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Probate: What's it all about?

If you are dealing for the first time with the estate of someone who has died, you must quickly get to grips with some probably unfamiliar concepts. This is a short introduction to the issues you may have to deal with. 

What is Probate?
Probate is the term loosely used for the process of administering someone’s affairs after they have died. It includes identifying and gathering in their assets, paying off any outstanding expenses and taxes, and making sure that what’s left is transferred to the people who are supposed to inherit.

This process is the responsibility of the Executors named in the Will – always assuming a Will has been made. If there is no Will, which means the person has died “intestate”, the responsibility falls to the next of kin. There are rules defining an intestate person’ next of kin for this purpose. Depending on the circumstances, this can be their spouse, children, siblings, parents, or remoter relatives like cousins.

The people with this responsibility are known as the “Personal Representatives” of the person who has died. What they must do depends on the assets the deceased person has left behind.

What is a Grant of Probate?
This is a document issued by your local District Probate Registry, which gives Personal representatives the authority to handle the deceased person’s assets.

Applying for a Grant involves proving that the person has died and that you are the rightful Personal Representative, declaring what assets the deceased person has left behind and paying Inheritance Tax if it is due.

If the person who has died left a Will, the personal representatives will be given a Grant of Probate. But if there is no Will, the Personal Representatives get Grant of Letters of Administration, which confers exactly the same authority despite the different name.

Whether the Personal Representatives need a Grant depends on the kinds of assets the deceased left behind.

What assets need a Grant?
Personal Representatives always need a Grant to deal with land. So, if the deceased left a house, the Personal Representatives cannot sell the property or transfer ownership to the heirs without first getting a Grant.

Similarly, shares cannot be sold or transferred without a Grant, and the same applies to some other investments, such as Premium Bonds, Unit Trusts and Stocks & Shares ISA’s.

What assets don't need a Grant?
Personal possessions such as jewellery and furniture can be sold, or passed to the heirs, without a Grant. The same applies to the deceased’s car, although the DVLA does have to be officially informed.

Incidentally, there is a very helpful government service called “Tell Us Once”, which lets Personal Representatives report someone’s death to most government departments in one go, including not only the DVLA but also the tax and benefits offices, the local council and even the Passport Office.

Bank accounts can be closed and the cash released, but only if the bank balance is small. All banks and building societies have their own policies about what constitutes a small balance. “Small Balances Limits” vary from bank to bank, typically between £25,000 and £50,000. Provided the deceased’s account is a “small balance”, the bank will close the account and release the funds on the strength of a death certificate.

What to do while waiting for a Grant?
Depending on the size and complexity of the estate, it can take weeks or even months for Personal Representatives to get the Grant. Meanwhile, assets are in effect frozen, while certain expenses may need to be paid upfront. Personal Representatives can meet these expenses themselves and be reimbursed when they get the Grant, but this isn’t always practicable.

One of the earliest, and biggest, expenses to deal with is the cost of the funeral. Thankfully, however, if you hand in the death certificate and the funeral bill to the deceased’s bank, the bank will pay the funeral bill direct.

Another major challenge can be Inheritance Tax. Personal Representatives can’t get a Grant without first paying the Inheritance Tax. But they often need a Grant to get access to the deceased’s assets to pay the Inheritance Tax in the first place. So, how can this circular problem be solved?

If the deceased left enough cash in a bank or building society, there is a Direct Payments Scheme which allows the Inland Revenue to take the cash from the relevant bank or building society to settle the tax bill.

In other circumstances, such as where the deceased’s wealth is tied up in the value of their house, you can get an Executor’s Loan. These loans are available from banks at their normal interest rates, and usually involve showing the bank what assets and liabilities the deceased has left behind, and committing to paying off the loan immediately when the property is sold.

Should I handle Probate myself?
There is nothing to stop you, as Personal Representative, handling the probate process by yourself, particularly if there is no need for a Grant, there is no Inheritance Tax Liability and the estate is relatively small and simple. But there’s no denying it’s a headache you can do without, especially if you are coping with bereavement.

While fear of the expense often stops Personal Representatives using a solicitor, this can be a false economy. The time, effort and stress involved can be overwhelming, and what takes you hours of research and weeks of hacking through bureaucracy can often be accomplished quickly and routinely by an experienced solicitor.   

To keep legal fees under control, you can do a lot of the simpler tasks yourself, such as getting assets valued, securing the house pending sale, registering the death, notifying insurers and utility providers what’s happened and settling outstanding bills. It’s a good idea to leave the more technical aspects to a solicitor, such as applying for the Grant and submitting an Inheritance Tax calculation. Some of the more difficult tasks are time-sensitive. For example, Inheritance Tax must be declared and paid within six months, so the support of a solicitor in meeting this deadline will be invaluable.

It's always sensible to get the solicitor to handle the distribution of the estate to the heirs and produce an Estate Account proving that all the assets have been properly gathered in, all the liabilities discharged and the net proceeds properly distributed. This eliminates the risk of stressful and expensive complaints and disputes. Personal Representatives can be sued by the heirs if they get things wrong, so having a solicitor to prevent mistakes can be a crucial protection.

Estate Planning to simplify Probate.
When thinking ahead about your own estate, there are lots of things you can do to make life easier for your Personal Representatives when you’re gone.  

One of the easiest things you can do is make your Will. By nominating the Executors that you can rely on to cope with the challenge of administering your estate, you remove most of the potential problems at a stroke. Not making a Will means lumbering your next of kin with the task whether they have the skills and confidence or not, so it makes sense to take control from the outset.

If you co-own your house with your spouse or partner as “joint tenants” and you’re the one who dies first, they will automatically become the sole owner without having to get a Grant. Take careful advice about this, though, particularly if you have children who you want to inherit the house after you have both gone, because “joint” ownership carries the risk of the house being diverted away from your children in the interval between the first and second death.

A clever way of passing your house to your spouse and then your children without ever needing a Grant is to make a Family Trust Deed, putting your house into a Family Trust that passes the property down the family line automatically at each generation. This is only practicable if you have paid off your mortgage and your house is worth £325,000 or less – or £650,000 or less if you are a couple.

Consider spreading your savings among several banks and building societies, staying under each institution’s Small Balances Limit. Alternatively, talk to your financial advisor about putting your savings into investments that pass directly to your chosen heirs when you die. Examples include Discounted Gift Trusts offered by many institutions and Probate Trusts as offered by Prudential.

Finally, if your estate is large and complex, and your family will still be stuck with navigating the probate process despite the measures mentioned above, your Estate Plan can include our Probate Guarantee, which gives your Executors access to a solicitor at a 50% discount, with costs capped at 5% of the estate no matter what. This will give your Executors the confidence to rely on a solicitor, safe in the knowledge that at least 95% of your estate will be immune from legal expense.

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