Specialists Call For Cap On Funds Released And Greater Education

Legal experts are calling for a cap on the amount of money that can be released without a grant of probate in place as well as greater education on the topic, as individual funds being released to families tops £175,000.

Since lockdown there has been an increase in banks and other financial institutions issuing huge sums to family members without the need to see a grant of probate, bringing risks that estates are potentially being received by the wrong people and even leading to a lack of proper accounting for inheritance tax.

Anecdotal accounts from experts at leading national law firm Irwin Mitchell, and elsewhere in the legal industry, have reported increasingly large amounts of money being released by banks and other financial institutions when grant of probate hasn’t been issued – the largest seen so far being hundreds of thousands of pounds.

Specialists at Irwin Mitchell warn this may be a problem in two key ways: those beneficiaries who are entitled to receive the estate funds may be potentially missing out on parts of the estate that were left to them if funds are being paid out to the wrong person. On top of this, those that receive the funds may not realise the need to account to HMRC and could be either unwittingly or knowingly avoiding paying inheritance tax.

Expert Opinion

“There’s been an increase over recent years in releasing funds without a grant of probate, but now we’re seeing truly staggering sums being released. Previously financial institutions would have insisted on a Grant of Probate to ensure they were paying the funds to the personal representative of the estate, which was an important safeguard.

“But increasingly it seems that financial institutions are insured in the event they pay to the ‘wrong’ person, if they don’t insist on seeing a grant of probate before paying out. This may well be being done with the best of intentions to release funds to families quickly during this difficult period, but it is causing unforeseen consequences – especially as the sums released get bigger and bigger.

“As well as potentially issuing money to the wrong person, the true beneficiaries under the will or under the laws of intestacy, might not know the funds have been paid out to others – missing out on their share entirely. This can lead to costly will and estate disputes.

“There’s also a risk that proper probate processes aren’t followed by those receiving the funds, including dealing with inheritance tax. Those picking up huge sums of funds may not then see the necessity to submit an inheritance tax return. Failure to submit that return and pay the tax due, where it necessary to do so, is a criminal offence and so the risks are great.” Gillian Coverley - National Head of Partnerships, Wills & Probate

The usual process is that money in the name of the deceased should only be released for the payment of the funeral account and inheritance tax directly to HMRC. You need to pay the IHT before you can get the grant of probate; the rest of the estate should only be released when probate has been issued.

A grant of probate proves that the named executors have the authority to deal with the assets and liabilities of the deceased and to implement the terms of the Will (or according to laws of intestacy if no Will is in place). Without this authority, money could be issued to the wrong beneficiary.

There’s always been provision to allow small amounts of funds to be issued by the banks without probate; usually this is around £20,000-£40,000, but recently figures have been skyrocketing past this to upwards of £175,000. A grant of probate currently takes on average eight weeks to secure.

Gillian continued: “The worry is that ordinary people are falling into a trap because the full procedures around grant of probate aren’t always being observed. Inheritance tax needs to be paid, and this is why solicitors are usually involved in the process as there are complexities to be anticipated and managed.

“The whole process of probate should be more carefully controlled to make sure innocent people aren’t committing crimes they may not even be aware of. We are calling for a limit to be set on the amount of money that can be released as well as greater education on the issues of probate so personal representatives are fully aware of what they need to do.

“I would advise anyone in this situation to take legal advice; it might seem like a welcome unexpected gift, but there are legal obligations when it comes to administering an estate that have to be adhered to – or risk breaking the law.”