Whenever anyone mentions probate – the legal process for dealing with a deceased person’s estate – references to delays are never far away.
According to the latest quarterly statistics from HM Courts and Tribunals Service, which runs the probate service, probate applications took an average of 14 weeks between April and June. There is currently a backlog of around 8,000 probate applications.
There are a couple of reasons for this. Probate applications reached record levels due to a higher number of deaths during the pandemic and The Probate Service has not had the resources to deal with this.
A Freedom of Information request by law firm Nockolds earlier this year showed staff numbers fell by over a third in the three years to 2021/22. Teething problems with the new digital application system have also played a part.
However, the recruitment of 100 new staff members, training and upskilling of the probate team, and improvements to the digital application platform may be making a difference. September and October were reported as ‘particularly productive months’ in reducing the backlog of probate applications. But are the delays having an impact on financial planning?
Uncertainty
“Probate confirms who can deal with the estate of a person who has died before the assets can be distributed in accordance with their will,” says Shelley Read, senior technical manager at Royal London. “If someone dies without leaving a will, this process can take even longer and, during that time, access to finances may be limited.”
This can create problems for loved ones who need access to the deceased’s estate to cover immediate expenses such as funeral costs and outstanding bills, particularly if the deceased was the breadwinner.
“The delays can leave uncertainty for the beneficiaries, which can cause emotional stress and anxiety,” says Laura Ripley, a chartered financial planner at BRI Wealth Management.
Chase de Vere IFA Catriona Smith says probate delays affect a surviving spouse the most. “If the beneficiary is a son, daughter, niece or other beneficiary, they often don’t know they’re going to get any money, so it doesn’t affect them so much,” she says. “But a spouse can be reliant on income or investment returns for things like house or car repairs.”
Smith says if money is in joint names, it automatically passes to the surviving spouse. But if the deceased’s assets are held in their own name, nothing can be done except wait for probate. The surviving spouse would not be allowed to touch these assets without having the paperwork, which Smith says could take months.
“We see this mainly happening around Isas, investment plans and bank accounts in individual names – and it has a detrimental impact on the surviving spouse,” says Smith.
Increased costs
Probate delays can have significant consequences on the financial planning advisers undertake for their clients, according to Ripley.
“If there is inheritance tax due, normally a payment must be made within six months, although some tax due on property can be paid in instalments,” she says. “HMRC applies interest to the tax liability after six months, so this can rack up quite quickly if there are delays.”
Smith says most advisers accept probate will involve delays. She says nothing tends to happen in the first six months after probate is issued, as solicitors delay the distribution of assets in case there are any claims on the estate that need to be dealt with.
“When my gran passed away, the Department for Work and Pensions investigated to see if she owed them any cash, but they weren’t due anything,” says Smith. “About one in 10 people get randomly checked. That’s why solicitors are not releasing cash for the first six months.”
Delays in probate can lead to increased costs for the estate administration overall, through estate taxes, attorney fees and other expenses that may accumulate over time.
“All these effectively reduce the value of the estate and the funds available for distribution to beneficiaries,” says Ripley. “If property forms part of the estate, there may be service charges, insurance costs and general maintenance costs. Probate delays can cause an increase in these.”
If the beneficiaries want to sell a property to release cash, probate delays can prolong this process and may put off potential buyers. Probate delays that tie up estate funds can also mean potential investment opportunities are missed as loved ones do not have the authority to trade the deceased’s investments.
“Often clients have specific financial goals such as school fees or home purchase and delays with probate can disrupt these plans,” says Ripley. “It is important a financial planner reassesses and revises the client’s strategy based on the evolving situation.”
Mitigating the delays
Read points out that there are steps clients can take to avoid probate delays having a negative impact on their loved ones after their death. She points out that if a life insurance policy is not set up under trust, it counts as part of the estate, which can be held up by the probate process.
“Setting up a policy under trust means it isn’t considered part of the estate. The time it takes to pay beneficiaries is much shorter and gives the peace of mind that any bills can be dealt with in the meantime,” she says.
Some insurers also offer beneficiary nomination, which is a simple way for policyholders to nominate who they want proceeds to be paid to in the event of a claim.
“Having joint accounts also means there can still be access to funds as all the money will go to the surviving partner without the need for probate,” adds Read. “And although pensions are not normally part of the estate, it’s worth checking that expression of wish forms have been filled in so no delays are encountered.”
