When do you not need probate?

When someone dies, the surviving relatives or executors are often advised they will need a grant to deal with the assets in the estate.

Sharon Crosby, associate in our private client practice, explains the different grants of representation and why you need one.

What is a grant of representation?

When a person dies, the surviving relatives or personal representatives (person(s) responsible for dealing with a deceased’s estate) are often advised they will need a grant of representation (or ‘grant’) to deal with the assets in the estate. There are several types of grant of representation, which confirm a person’s right to deal with the assets in the estate (money, property, and possessions) of the deceased.

The most common of grant of representation is a grant of probate. This is a court sealed document issued by the Probate Registry (part of the Family Division of the High Court) and is given when a person has left a will naming an executor or executors who prove the will through the probate court.

How do you get a grant of probate?

To obtain a grant of probate, executors must submit the original last will and testament of the deceased and any codicils to the will to the Probate Registry, who will check for any defects. This might include alterations or signs of tampering. The Probate Registry also checks that the execution of the will is correct and in accordance with the rules set out in the Wills Act 1837.

Once satisfied that the will is valid and any inheritance tax (IHT) due has been paid to HM Revenue and Customs, the Probate Registry will issue a grant of probate.

The grant contains details of the deceased and the personal representatives. It includes a summary of the net and gross value of the estate and bears a holographic seal of the Court. A grant of probate is a document of public record, along with the will and any codicils. Anyone can apply for a copy or contact the Probate Registry to confirm the information contained within a grant.

Why might you not be able to get a grant of probate?

The Probate Registry also needs to confirm that the correct people are applying for the grant. Applications can become complex where there are issues with the executors appointed, and there is a strict order of who can apply for a grant where an executor is unable to act and there is no replacement appointed.

In situations where there is a valid will but no executor who can act, the grant is one of letters of administration with will annexed. There may also be limitations added to the grant, for example, stating it is for the use and benefit of an incapable executor.

Where a person dies intestate (without a will), the grant will be one of letters of administration. Again, there is a strict order of priority in terms of who can apply for this type of grant. This will either be someone with a beneficial interest in the estate, or for the use and benefit of such a person, for instance, a beneficiary (a person inheriting) under the age of 18.

When might a grant of probate not be needed?

It is often assumed that dealing with an estate is more complex when there is no will, and that a grant of probate is always necessary when a person dies intestate. In fact, the type of assets in an estate, their ownership and value, will determine whether the personal representatives need a grant of probate or not.

Joint assets

The most common and straightforward situation where a grant of probate will not be needed is where the deceased owned assets in joint names. This may be property, bank accounts, or life policies, that continue in the name of the survivor. If an asset is jointly owned, then it is likely to pass to the remaining joint owner by operation of law known as survivorship, regardless of any contrary intention in a will.

It’s always important when preparing a will and dealing with an estate to establish the way in which all the assets are owned. Property ownership is an area where you must take particular care. A jointly-owned property may be held as either joint tenants or tenants in common.

Joint tenants

Where property owners are joint tenants, the whole asset will pass to the surviving owner. Updating ownership after the death of a joint tenant is straightforward and does not require a grant of probate:
• registered property – apply to the Land Registry to remove the name of the deceased owner
• unregistered property – place a death certificate with the title deeds

Tenants in common

While most joint owners hold properties as joint tenants, this should never be assumed. If the property is held as tenants in common, each party owns a distinct share and the rules of survivorship do not apply. The deceased person’s share of the property will pass in accordance with their will or under the rules of intestacy. Owning property as tenants in common can be useful for tax planning and protecting assets from future care costs.

Where a property is held as tenants in common, a grant of probate will usually be necessary to transfer the deceased’s share to the beneficiaries. However, there are circumstances where a grant may not be required, and the surviving owner may be able to apply to the Land Registry for removal of the tenants in common restriction (known as a ‘Form A’ restriction) from the title. For example:

• A husband and wife hold their property as tenants in common and set up nil rate band discretionary trusts in their wills for tax planning purposes. Following the introduction of the transferrable nil rate band (TRNRB) on 9 October 2007, the trustees may, on the first death, decide that the tax planning purposes of the nil rate band legacy are no longer needed.
• The trustees can end the trust by appointing the assets to the survivor, thereby using the TRNRB. The name of the deceased owner can be removed from the title by submitting a death certificate, but the Form A restriction will remain.
• To remove this, the surviving owner can submit an application to the Land Registry, explaining the distribution of the estate and why the restriction is no longer required. If there are any complications or queries, the Land Registry may still ask for a grant of probate.

