When someone dies, the difficult process by which financial institutions allow the deceased person’s funds to be released has long been cause for complaint.
Before distributing money in a deceased person’s account, financial institutions generally require executors to obtain a Grant of Probate, which is a legal document confirming that the executor has the authority to administer the deceased person's assets. However, obtaining a Grant of Probate can be a laborious undertaking. Executors have to complete an inheritance tax return, as well as satisfy the court about the deceased person’s estate – certainly not a task for the faint-hearted. Therefore, so as to avoid these complexities, having funds released without a Grant can be greatly advantageous for the executors and beneficiaries alike.
The strict approach hasn’t necessarily been the fault of the banks. Current laws only permit some financial institutions to release up to £5,000 without a Grant. HMRC guidance also states that the maximum amount transferable without a Grant should not exceed £5,000. This limit, which has been in place since 1984 and is therefore unreasonably low in today’s money, is in HMRC’s interests as any funds released without a Grant could mean that inheritance tax is going unpaid. However, the COVID-19 pandemic has given banks the impetus to extend their financial limits and, over the last few months, there have been reports of banks releasing up to £125,000 without a Grant of Probate. This is a drastic change that in many ways should be applauded. At a time when money has been tight for a lot of people, swiftly releasing much-needed funds could make a significant difference for struggling families. Financial institutions themselves have said that they want to make things as easy as possible for bereaved families, particularly when the usual face-to-face support is not generally a viable option.
However, could this sudden change be a problem?
Some people unfortunately see death as an opportunity to commit fraud, with grieving relatives who are often elderly and vulnerable potentially being targets. A Grant of Probate offers a degree of protection, as the process to obtain one helps to ensure that the person collecting the assets is the person entitled to do so. Additionally, Grants of Probate now include a high-security hologram expressly to counter fraud, giving them a heightened advantage against forgeries. In contrast, where banks don’t demand a Grant it is easier for someone falsely to claim to be an executor or beneficiary of an estate, for example by producing an out-of-date will or even claiming that no will exists at all.
Banks should (and do) have processes in place for releasing funds without a Grant, such as requiring copies of the death certificate, a certified copy of the will, or sight of the executor’s ID. However, this is by no means foolproof. Another concern is the relaxed approach banks seem to take with solicitor firms. In these instances, accounts have been known to be closed and proceeds distributed without any documentation aside from a letter with a law firm’s letterhead. Additionally, if someone is able to fraudulently acquire funds from an estate, there are further concerns about how the real executor and beneficiaries attempt to recoup those funds.
Is there a solution?
A safety measure that beneficiaries can employ is to ensure that the true executor is identified quickly. This allows beneficiaries to hold the executor to account so that they know the deceased’s assets are being looked after properly. It is also important that the executor and family members contact the relevant banks and building societies quickly so that their details are on the bank’s records. However, the inconsistency between banks compounds the problem. One bank might be willing to release £100,000 without a Grant, yet another may demand one before releasing £30,000. It is very easy to find out what each bank’s current financial limits are. Fraudsters can therefore concentrate their efforts on banks that are willing to release higher sums, perhaps also with less stringent protocols.
In the banking world, there is a community-wide understanding that an agreement must be met over a reasonable financial limit in order to provide consistency. Clearly, £5,000 is too low, but £125,000 may tip the scales too far the other way. Eventually, it is hoped that a compromise can be achieved, balancing the withholding of funds until a Grant of Probate has been obtained against the risk of placing vulnerable people at greater danger if banking processes are relaxed. For the time being, staying alert and responding quickly after a death is the best way for executors and beneficiaries to protect the estate against potential fraud.
First published on eprivateclient. Reproduced with permission.
Matthew Peto