When banks pay out ‘Probate Funds’ too early! PART II
‘Clouding The Waters’ – discretionary payments by banks.
When banks and building societies release monies without requiring ‘Proof of Probate’, this allows the formal processes to be by – passed. It means ‘Lost Income’; for ‘Probate’ practitioners and potential future problems for ‘Beneficiaries’.
Despite the ‘Act’ seemingly setting the threshold for ‘Probate’ at £5,000, it is ‘Restrained’ on the release of funds from bank accounts. As a result, financial institutions have been free to choose their own limits.
Most banks in the UK raised their thresholds in 2015 after a review, in response to campaigning by ‘Consumer Groups’ and the public. The manoeuvre was to enable families to wind up financial affairs more easily, which is an understandable consideration.
Nonetheless this seems to have taken place without due regard for potential consequences, such as lost repayments for the ‘Department for Work and Pensions’ (DWP) and the increased risk of tax or inheritance fraud.
In 2012 the ‘Law Society’ published the ‘Banking Practices Protocol on Estate Administration‘. This was developed together with the ‘British Bankers’ Association’ and the ‘Society of Trust and Estate Practitioners’ (STEP).
The ‘Protocol’s’ purpose was to ‘Provide Clarity’ on the ‘Role of Banks’ following the death of a customer. However, the document does ‘Not’ recommend any designated threshold for dispensing account funds without ‘Proof of Probate’.
Regardless of the ‘Overall Increase’ in 2015, there is ‘No Standard Figure’ at which ‘Financial Institutions’ insist on evidence of probate. There is still a huge divergence across the sector, with thresholds ranging from £5,000 to £50,000.
It is ‘Ambiguous’ why the majority of institutions choose to deviate from the upper figure of £5,000 provided in the ‘Act’. Institutions also seem to differ as to the practical application of the threshold. Some Institutions apply it to the ‘Overall Value of The Estate’, which may be spread across several accounts. Others ‘Apply the Limit’ to the ‘Figure’ held by that individual bank. Where Institutions release funds on the basis of the amount they hold, rather than the ‘Total Estate’, it can result in exceptionally high sums being released ‘Without Probate’.
Intestacies and ‘Bona Vacantia Estates’
In England & Wales, the ‘Lion’s Share’ of ‘Ownerless Property’, including ‘Intestacies’ where there is no known ‘Entitled Relative’, is ‘Bestowed to The Crown’. These ‘Unclaimed’ or ‘Ownerless Estates’ are known as ‘Bona vacantia’. In inclusion to the scenario described above, the ‘Bona Vacantia Division‘ (BVD) of the ‘Government Legal Department’ also uses a threshold of £15,000 to define ‘Small Estates’. Not only does this exceed the limit contained in the ‘Act’, it emerges that the ‘BVD’ periodically breaches its own threshold and ‘Releases Funds’ exuberantly, sometimes exceeding £15,000 without requiring a ‘Grant’.
The application for, and extraction of, a ‘Grant of Representation’ is quite rightly a ‘Reserved Activity’. The desertion of this process not only represents lost business for qualified ‘Probate Practitioners’, it can also lead to a variety of potential problems, such as the loss to the public purse.
A ‘Double Whammy’ – the ‘Department For Work and Pensions’ (DWP) also loses out
The ‘DWP’ has the right to recover debts ‘Owed to them’ from the ‘Estate’ of a deceased person. In dealing with this, the ‘DWP’ monitors all ‘Grants’ that are issued and checks the names against its records. This appears to be the only approach by which the ‘DWP’ determines whether a ‘Deceased’ benefit claimant owned more assets than was declared. If funds are released without ‘Probate’, the ‘DWP’ never becomes aware of the ‘Estate’ and they will be unable to assess the ‘True Position’. This leaves ‘Government Funds’ deprived of much-needed monies.
Likelihood of DWP debts
‘Debts’ owed to the ‘DWP’ due to ‘Overpayments’ may be more common place than many people realise. According to the ‘DWP’s’ National Statistics on ‘Fraud and error in the Benefits System’, in the tax year ending April 2020, overpayments increased compared to the previous year. A total of £270 million was overpaid. The report indicates that ‘Pension Credit’, the primary benefit for elderly people of ‘State Pension Age’, had an ‘Overpayment Rate Of 5.3%’.
