Probate Fees – How to React?

Readers of our article in February 2016 “Will The Cost of Dying Go Through the Roof?” will probably know, by now, that the short answer is “yes”.  The government’s original consultation paper asked if a new sliding scale of fees should replace the current modest fixed fees for probate applications, and 695 of the 829 people and organisations who responded said that this would definitely be a bad idea. So, of course, the government is doing it anyway, because the Courts service still needs the money, which makes you wonder why anyone bothered to consult in the first place.

The more pressing question is, when the new fees are introduced (probably in May this year), and Executors of larger estates have to find no less than £20,000 just to get their application for probate processed, is there any way out of it? The answer may again be “yes” if some appropriate deathbed planning can be done.

High probate fees are quite common in the US, where the device of the “probate trust” is already used. People put their entire assets into a trust which means that, although there is no federal estate tax benefit, the value of their nominal estate for probate purposes is nil, and so state probate taxes are not payable when the grant is issued.

Having had a look at the draft legislation in the UK, I see no reason why a similar approach is not possible here. The value of the estate for the purposes of setting the new fees is to be the net probate value shown in the Inheritance Tax declaration or declared in the oath for probate. Gifts and transfers of property made within 7 years of a death are ineffective for Inheritance Tax purposes, of course, but do reduce the size of the estate for probate purposes and it is this lower value that is going to be relevant for purposes of setting the fee. Declarations of a “bare trust” of assets where the benefit is retained by the original owner may also become more common (although not necessarily gifts into “proper” trusts, as Inheritance Tax is charged on lifetime transfers into many types of trust). Putting the family home in the joint names of husband and wife is another way of keeping assets out of the probate process and can now be expected to become more common.

So will the government actually get the boost to its finances that it expects? Probably not. Perhaps it should have consulted more carefully.

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