Tracing the Missing Beneficiary – Heir Locators & Contingency Fees

 In Probate

Disclaimer: LawSkills provides training for the legal industry and does not provide legal advice to members of the public. For help or guidance please seek the services of a qualified practitioner.

HEIR LOCATORS & CONTINGENCY FEE

Background

The need to locate a missing beneficiary is a problem which frequently faces those involved in administration of estates, whether the deceased left a valid will or died intestate.

A firm of genealogists (an heir locator) may offer to research the family for free on the basis that the heir locator will enter into an agreement with the beneficiary that they will provide information to the beneficiary in return for a percentage share (sometimes up to 30% plus VAT) of the beneficiary’s entitlement (a “contingency fee agreement”).

No information is given to the beneficiary, whether as to the name of the deceased or the potential size of the estate before he signs this agreement. Such an arrangement is attractive to those administering the estate because they incur no personal liability for the fees and the costs fall solely on the missing beneficiary. Both public opinion and opinion in the industry is divided as to the desirability of such agreements: some see the beneficiary as obtaining a windfall that he would not receive but for the action of the heir locator; others consider that the beneficiary is legally entitled to his share of the estate and should be entitled to the whole of it, subject to the reasonable administrative costs. The appropriateness of a contingency fee agreement is brought into sharp focus when the sum payable by the beneficiary is disproportionate to the work involved. There are serious doubts both about the enforceability of such agreements and whether those instructing heir locators on a contingency fee basis could incur personal liability to the missing beneficiary for having done so.

Free LawSkills Newsletter

If you like our articles, why not subscribe to our free monthly newsletter with regular Private Client news, views and advice from leading legal minds. It's quick, easy and you can unsubscribe at any time if you no longer want to receive it.

Sign Up Now

Enforceability

Contingency fee agreements with heir locators are not new. In Rees v De Bernardy [1896] 2 Ch 437, two beneficiaries entered into a written agreement with an heir locator that they would pay him 30% of their entitlement if he provided them information about the estate. It was held that it was also part of the agreement that the heir locator would take steps to establish the beneficiaries’ claim. The Court held the agreement void on the ground that it “savoured of champerty”. Champerty involves intermeddling in litigation in which a party has no interest. Establishing a claim to an estate was held to be analogous to this. Had the heir locator only agreed to provide information about the estate, leaving them to establish their own title, the agreement would have been enforceable.

Rees was considered in two recent Irish cases concerning heir locators’ contingency fees, McElroy v Flynn [1991] IRLM 294 and Fraser v Buckle [2003] WTLR 1389 and . The Irish Court held that Rees was still good law, notwithstanding that the English Courts had held that the doctrine of champerty had become more restrictive in recent years: Giles v Thompson. It is still contrary to law and to public policy for a lawyer to enter into a contingency fee, such that he deprives his client part of his entitlement. It can be argued that the heir locator is in an analogous position, as he has no other interest in the estate other than recovering his costs, which may bear no relation to the percentage of the estate which he has agreed to receive. In both Fraser and McElroy the heir locators were entitled to a “reasonable fee” for the work that they had carried out

If the unenforceability of contingency agreements with heir locators is based on public policy, what is the public policy, other than the doctrine of champerty, that such an agreement runs against? It is not sufficient simply to say that the fee paid might be disproportionate to the work carried out. Terms relating to the cost of a service are expressly prevented from being characterised as “unfair terms” under the Unfair Terms in Consumer Contracts Regulations 1999, which is an indication that Parliament does not consider that the agreement of a disproportionate fee would, without more, be contrary to public policy. The real mischief of contingency fee agreements entered into by heir locators is that the beneficiary agrees to the fee in total ignorance not only of the work that might have been involved in locating him, but also of the likely amount of that fee. Whilst it is one thing to allow consumers to enter into an agreement where the price might be disproportionate where he enters into the contract with his eyes open as to the sums involved, it is quite another where he is in ignorance of the amount that he is giving up.

