When a person dies with a will in place, the executor named in the will applies to the court for a Grant of Probate. The probate authorises the executor to act on behalf of the deceased and administer the assets (property, cash, investments).
The Oxford Dictionary defines the word probate as ‘the official proving of a will’ and goes on to explain that probate is the legal procedure for transferring property after a property owner's death. In general, probate entails acquiring all assets, paying off debts, and distributing any leftover assets in line with the law and an estate plan.
In general, it is not possible to sell investments before probate. This is to ensure estates are valued correctly for inheritance tax and to protect the deceased's beneficiaries; however, there are some exceptions. Executors can access a deceased's assets before probate in the following ways:
Before granting probate, the executor will need to settle any inheritance tax due on the deceased's estate.
Banks and other financial institutions that are part of the 'Direct Payment Scheme' allow money from a deceased's bank account to be used to pay IHT before granting probate.
The Direct Payment Scheme will expedite the process of executing a will.
This is the only occasion when cash savings are accessible before probate.
The executor of the will needs to value the deceased's estate to establish how much tax is due.
If a property is solely owned by the deceased, probate must have been granted before the property is sold.
However, for valuation purposes, a deceased's property may be put on the market before probate is granted. Completion may only occur once probate is issued.
Protecting Assets from Probate
While it is not possible to sell investments before probate is granted, there are ways to protect assets from probate and possibly even avoid probate entirely.
Below are ways to structure one's estate to achieve this:
Where two people jointly own assets, the death of one person automatically sees the share in the asset passing over to the other owner.
Examples of jointly-held property include property (if a right to survivorship is in place), bank accounts, vehicles.
The share of the asset owned by the deceased is not included in their estate. Automatic transfer occurs to the surviving owner, thus avoiding probate.
These co-owned assets may be sold before probate if the surviving spouse or co-owner wishes.
Generally, banks will freeze the accounts of an individual as soon as they are notified of the death. Until the grant of probate is issued, there is no access to these funds.
However, there are certain circumstances where the bank accounts of a deceased individual will avoid probate:
Assets of low value
Jointly owned assets
Assets gifted before death
Assets left to specific beneficiaries in a will
Gifts made in trust to particular beneficiaries
Sole Accounts of Low Value
Many banks and other financial institutions do not require a grant of probate if the value held in the account is below a certain level. These thresholds vary from bank to bank. This saves families the need to pay a solicitor to apply for probate on their behalf. A death certificate is all that is required to release the funds.
In the event of injury or illness, a sole account can be accessed while an individual is still alive if a Lasting Power of Attorney is in place. Upon death, a power of attorney falls away.
Where accounts are held jointly by spouses, a death certificate is sufficient to have the account transferred into the surviving spouse's name. Probate is not required to do this.
An individual can set up a living trust. Placing their assets into the trust relieves the individual of the ownership of the assets while still controlling and benefiting from them. The individual setting up the trust is the grantor, trustee, and beneficiary of the trust. In the event of his death, the named heir(s) become trustees and beneficiaries for the trust.
In this process, the individual will need to ensure that all deeds and paperwork attached to the assets reflect the transfer of ownership to the trust.
After that, as the grantor no longer 'owns' the assets in the trust; when they die, anything contained in the trust will not need to go through probate.
Probate is an expensive and time-consuming exercise. While generally, investments cannot be sold before probate, there are ways to avoid probate and ensure a smooth transfer of assets to heirs with adequate planning.
For further advice about protecting one's investments from probate, call 020 3697 1700 or visit www.londonstonesecurities.co.uk.