In addition, almost a quarter of all cases ‘Involved Overpayment’. The increase in ‘Pension Credit Overpayments’ was attributed mainly to ‘A rise in Fraud’ as well as genuine errors by claimants, such as not immediately declaring changes. Most grieving families do not consider that their ‘Deceased’ relative may have fallen foul of the strict rules on ‘Pension Credit’ or other social security benefits. If they are ‘Administering’ the ‘Deceased’s Estate’ without obtaining a ‘Grant’, they may be unaware of the trouble they could be storing up for the future. These potential problems are ‘Easily Avoidable’ if due process is followed and a solicitor is instructed to obtain the ‘Grant’.
‘Debt Recovery And Overpayments’ example:
Even ‘Substantial Estates’ can be hidden from the ‘DWP’s’ view when banks and building societies release sums to relatives ‘Without Probate’. It would be perfectly conceivable for a relative to access £200,000 without ‘Probate’, across multiple financial institutions. For example, this could be achieved by closing down three bank accounts containing just under £50,000 each, ‘Plus’ two building society accounts containing just under £25,000 each. In this example, the ‘Beneficiary’ may not realise that the deceased had ‘Neglected to declare their considerable Savings to the DWP’. In fact, the ‘Deceased’ had been inaccurately in receipt of ‘Low Income Benefits’ for a number of years, accruing overpayments in the thousands of pounds. Not knowing this, the ‘Beneficiary’ could spend their inheritance on the purchase of a family home. If the ‘DWP’ later discover the existence of the ‘Estate’ and the ‘Debt’, it would cost considerable time and resources in trying to recover all or part of the ‘Debt’. The ‘Beneficiary’ could even be forced to sell their property if they had insufficient funds available to repay. Essentially, if the ‘DWP’ remains ‘Unaware of the Estate’, there will be a loss to ‘Government Funds’. Regardless of which way this ‘Pans Out’, the risk to ‘Beneficiaries’ of distressing debt recovery and legal action is best avoided by using the ‘Formal Mechanism’ and employing a professional to obtain ‘Probate’.
‘Ever- Expanding Financial Sums’
Both Solicitors for the Elderly (SFE) and STEP (The Society Of Estate and Trust Practitioners – www.step.org) have reported that, since ‘The Covid-19 Pandemic’, sums being released ‘Without Probate’ have ‘Skyrocketed’. While the ‘Previous Maximum’ was £50,000, ‘Institutions’ are now issuing ‘as much as £125,000‘. Ownership of ‘Real Estate Property’ triggers the requirement for ‘Probate’. Nonetheless, sometimes the ‘Deceased’ did not own property but had ‘Financial Accounts’ with ‘Multiple Institutions’. This can result in hefty sums being handed to individuals who have ‘No Formal authority to manage the Estate’.
The ‘SFE’ in particular have raised concerns about this matter. The concerning ramifications extend even beyond the ‘Financial Impact’ on the ‘DWP’, given that the practice reduces clarity and legal neglect in a way that may ‘Facilitate Fraud’ and could be considered counterproductive to ‘Law Enforcement’. Being cognizant of the ‘Substantial Sums’ involved, there is also a risk that ‘Individuals’ could abuse this process to avoid paying ‘Inheritance Tax. The practice may therefore be ‘Problematic’ for ‘HM Revenue and Customs‘.
‘A Logical Examination Of This Dilemma’
Matters relating to ‘Death And Associated Finances’ should be managed with the utmost ‘Transparency’, ‘Accountability’ and ‘Due Process’; furthermore the ‘Probate Court System’ should be ‘Utilised by Professionals’ or ‘Personal Applicants’ for all but minor values. It is acknowledged also that Government Finances can sorely afford for ‘Estates’ to be hidden from view when there is a possibility of recovering ‘DWP’ overpayments. For these reasons, ‘Financial Bodies’ and other ‘Institutions’ should adhere to a lower, specific, standard limit, above which they will not freely issue funds. In the absence of any other ‘Clearly defined figure’, a ‘Logical recommendation’ surely then is that this figure should be set at the £5,000 threshold for ‘Small Estates’ as stated in the ‘Act’. Government guidance is very much welcomed here, or indeed ‘Legislation’, to ‘Improve Consistency’ in this area. This could help prevent the complications that can arise when ‘Estates’ are administered without the authority of a ‘Grant of Probate’.
‘Observations from Institutions in this area have noted’:
That the ‘DWP’s’ attention has been drawn to the likelihood that ‘Estates Are Concealed’ from them due to this loophole in the ‘Probate System’; but have declined to comment on the matter!
The ‘DWP’ was also asked to confirm that the ‘Strict Application’ of a £5,000 ‘Small Estate Threshold’ for ‘Probate’ purposes would be of benefit to ‘Government Funding’. Similarly, comment was declined!
If you would like any further advice, please do not hesitate to contact us:
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