Those who argue in defence of contingency argue that the heir locator has taken a risk. However unlike cases where a lawyer might enter into a contingency fee agreement – undertaking the risk at the request of the person liable to pay the fee, the heir locator has undertaken the risk voluntarily. By the time he asks the located beneficiary to enter into the agreement, there is no further contingency.

The other grounds for setting aside an heir location agreement would depend on the particular facts. In McElroy, the agreement could also have been set aside on the ground of misrepresentation. Another possibility is an unconscionable bargain, namely that the heir locator has taken advantage of the ignorance of the beneficiary. This is however a restrictive doctrine which only applies where advantage has been taken of a “poor and ignorant” beneficiary in a “morally reprehensible manner”. It might be argued that rather than acting in a morally reprehensible way, the heir locator is simply exploiting information that he has to his commercial advantage. Given that the Court would uphold an agreement which entitled an heir locator to a percentage of the estate in return for simply providing information about the deceased, it is unlikely that striking the bargain would be considered “morally reprehensible” if the agreement was not held to be unenforceable on the basis that it savoured of champerty.

Another possibility is that the agreement could be avoided on the ground that it was obtained as a result of illegitimate pressure. However, this usually involves extracting money for information/services which one party is obliged to give to the other. Here, the heir locator does not have any duty to disclose information regarding the estate to the beneficiary. However, the heir locator may be obliged to give the information to the solicitor. If the beneficiary signs the agreement on the basis that he would not receive his entitlement otherwise, this might lead the agreement to be set aside.

Personal Representatives

The personal representative has a duty to locate the beneficiaries and to distribute the estate to those entitled. The costs of locating a missing beneficiary is a proper expense of the administration which would be payable out of the residuary estate. Often, beneficiaries who are not missing might protest at having to bear the cost of locating a missing beneficiary and this may lead the personal representatives to consider that instructing an heir locator on a contingency fee basis would be attractive. If the personal representative does engage an heir locator on a contingency basis, he may well be in breach of his duty to the beneficiary and liable to account to the beneficiary for the difference between any percentage share paid to the heir locator and the sum that the heir locator would have charged if engaged on a time/cost basis. This is because the personal representative has made the distribution of the legacy subject to a further condition, namely agreement to pay the heir locator a significant proportion of his share. There is no real justification for this, as the PR could have engaged the heir locator on a time/cost basis and met the cost from the residuary estate.

Executor de son Tort

An heir locator may be engaged by a solicitor who might have been dealing with the Deceased’s affairs prior to death or who has been consulted by beneficiaries who have not yet taken the grant. It is arguable that in taking steps to locate beneficiaries, such a solicitor would be acting as an administrator of the estate such that he could be characterised as an executor de son tort. An executor de son tort is liable in the same way as a personal representative would have been (subject to any payment made by him which might properly be made by a personal representative) to the extent of the Deceased’s estate in his hands: Administration of Estates Act 1925 s. 28. When the heir locator is instructed, the solicitor may well not have any part of the estate in his hands. However, if at a later date some of the estate comes into his hands it might be arguable that they would be liable as an executor would have been, although this may be difficult to establish. If the heir locator had been instructed on a time cost basis, those costs probably would be recoverable from the estate.

Conclusion

There are serious arguments with regard to the enforceability of heir location agreements but there is unlikely to be litigation determining the issue as heir location firms would probably be unwilling to risk the Court ruling that such agreements are unenforceable. However, whatever the position with regard to the enforceability of such agreements, personal representatives should not instruct heir locators on a contingency basis as to do so they are at risk that they are breaching their duty to the beneficiaries.

Free LawSkills Newsletter

If you like our articles, why not subscribe to our free monthly newsletter with regular Private Client news, views and advice from leading legal minds. It's quick, easy and you can unsubscribe at any time if you no longer want to receive it.

Sign Up Now
Recommended Posts