Posted in For Solicitors
Public consultation on the proposals to reform probate application fees in England and Wales will close on 1 April. The consultation document (available here) outlines plans to move from the current flat fee system to a banded fee “proportionate to, and rising with, the value of the estate”. Further, it argues that because the fee “is guaranteed to be recovered from the estate” and “executors should therefore not face difficulties with the overall affordability of the fees” the Help with Fees scheme should no longer apply to probate applications. But what about cases where there is no executor, because there is no will? In this article, Joanne Clayden looks at the implications for personal representatives (PRs) of intestate estates.
At the moment the application fee for a grant of representation stands at £155 if you use a solicitor and £215 if you make the application yourself.
Under the government’s new proposals this simple, flat-fee system will be replaced by a series of banded fees based entirely on the size of the estate you are seeking to administer. If the estate’s value is less that £50,000, you’ll pay nothing. If its value is over £2 million, you’ll pay £20,000 for exactly the same service. You can see the table of proposed charges here.
Like many others, I agree with the concerns raised by STEP. This is taxation under another name. What’s more, it’s a revenue raising exercise, in which those who use the probate service will be effectively subsidising the rest of the court system. According to the consultation document “these proposals would raise around an additional £250 million a year, which is a critical contribution to cutting the deficit and reducing the burden on the taxpayer of running the courts and tribunals”.
However, what worries me most about these proposals is that, as always, specific problems related to intestacy are brushed under the carpet, or reduced to a footnote.
The proposed charges will further exacerbate what is already a difficult situation for PRs in an intestacy.
According to the consultation document, the raised nil-rate band announced last year will offset the new fee structure – but this only applies to direct descendants of the deceased. In many intestacies, the beneficiaries are much more distant kin.
Take, as an example, the case of an elederly lady who dies intestate, leaving a large house in need of renovation and very few other assets. The house is valued at £2,000,000 and there are 30 eligible beneficiaries scattered around the globe.
As head of probate administration at Wolsey Probate, I encounter situations like this all too frequently. Even under the current system, a PR may be faced with a dilemma: they can’t sell the house to raise the money for inheritance tax (IHT) without a grant of representation, but they can’t get the grant of representation until they have paid the IHT due on the estate.
You just have to look at the sums here to see that, for the beneficiary of an intestacy considering taking on the role of PR, the new proposals act as a further disincentive.
In the example I gave of a £2 million intestate estate and 30 beneficiaries, the PR would need to take out a bridging loan for £670,000 IHT plus the £20,000 probate fee. Deduct further costs and divide the net estate between all the beneficiaries, and it’s easy to see that the PR has to take out a bridging loan for more than twenty times what he or she will receive.
The government rightly argues that as both IHT and probate fee are eventually paid from the estate, the PR cannot lose out. Nevertheless, in my view, the proposed charges will further exacerbate what is already a difficult situation for PRs in an intestacy.
In many cases, asking a beneficiary to act as the PR for a large intestate estate, where the value is tied up in property, is asking them to move very far out of their comfort zone.
We need safeguards for PRs handling an intestacy, particularly those who are distant relatives of the deceased and who will have to distribute the estate to a large number of beneficiaries. The government needs to accept that these people face particular problems. Given that a third of people over 55 have not yet made a will the problems are not going to go away, and the proposals need to take account of them.