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  1. Wealth
February 19, 2019updated 28 Feb 2019 9:28am

How the changes to probate could affect you

By Spear's

Probate fees are changing again. Here’s what you need to know, explains Alice Wheatley

Personal representatives – executors where they are appointed by a will, or administrators in other circumstances – are responsible for dealing with an individual’s estate after their death.

The authority of the personal representatives to deal with the assets in the estate is proved by a grant of  representation, commonly referred to as a ‘grant of probate’.  It is not always necessary to apply for a grant of probate: it will depend on the size and nature of the estate.  Who would have thought that fees charged payable to Her Majesty’s Courts and Tribunals Service (HMCTS) in relation to such a process could be controversial?

As it happens, quite a few people, including members of the House of Lords.  In this article, we review the chequered passage of the statutory instrument which implements changes to the process.

The proposals started life in 2016 and were as unpopular then as they continue to be now. At that time, the government consultation on the matter attracted a huge response, with an overwhelming 97.5 per cent of respondents opposing the then-proposed fees, with just 1.5 per cent agreeing.  Hardly a vote-winner.

Despite the protest, a draft order was passed by Commons Committee debate but then fell short of time before parliament was dissolved ahead of the June 2017 General Election. A revised set of proposals gained speed again when they were laid before parliament in late 2018, before reaching the penultimate stage of their journey last week.

Last week, the House of Commons Delegated Legislation Committee took a vote on whether the controversial statutory instrument that will hike probate costs would be progressed to the House of Commons for approval. With the narrowest of margins (nine to eight – to set the scene), the Committee approved the instrument.

By classifying this increase as a ‘fee’, not a ‘tax’, ministers have enabled the legislation to be implemented via a statutory instrument instead of a parliamentary bill. And this is where it gets ‘controversial”. The latter requires full parliament scrutiny with a vote in the House of Lords. This statutory instrument, on the other hand, is likely to be swept through the Commons as a matter of course. Only a formal protest by an MP in the chamber would overturn its progress. The date for this next step has not yet been announced.

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Currently, executors of the deceased’s will pay an upfront flat fee of £215 when applying for probate of any estate valued over £5,000 (or £155 if applying through a solicitor) – the fees are currently set at cost recovery levels.

The (revised) proposed regime will introduce a tiered system capped at £6,000 for estates worth over £2 million. Those estates that fall into the £1 million-£2 million bracket will attract the lower tier fees of £4,000-5,000. Still a staggering increase from the flat fee we once knew.

Ministers have been quick to defend the changes, highlighting that since the fees will not apply until an estate reaches £50,000, there are many families who will benefit from a complete waiver of probate costs. It is predicted that approximately 25,000 estates a year will drop out of the regime entirely.

Justice Minister Lucy Frazer offers additional sway with her argument that the increase in probate fees will generate £145 million in the forthcoming financial year and that this income will be vital in funding valued court and tribunal services.

She comments: ‘Parliament has understood the importance and value of our justice system and the financial pressures [it] faces and that’s why it passed the power to charge enhanced fees.’

If the new rules proceed as expected, there will undoubtedly be many who are adversely affected. Estates of a substantial nature can so often be ‘asset rich and cash poor’ and an additional cash outgoing in the process of administering such an estate will certainly foster concern for the executors. On top of this, and somewhat paradoxically, probate fees must be paid upfront to unlock the value of the estate.  With a lack of accessible cash, executors (professional or lay) may have to take out a loan to cover this cost, which despite the current level of low interest rates for savers, are more expensive in these circumstances.

One sector inevitably feeling concerned by the proposals will be charities. The Institute of Legacy Management (ILM) has been quick to brand the new system a ‘stealth tax’ and have highlighted the  potential losses that charities will face in their legacy income.

Matthew Lagden, chief executive of ILM, has warned the changes would ‘significantly reduce income for charities reliant on legacy gifts to the tune of £10 million a year’.

He continues: ‘the government’s own impact assessment acknowledges that the current fees cover the average costs of making a grant of probate, so we are clear that this is a stealth tax, which will be borne in part by charities’.

The ILM have sensibly stated that they support the introduction of a rebate or exemption from fees for charitable estates. This concept would have the potential to enhance the attractiveness of legacy giving, whilst realistically costing the government very little. As yet, no such charitable relief has been granted in the draft legislation.

If approved by the Commons, the Non-Contentious Probate (Fees) Order 2018 will provisionally take hold in April of this year – just a few short weeks away. The Ministry of Justice has assured advisors that adequate guidance will be released in good time. This has been promised to benefit from stakeholder input and will supposedly include advice on a number of options for how the executors can pay the fee. How this is to function in practice is yet to be revealed.

Whether the estate falls under  the new system will depend on the date of the probate application, not the date of death. Given that only one of those events has the luxury of flexibility, there will undoubtedly be a flurry of executors lining up pre-April to settle the deceased’s affairs in the most economical way feasible. With thousands of pounds of savings at stake, their haste will be understandable.

Alice Wheatley works at boutique private wealth law firm Maurice Turnor Gardner LLP. 

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