If a property held as tenants in common is the only asset requiring probate, take legal advice to ensure that the title to the property is properly dealt with.

Assets held in trust

Another situation where you may not need probate is where assets are held in a trust and not owned by the deceased in their personal capacity. Assets may have been placed in trust by the deceased as part of their lifetime tax planning or for asset preservation.

Alternatively, the deceased may be a beneficiary of a trust themselves and entitled to benefit from an asset during their lifetime, which is not then distributed as part of their estate on death.

In this situation, the legal owners of the property will be the trustees. They will be the people who can sell, transfer or otherwise deal with the assets. However, the deceased may still have an interest that must be declared for IHT purposes, and even if probate is not required, the estate might still have an IHT liability.
Always seek legal advice where the deceased was a beneficiary of a trust or created a trust during their lifetime.

Assets of lower value

Another common situation where probate is not required is where the value of bank accounts or investments is below the threshold of the financial institution. This is difficult to find out without contacting the relevant asset holder.

The Administration of Estates (Small Payments) Act 1965 (as amended) sets out that a grant of probate isn’t required for assets below the value of £5,000. Financial institutions, such as banks, building societies, share registrars and investment companies, will set their own level of risk in terms of the sums that they will release without a grant of probate. Some thresholds can be £50,000 or higher, so it is important to check the requirements of the particular asset holder.

There will still be some administration involved, as each institution will have its own requirements and forms to complete, including signing indemnities to protect the organisation against any future claims. The persons claiming the funds will have to prove their entitlement, either by producing a copy of the will confirming their appointment as executors or confirming their relationship to the deceased.

A financial institution may reserve the right to request a grant of probate if there is any dispute about entitlement to the funds.

Pensions

Pension payments are usually made at the discretion of the pension scheme trustees. These generally fall outside of an estate for IHT and distribution purposes. This means that a grant of probate is not usually required to release any lump sum pension benefits.

The trustees of a pension scheme may not have received instructions from the deceased during their lifetime about who should benefit from the pension fund, or there may be no clear next of kin to whom payment should be made. In cases like this, the pension company can decide to make payment to the personal representatives of an estate and will request a grant of probate.

Therefore, it’s important to ensure that up-to-date instructions are provided to pension companies during a person’s lifetime.

Personal possessions

An executor’s authority to deal with personal possessions comes from the will, whereas the authority of the personal representative in an intestate estate comes from the grant of probate. It therefore follows that a grant of probate may be required to deal with the assets of a person who has died intestate but not necessarily where a person has left a will.

In practical terms, however, the situation is again usually determined by the value of the assets concerned. Family members would not need a grant of probate to distribute sentimental items between them. An auction house or car dealership may want to see a grant as proof that the personal representatives can instruct them and collect the sale proceeds.

Insolvent estates

So far in this article we have assumed that the estate in question is solvent; in other words, that the value of the assets exceeds the liabilities. However, where the debts appear to exceed the assets and the estate is potentially insolvent, the personal representatives should consider whether they wish to take out a grant of probate at all.

Dealing with insolvent estates can be risky. The personal representatives may be personally liable to creditors if debts are not settled in the correct order, or payments are not apportioned correctly between competing claims. This is just one of the reasons it’s recommended in law that executors place a deceased estates notice in The Gazette.

Any creditor of an insolvent estate can apply for a grant of probate to release cash assets and settle debts due to them and others. This may be preferable to personal representatives getting themselves involved and becoming exposed to risk. If dealing with an estate that appears insolvent, it is important to seek legal advice as soon as possible.

More information

Sharon Crosby is an associate in the Private Client team at Lodders and a specialist in estate administration, wills, probate, lasting powers of attorney and trust administration.

This article first appeared in The Gazette : When do you not need probate?