Written by Jenny Screech LLB (Hons)
Legal Consultant, Howden PII
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It is hardly surprising that quantum is on the rise given that most estates involve real property and values have increased over the years. But why is frequency on the rise? Is it poor risk management, more complex family relationships, increased expectation and dependency on receiving an inheritance….or is it a combination of issues?
Whatever the reason, the fact that underwriters are highlighting this issue, suggests there is a need for firms to reflect carefully on risk management strategies in relation to this area of practice. We recommend you undertake a review. In order to identify points to focus on, we have summarised some of the common causes of claims in this area.
People are living longer and with age comes the risk that disappointed beneficiaries will raise the issue of testamentary capacity. Claims of this nature are becoming more common. It is important that careful attention is given to this issue with a medical assessment being carried out where there is concern. It is also important to carefully document your investigation and consideration of this point, for reference in the event of a subsequent dispute.
Relationships today are more complicated and as people live longer there is also a greater risk of undue influence, particularly from an individual a testator might rely on for care or company. It can be a sensitive issue to address, but failure to do so can result in the will subsequently being challenged and a professional negligence claim.
Timing can be critical. Claims can arise where a testator is elderly or unwell and a solicitor has failed to act promptly and the will is not completed. Where timing is an issue, you should ensure that your commitments will allow you to address the matter within an acceptable time frame before you accept instructions. If your ability to deal with a matter becomes compromised during the course of the instruction, don’t cross your fingers and hope for the best as the days tick by - pass the matter to a colleague to deal with.
Careful checking of a will is important. Failure to properly proof read and spot errors and ambiguities, or a general failure to draft the will in accordance with the testator’s instructions, are embarrassing mistakes for a professional to make. They can lead also to claims – for which it is difficult to find a defence.
Take care when addressing the issue of property ownership as clients do not always appreciate the difference between a joint tenancy and a tenancy in common. Failure to take proper instructions regarding the ownership of property, including a failure to identify jointly owned property with arrangements for severance where appropriate, are errors that are easily avoided.
The ideal scenario is for the testator to execute the will in your presence so that you can ensure that the requirements for valid execution of the will are satisfied. Problems can arise when the will is sent out to the testator for signing and the solicitor fails to give a clear explanation of the requirements for executing the will and/or fails to spot that it has not been properly executed when it is returned. It is a simple point, but it is important that you have a process in place to ensure you do not get caught out by this.
Ownership of “immovables” in other countries is more common these days. It is important to consider whether the foreign jurisdiction in question recognises an English will, whether such assets would fall under local forced heirship succession rules and how that can be avoided. If a decision is made to execute an additional will in the foreign jurisdiction to deal with the asset located there, take care with the revocation clauses. Ensure that the second will that is executed does not revoke the earlier one – a small detail that can be overlooked with quite considerable consequences.
Is your client single, but intending to marry? Don’t forget to include a clause regarding the anticipated marriage to avoid the will being revoked on marriage. An estate passing in accordance with the intestacy laws might be very different to what the testator had intended – particularly when it comes to second and third marriages and blended families. There is a very real risk of disappointed beneficiaries in such a scenario.
It is not uncommon for claims to arise from a deficit in the client account due to the misappropriation of funds by a fee earner dealing with estates. In some cases “teeming and lading” has gone on for years, with an individual misappropriating monies from another estate each time they have to account for the funds in the one where the deficit exists. This activity can even evade the auditors. Could this happen in your firm? Do you have adequate supervision for this area of practice? Beware – some firms have been caught out because they relied on an individual who had quietly been misappropriating funds for years, while the partners thought they were a “trusted, low maintenance fee earner” who just “got on with the job”. These claims can involve significant amounts of money and also attract the attention of the SRA.
As noted above, wills can be poorly drafted and an ambiguity missed until after the death of the testator. This situation can be compounded if the issue is not addressed prior to the distribution of the estate. Always take time to consider what the will means. If in doubt, discuss it with a colleague in the first instance - ultimately it might be an issue that the court needs to decide.
Errors can arise when identifying the debts that will need to be paid by the deceased estate. Business debts can be a particular issue here, for example, where a deceased has given a personal guarantee for a company debt. If the company has failed and the creditor comes knocking on the door, you do not want to find you have distributed the estate and cannot recover the required funds from the beneficiaries. It is easy to overlook such a scenario.
Enquiries by the Department for Work and Pensions (DWP) also need to be dealt with carefully. Where an enquiry is received, a list of assets and liabilities at the date of death will need to be provided. These investigations can take some time to conclude and if it is ultimately determined that the deceased was not entitled to receive certain benefits, then the obligation to repay will be a debt on the estate.
Identifying whether Capital Gains Tax (CGT) is payable on any assets that are sold can also cause problems. A failure to identify and pay CGT prior to distribution of the estate will inevitably result in a claim if you are unable to recover funds from the beneficiaries, or if there are penalties to pay.
Issues with inheritance tax are a common cause of distribution errors. This can be due to poor file management, a failure to understand the legal requirements, calculation errors, a failure to hold back sufficient funds to pay the tax, or a failure to pay within the required time. Where trusts are involved the position is even more complex. Is your firm on top of these issues?
You cannot always rely on relatives to tell you about the existence of beneficiaries, and failing to pursue appropriate lines of enquiry to identify and trace all those entitled to an interest in the estate can cause problems. It is an issue to consider carefully – including advertising for beneficiaries in appropriate circumstances. Taking appropriate insurance to address such an issue is also a possible solution, but make sure you understand the terms and conditions of the cover – and the exclusions.
Always double check you have not missed a beneficiary before you distribute the estate. When a missed beneficiary realises others have received their share, you can be certain that they will be asking where their payment is. It will be up to you to recoup their share from the beneficiaries that have been paid – a task that is not always easy or possible. If beneficiaries have altered their position in good faith and spent the money, then you will be in difficulty.
Once again always check carefully that you are paying the right amount. It is easy to make a mistake and there will be a deficit in the estate if you add a zero to a £1500 legacy and pay £15,000. You will need to meet that shortfall if you are unable to secure repayment from the beneficiary who has been overpaid – and in these circumstances you can expect the beneficiary who has received the windfall to claim that the money has been spent and they have no means to pay.
Beneficiaries will often under-estimate the time that it takes to administer and distribute an estate. They can commit themselves to expenditure and then start putting pressure on you to distribute before liabilities have been properly identified. If you bow to this pressure you might find there is a shortfall when you eventually finalise matters and realise there are more liabilities than you expected. Always manage expectations at the outset.
Do the fee earners in your firm understand the rules that apply on an intestacy? This is a genuine question. For example, failing to realise that full-blood siblings take precedence over half-blood siblings can be a costly mistake. Administering an intestate estate is not an area for “dabblers”.
Prevent your firm from becoming another claims statistic. This list of issues demonstrates that training, proper supervision, the use of checklists and robust file audits can go a long way towards ensuring you avoid claims in this area.
Written by Jenny Screech - Legal Consultant, Howden PII
Legal Consultant, Howden PII