How to Avoid Probate
Obtaining probate so that the assets of a person who has died can be passed on to their intended recipients (the “beneficiaries”). It can be a slow, frustrating and expensive process. Six to nine months delay is not at all unusual, and it can be a lot longer.
Probate can be expensive – how to avoid it!
You may wonder what on earth a probate firm is doing teaching you how NOT to need our service. The answer is simple. We offer a wide range of estate planning services which can take you from cradle to grave and enable you to look after your children, grandchildren, great grandchildren and beyond. So if we can help a few people save money on probate, some of them (or their heirs) will come to us for our other services and become lifelong clients.
Should you wish it, we can help you through this process and prepare a plan for you, but a number of these steps are pretty simple. They are not in any particular order.
Is the big bugbear of those with substantial assets, and Community Care Tax regularly wipes out the assets of people who are not particularly well off. We have separate sites and guides on both subjects.
2) Use Trusts to Avoid Probate
Trusts are a bit like companies: they are separate legal “people” from you. So if you put assets in a trust, you don’t own them any more. Depending on the purpose and structure of the trust, you may still control or benefit from the assets. But as far as probate is concerned, the people you have appointed to manage your trust (the “Trustees”), the assets in your trust do not need probate so they can be dealt with immediately, in one of the many ways you can find in our booklets.
Trusts should also be used to hold life insurance policies and often for life insurance based investments.
Trusts are NOT necessarily outside your estate from the point of view of Inheritance Tax, or from creditors if things go wrong, unless you have good advice early enough.
3) Give it away to avoid Probate
Give your assets away during your lifetime. That means REALLY give them away – if you retain any benefit, it won’t work. Sounds like an easy way to do it and usually works well – as long as you do it far enough in advance and keep enough for you to live on. There are very complex rules on Inheritance Tax which can go back as much as 14 years to pull your gifts back into the Inheritance Tax net and land the unsuspecting beneficiary with a large tax bill.
You also need to be careful if there may be creditors.
4) Joint Ownership: another way to avoid probate.
This isn’t always the best way when you take account of tax and other issues but you can put property (real estate) into joint tenancy with your spouse with rights of survivor-ship The surviving owner will automatically inherit the property at death. But do bear in mind that the transfer of ownership is a gift for Inheritance Tax purposes, and it also then forms part of the other persons assets.
Example: your wife has died, and you put your home into a joint tenancy with your son. Consequences:
a) If your son divorces or goes bankrupt, half of your home will be available to his creditors or could form part of a divorce settlement.
b) The gift uses up part of your Nil Rate Band tax allowance for IHT purposes and depending on your previous gifts and the value of the house could result in an immediate charge to lifetime IHT, and a full charge if you die within 7 years.
5) Pensions and Death in Service Benefits
Always make sure that you have formally told your pension company and/or your employer where you would wish any death benefits to go. Otherwise they may just be paid into your estate and then be reduced by Inheritance Tax. If your spouse doesn’t need the money, then leave it to your children or grandchildren to skip a generation and avoid unnecessary Inheritance Tax and probate costs.
6) Spend it all!
If you don’t have any assets, probate won’t be required – though there could still be an Inheritance Tax bill which your beneficiaries would have to pay, because (as mentioned above) the tax man can go back up to 14 years. Anyway, it is very difficult to time spending it all correctly!
7) More ways to avoid probate.
Your can’t always avoid probate, but here are a few more small tips:
a) Don’t hold shares or ISA’s when you die. Probate is pretty much always required then.
b) Keep you savings in accounts that won’t require probate before they are released – banks and building societies have different limits which typically range from £5,000 to £15,000. So spread it around, and be careful that you don’t have two accounts with “different” firms which turn out to be part of the same group. And always keep well below the limit to allow for interest.
c) Joint accounts can avoid probate but if either partner loses mental capacity they will be frozen until the bank is satisfied that the remaining joint owner has legal authority to continue to use the account, and that may mean no access for as long as 6 months plus a large legal bill if Lasting Powers of Attorney are not in place and registered.
We’ll try to add more ideas to this page as time goes on – your comments are most welcome!