Under the UK Administration of Estates (Small Payments) Act 1965, banks and building societies may pay sums of up to £5,000 to those entitled without the need for a grant of representation (a Grant), which Her Majesty’s Revenue and Customs’ (HMRC’s) guidance confirms.
Releasing funds at around this level without requiring a Grant seems entirely sensible, preventing bereaved families who inherit modest estates from having to go to the time, trouble and expense of obtaining a Grant, and offering advantages for executors, intending administrators and beneficiaries alike. However, these thresholds have increased markedly over the past decade and, unfortunately, have not taken place in a standardised way. Instead, they are dependent on the financial institutions (FI)s' own internal rules and, over the past few years, some banks have frequently been releasing sums in the region of £30,000–50,000 without a Grant being required.
In the spirit of providing the best customer service, alleviating potential hardship and recognising the difficulties of providing bereaved relatives with face to face support during the present time, certain FIs have raised even higher the thresholds at which they require a Grant to be produced.
Although UK Finance (the industry body for banking and finance firms) has stressed that each case will always be considered on its merits, there have been reports that some banks are now content to release as much as £125,000 without the need for a Grant. Importantly, this is a response to the difficulties faced during COVID-19 including the delays in the probate process, which were common in the early days of the pandemic.
In many ways, this relaxation of the rules should be encouraged as the process enables cash to be released sooner, at a time when money is tight for many families, whilst also removing the cost and hassle of obtaining a Grant. However, these recent increases in the amount of funds that may be released informally have been steep and could lead to unanticipated and less welcome results.
Opening the door to fraudsters
There has been alarm that the sudden increase in the FI’s thresholds opens up the system to those wishing to commit fraud. This could take the form of persons falsely claiming to be an executor or beneficiary of the deceased, perhaps by producing an old will or fraudulently claiming that no will exists and instructing the bank to pay the deceased’s funds to them.
Alternatively, banks may (innocently, but mistakenly) act on instructions to pay funds to persons who incorrectly assume they are entitled to the assets without realising that they should find out if there is a will and duly appointed executors. Although FI’s claim forms will ask some basic questions about entitlement to assets and the nature of the claimant’s relationship with the deceased, as well as sometimes including indemnities in the banks’ favour, this process is often rudimentary. In contrast, where a grant of representation is required, the intending personal representative must make various declarations regarding the validity of the deceased’s will to obtain that grant. The grant is then confirmation that the will proved in the probate registry is the deceased’s last will and the act of having to produce a grant to the bank provides a measure of security and certainty that the claimant is the correct person to collect in the deceased’s assets. When such large sums are at stake, one might argue that a Grant, as proof of status, is a small price to pay to safeguard against the risks.
In addition, if a fraudster manages to collect in the proceeds of an account in this way, they may then simply choose to keep the funds or distribute them otherwise than in accordance with the will, meaning the deceased’s wishes as to how their estate should pass will not be carried out as they had planned. Put simply, large amounts of money could fall into the wrong hands. The impact of this on professionals trying to implement the deceased’s wishes, as well as on bereaved families who are not able to honour the wishes of the deceased, should not be underestimated.
Tax complications
The lack of a Grant may also lead to potential inheritance tax (IHT) issues. If funds are released by FIs and paid to the wrong people either as a result of fraud or an innocent mistake, in circumstances where the executors are unaware of the asset, it will be impossible to include that asset’s value in their IHT calculations. Consequently, the asset will not be disclosed in the IHT return and the amount of IHT paid to HMRC will be incorrect.
Trying to track down and recover assets that have been obtained fraudulently can be time consuming and costly. It is also important to remember that the recently bereaved may have neither the financial resources nor the emotional resilience to deal with this process and may retrieve erroneously paid sums. So, should banks be operating this more relaxed regime for such large amounts of deceased client’s monies?
Addressing the issue
There are reports that FIs are discussing these thresholds among themselves with a view to agreeing a reasonable financial limit to provide consistency across the board. Michael Culver TEP, chair of Solicitors for the Elderly (SFE), has stated that SFE are hoping to work with banks and building societies to help safeguard against the risk presented by this recent trend and believes there needs to be a universal policy put in place. Indeed, inconsistency between the various banks can be seen as part of the problem; one bank may be prepared to release as much as £125,000 without a Grant, while another’s threshold may be set at a more modest £30,000. With banks happy to divulge their own financial limits, it is not inconceivable that fraudsters may direct their efforts on those banks that are willing to release higher amounts without production of a Grant.
For those of us advising in the estate administration domain, clear and consistent financial limits that apply across the board for releasing funds without a Grant, would be a positive first step. However, the upper level of these limits needs careful thought. Clearly, the statutory limit of £5,000, which has been in place since 1984, is too low and has not kept up with inflation. Indeed, FIs have themselves recognised this in gradually increasing their own internal limits over recent years. Given the potential for abuse, though, releasing amounts in the region of £100,000 or more may be a step too far. In the absence of a Grant and without adequate safeguards in place, this may leave the banks open to fraudsters taking the type of action outlined above.
The hope is that banks may be able to find some sort of middle ground, one that balances the more cost effective and speedy procedures, which the higher limits achieve, with the appropriate level of checks and balances to guard against fraud. It is in everyone’s interests to ensure that processes are quick, straightforward and as streamlined as possible, while at the same time ensuring that the deceased’s wishes are honoured and assets are paid to the correct claimants. Achieving this balance would be a positive development, benefiting bereaved families far beyond these unprecedented times.
Abigail Palmer-Page, ‘How much is too much?’, first published in STEP Journal Plus, November 2020. Republished with permission.