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Most people have heard of Probate, something executors need after you die, and that you should have a Will specifying how your executors must distribute your assets. Less known is that not all assets are governed by a Will, and for some that are, there may be other ways of dealing with them in advance that could avoid the time and expense of obtaining Probate after your death.
With the closure of local Probate Registry’s, going digital for most applications and lockdown, it was the perfect storm for transforming what was an efficient local service into one with considerable delay, sometimes four to six months from the point of application. It seems hard to believe that aside from the human toll of the Covid-19 pandemic, five years on, the effect on processing times for various applications is still being felt. Probate issue time being one, Land Registry applications another! Although Probate processing times have improved significantly in recent months, this is not the case across the board, and for whatever reason, some applications are trapped in system far too long, with executors unable to move forward with the sale or transfer of certain assets.
And what if you are in the catch 22 situation of having to fund inheritance tax before you are allowed to apply for Probate but needing Probate to sell assets to pay for it? Bank and Building Society accounts with balances below a threshold can usually be accessed without Probate, and they will usually agree to release funds directly to HMRC to pay inheritance tax before Probate is obtained. Executors have six months grace after the month someone has died to pay inheritance tax on a property; and in the days of expeditious Probate processing times, this was usually ample. Once the grace period expires, you are into the territory of interest on unpaid inheritance tax. In the days of low interest rates, this was rarely a major problem, although delay obtaining Probate with current high interest rates can push up the cost of inheritance tax.
So, what if you foresee a funding and timing issue, or you do not need Probate for any other asset apart from a property to sell. Is there anything you can do about it? Unlike some countries, we can use trusts to manage certain assets, which can enable prompt dealing of assets after someone dies, rather than waiting for Probate.
A common example would be an elderly client who owns a property and maybe a small bank balance. The bank is unlikely to want Probate as they take a risk-based approach when deciding their policy on paying funds to the executor of an estate without Probate. If the property was in the deceased’s sole name, selling or transferring it to a beneficiary is impossible without Probate. However, in English law, the name an asset is registered in is not necessarily indicative of the beneficial ownership, and this is why we have the ability to sort certain assets in advance!
When someone owns a property registered in their sole name at the Land Registry, they could sign a TR1 form transferring it into the joint names of themself and one or two others as ‘tenants in common’ to be held by all those registered for the original beneficial sole owner. The names registered are ‘Bare Trustees’ who hold the property on behalf of the owner. After the owner has died, the surviving Bare Trustees (for which there must be a minimum of two) can sell or transfer the property without Probate. If only one Trustee remains, this is easily resolved by an additional trustee being appointed in the Land Registry transfer form. This does not change the fact they must account to whoever is entitled to the asset under the deceased’s estate – to the executors of the Will to deal with accordingly, nor does it exempt the executors from accounting to HMRC in respect of any inheritance tax which may be due, but the ability to do so is simplified as they can administer the asset as soon as they wish after the death.
This Bare Trust arrangement will need online registration with the Trust Registration Service, but this is a simple process and not an obstacle to this structure.
How else might Probate be avoided? Joint bank accounts automatically pass to the surviving account holder after one has died. On the face of it, the surviving account holder is now the owner. However, a Declaration of Trust could be signed declaring the basis on which they hold the money. Again, they can access the funds and account to the executors to distribute according to the Will.
What about Life Insurance? This can also circumvent the Probate system, and in fact it is usually sensible to do so, as writing the death benefit into a trust during lifetime will not only ensure access to funds after death without needing to wait for Probate, it also removes the value from the estate for inheritance tax purposes.
Underpinning such practical measures is ‘trust’. That’s why we bestow the title of Trustees upon those we choose to administer these arrangements and careful consideration is necessary to ensure the appointment of Trustees with integrity, reliability and who can work together harmoniously. This is not dissimilar to the considerations when thinking about who can deal with your assets during lifetime if you are struggling or become unable, in the form a Lasting Power of Attorney. You need to trust those you include in these types of arrangements, and steer clear of anyone who might have serious financial difficulties who might, through dire circumstances and desperation, abuse the trust you have placed in them.
There are many considerations when planning financial affairs during lifetime and once we have departed. A Will is but one element, there are numerous other points to consider, and taking advice from an experienced Private Client Solicitor can be a very useful step towards achieving practical solutions for what might otherwise be problematic processes riddled with delay.
If you need help with estate planning, wills and trusts, contact our expert Private Client solicitors by email or call +44 (0)3333 231580.
