The Risk to a Personal Representative when beneficiaries are unknown or missing
Administering an estate – whether testate or intestate – is fraught with risk. This article will examine the risks a Personal Representative may encounter when the estate they are administering has one or more missing or unknown beneficiaries.
What to do?
Most Practitioners would probably consider themselves unlucky to be presented with a missing beneficiary problem more than once a year. However, it does occur and when it does it is vital that the PR can provide good quality advice to his or her client.
There are a number of steps that a PR should take before seeking outside assistance. Firstly, if a legatee in a Will is believed to be missing, it is always worthwhile writing to the address given in the Will, just to be certain that the legatee has definitely moved on. It is also a good idea to look through the Testator’s address books if available to see whether a more recent or different address is recorded anywhere.
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If these attempts fail, then seeking the expert advice of a specialist early on in the estate administration process is advised. Whilst the majority of missing person cases can be resolved fairly swiftly, if the enquiry proves more complex, or overseas research is required, then timescales can at times become protracted and potentially delay the resolution of the estate.
Some providers of people tracing services are now also able to offer these services for a fixed price that is only payable by the estate on a successful outcome in certain circumstances. This removes the risk completely that an estate may have to pay fees for a result that does not allow for the estate to be finalised.
Risks of DIY?
When presented with an intestacy it is vital to ensure that all entitled people are included, and unentitled people excluded. It is not uncommon in an intestacy situation for the family to produce a family tree, whether full or partial. However, we would always exercise caution with regards to the ‘well-meaning amateur’ as mistakes can be easily made which can affect the entire family tree.
For example, not obtaining the birth, marriage and death certificates and relying on the indexes alone can often result in the wrong family being researched. Even when the names involved are comparatively distinctive, we have seen many family trees where reliance on an index entry has resulted in incorrect beneficiaries being initially identified.
With the advent of many more internet resources available comparatively cheaply, there is an increasing temptation for some Practitioners to attempt to build family trees without turning to a specialist. The risk here is that there are many subtle nuances that an expert will potentially pick up, that an amateur may not. In addition, there is a skill involved in interrogating these databases to get the best results in a time and cost efficient manner. As such, it is a task best referred to an expert.
A reputable genealogist would be able to provide a no obligation estimate of costs – either on a time spent, or fixed price basis, and if necessary talk through the work required to family members.
Different fee options explained
Time and expense based fees are typically calculated by the number of hours spent on completing the work and the amount spent on expenses during the work. This is probably the most traditional pricing method in the legal sector but it often leaves the Personal Representative unsure of what the cost is going to be overall. Although, the advantage of this approach is that the cost directly reflects the actual time spent on the task at hand.
When a fixed fee is offered, you and your client will know exactly what you are paying from the outset. There should be no hidden surprises, even if the work takes longer than expected. In some cases, if the work is not successfully completed, the fee may be refundable. A fixed fee solution offers complete transparency from the start and could help ensure that more money is left in the estate.
A contingency or commission fee arrangement is where the genealogist undertakes the work, identifies the beneficiaries and then agrees with those beneficiaries that they will take a share of their entitlement when the estate is distributed. The genealogist is taking a risk that they will only be paid if they locate the missing people, and those people agree to sign their agreement. However, the resources now available to a genealogist mean that most, if not all, missing people can be successfully located.
Risks to PRs in using percentage based fees
The use of percentage based fees is still heavily promoted within the genealogy and people tracing industry. Usually, once the genealogist has undertaken the research, they come to an agreement with each beneficiary whereby the beneficiary agrees that the genealogist is paid a percentage of their entitlement when the estate is distributed. However, on occasion, the genealogist will agree a percentage fee with the Personal Representative in advance of research and then this percentage is paid from the shares due to each heir located. Over the last two years, we have seen commission fees ranging from 10% to 33% (plus VAT), with the average being 21%. A percentage fee will of course rise proportionally with the value of the estate or legacy, whereas a time based or fixed fee will remain the same regardless of the size of the estate and will be directly proportional to the amount of research undertaken.
Using an heir locator that charges percentage based fees is clearly an attractive option for a PR who wants to protect their share of the estate as they do not pay anything out of their share towards the costs of locating any missing beneficiaries. There is a common law principle that the PR cannot use their position to profit from the estate. If the PR breaks this rule they could face litigation from beneficiaries to the estate for any losses incurred. This principle is very well established through key cases such as Keech v Sandford, Regal (Hastings) Ltd v Gulliver and Phipps v Boardman. If the PR is also a residuary beneficiary, there is a clear conflict of interest if they use a commission fee arrangement. On the one hand the PR has a duty to act in the best interests of the beneficiaries, but at the same time the PR’s share will be bigger because it will be untouched by the cost of tracing missing beneficiaries. A PR is also potentially in breach of their duty to act in the best interests of beneficiaries, if they allow beneficiaries to be charged excessive commission fees. In particular, if the PR could have engaged a genealogist on a potentially cheaper time & expenses basis, the PR could be sued by beneficiaries for the difference between any percentage paid and the amount that would have been charged on a time & expenses basis.
It follows, of course, that a probate practitioner who suggests a PR should use a commission fee genealogist or directly instructs a commission fee genealogist, also faces the risk of being sued on the basis that they had provided negligent advice which allowed the PR to profit from the estate.
The Society of Trust & Estate Practitioners has published guidance notes on genealogists fee options. This guidance sets out the advantages and disadvantages of each option and it is clear from this guidance that commission fees expose practitioners to far more risks than any other fee option.
Estate administration is fraught with risks, but tactical use of specialists at various stages can help minimise the risk to a professional and also help to move the administration to a conclusion much quicker. However, it is vital to consider all the implications when opting for a particular charging method – otherwise the professional could open themselves up to additional risk not originally considered.
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