Probate Problems

An obvious check that needs to be made in regards to all beneficiaries of an estate is a bankruptcy search. Recently, however, there has been a case that has brought into questions the responsibility of an Executor in regards to their vigilance in distributions to beneficiaries who have been insolvent prior to that distribution.

In Re Hemming; Raymond Saul & Co v Holden [2009] a residuary beneficiary was bankrupt at the time of the death of the testatrix, but whose bankruptcy had been discharged by the time a distribution was proposed. The question that was presented to the High Court was whether that distribution should be made to the trustee in bankruptcy or to the beneficiary.

The testatrix dies in July 2003 she left her residuary estate to her son. She held the property as TIC in equal shares with her son. In September 2003 the son was adjudicated bankrupt and a trustee in bankruptcy was appointed. The Grant of Probate was obtained in February 2005. The son was automatically discharged from bankruptcy in April 2005. The property was sold May 2005. Half the proceeds (the son’s share) were paid to his trustee in bankruptcy. The balance was kept by the son’s Solicitors who were acting for the administration of the Testatrix’s estate.

The trustee in bankruptcy requested payment for an outstanding balance. The solicitors refused. The trustee in bankruptcy argued that the son has an interest in his mother’s residuary estate which had vested in her and therefore the proceeds of sale of the testatrix’s half share belonged to the trustee in bankruptcy.

The solicitors sought advice from the court as to whether they should make payment of the residue of the estate to the son or to the trustee in bankruptcy. It was resolved as two separate issues:

The Property:

Concluded that the son, when his bankruptcy commenced, did not own or have any proprietary interest in any of the specific assets in his mother’s unadministered estate.

The residuary estate:

It was concluded that no property interest was given while it was being administered

not even an immediate interest of a proprietary nature in the residue of the estate. However, it did give them an immediate entitlement to future payment, and this right was recognised and protected while the estate was in the course of administration. When a residue legatee becomes bankrupt, the chose in action vested in the trustee in bankruptcy. It would not revert to the bankrupt unless and until their bankruptcy debts and costs had been paid.

Consequences:

The legatee must not be bankrupt at the date of death and throughout the period of administration. All beneficiaries must therefore be asked whether they are subject to a bankruptcy order at the outset of an administration and if necessary periodically thereafter and at the time of distribution.

This can cause obvious difficulties, added paperwork which will inevitably lead to a loss of invaluable time. This case puts another responsibility on all Executors and stresses the importance of selecting the right person/company for the role. Another reason why many people are now turning to professionals.

(article reproduced from the Society of Will Writers, Newsletter 8th July 2009)

Probate Problems

A recent article from the Society of Will Writers (reproduced here) explains one reason why many families turn to professionals for help with probate.