs.
[3] Epidemic Preparedness (Protection of Personal and Property Rights Act 1988 – Enduring Powers of Attorney) Immediate Modification Order 2020.
[4] Epidemic Preparedness (Oaths and Declarations Act 1957) Immediate Modification Order 2020.

If someone dies sometime in the future and leaves a will that was signed during lockdown, the High Court may want extra documents filed to prove that the will was signed correctly under the Epidemic Preparedness Order relating to wills.

Similarly, if someone wishes to rely on an EPA some years in the future, it may be tricky having to produce multiple copies of the document each signed by a different person or that person’s witness.

For these reasons, we would recommend that any will or EPA that has been signed during the lockdown periods using the special procedures should be signed again. There is no rush about this, but it would be wise to sign a fresh will and fresh EPA just to avoid any unnecessary complications. Getting probate of a will, for example, can be a very messy and time-consuming business if the will is in any way unusual. The registrar will often require further affidavits to prove the will was properly signed. Preparing these affidavits costs money and if you can avoid those complications by signing a new will in the usual way, this would be a good idea.

Trustees’ decisions

 Decision-making can be affected by bias

In a recent case[1], trustees’ decision-making came under scrutiny from the High Court.

Lara Unkovich was a young teenager when her grandfather died in 2016, leaving her a share of his estate. Her share was worth around $65,000. Under his will Lara would not receive the funds until she was 21 years old. The trustees, however, had the power to make payments towards her ‘maintenance, education, advancement or benefit.’ The trustees were her aunt Margaret and a lawyer. 

 Request for beneficiary to be paid out early

In October 2016, Lara’s mother wrote to Margaret about Lara’s share of the estate. She asked that Lara’s share be immediately paid out on the basis that Lara needed it for her education in Australia. Lara’s mother said that this Australian education would provide Lara with the best opportunity to improve her national tennis ranking and then possibly gain a scholarship to a US university. 

The trustees refused. In September 2017, Lara’s parents sent a detailed request to the trustees explaining the nature and the purpose of the request for funds. 

Arguments continued for some time about the proposal to fund Lara’s education in Australia. The trustees were critical of the funds being used when Lara was only 16 years old and believed the chances of her becoming a professional tennis player were slim. 

Lara’s parents thought that the trustees were mistaken in their understanding of the request for funds; they advised the trustees that because of Lara’s stellar academic record and tennis ability, she was on track to obtain a fully-funded tennis scholarship to a US university, which was very valuable. Their argument was that Lara’s future success as a professional tennis player was irrelevant; her tennis aptitude and academic results had opened up educational opportunities. To take advantage of these, Lara needed to continue her tennis coaching and education in Australia.  

 High Court decision

Eventually the matter came before the High Court, which found that:

• The trustees were mistaken as to the nature and purpose of the request for funds – being Lara’s education – for which tennis was the means but not necessarily the end 
• The trustees were working under an unsupported assumption that Lara’s parents were financially unstable and imprudent, and
• Because the trustees’ mistakes (above) were material, the trustees had breached their fiduciary duty in failing to give proper consideration as to whether advancing the trust funds to Lara’s parents would be for Lara’s maintenance, education, advancement or benefit. 

An interesting feature of this case is that Margaret had legal advice throughout and she continually relied on it. The court found that the advice appeared to have relied on Margaret’s instructions that, among other things, Lara’s parents were financially imprudent. The court found that while Margaret did not have a duty to be right when she made trustee decisions, she did have a duty to make proper enquiries and give fair consideration to the matter, which she failed to do. 

 Issues around costs

Costs are also an interesting feature of this case. Margaret was not entitled to reimbursement from the trust fund for the legal costs she had incurred. (While this may seem fair in the case of a smaller trust fund for Lara’s benefit, and given that Lara was successful, trustees are entitled to be paid their costs reasonably incurred in the course of the trust administration.) Margaret was also ordered to pay court costs to Lara in relation to part of the litigation. The judgment does not consider the other trustee’s legal fees or liability for costs.

[1] Unkovich v Clapham [2020] NZHC 952.

Lessons to be learned by trustees

This case is a good illustration of the difficulties that trustees can face, particularly in family trust situations where trustees may have personal knowledge or biases that affect their decision-making. It is not uncommon for one trustee to have concerns about a beneficiary’s financial ability, particularly when they are closely related, but trustees need to ensure that they are giving fair consideration to the beneficiary in question. 

Professional trustees should also take care to make their own inquiries to verify information about beneficiaries. If trustees do not have sufficient evidence to rely on to confirm their unease, they may face their decisions being overturned and then possibly having to pay court costs.

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