Private client work may seem an attractive new source of business for civil litigators in strained economic times, but there is much to consider and be wary of before you take your first steps. In the second of a two-part article, Roman Kubiak, senior associate at Hugh James Solicitors, outlines five more key issues you must focus on before entering the market.
6. Avoiding personal liability
Aside from the situations set out below, where indemnity from the beneficiaries, directions from the court or a Beddoe order (see point (8) below) may protect a personal representative (PR) from personal liability, there are often other traps into which the unwary practitioner may fall and which may render them personally liable.
As a matter of course, and to avoid claims by potential creditors and beneficiaries, PRs are well advised to provide notice to such people by way of a section 27, Trustee Act 1925 notice in the London Gazette . This is a notice setting out the intention to distribute the estate, and provides potential claimants with two months within which to notify the PRs of their interest. After expiry of this two-month period, the PRs can distribute the estate to the beneficiaries and known creditors without fear of personal liability, should a claim arise.
There are also a number of other ways in which PRs may find themselves personally liable. For instance, they could be liable for inheritance tax due on a failed potentially exempt transfer that has remained unpaid for more than 12 months, if applying a strict reading of sections 199(2) and 204(8) of the Inheritance Tax Act 1984.
Following representations by the Law Society, HMRC has confirmed that it will not usually pursue PRs who have made the fullest enquiries possible and provided full disclosure, although this is without prejudice to the application of the act in appropriate cases.
7. Getting paid
As with remuneration for all other legal work, the right to charge for probate work is governed by the Solicitors’ (Non-Contentious Business) Remuneration Order 2009 (SI 2009/1931).
A personal representative who proactively pursues or defends litigation without unanimous beneficiary consent or approval by the court risks facing a personal costs order.
Briefly, the order states that the amount to be charged in any particular probate matter should be determined by reference to what is deemed “fair and reasonable”. Where appropriate, the order provides that charges may consist of two elements: an hourly rate and a value element.
In respect of the value element, the order provides examples of what could be considered to be an appropriate percentage in particular cases. However, this is merely guidance and the particular circumstances of a case may dictate the amount which should be charged.
A further area which an increasing number of practitioners are facing, particularly following the recent economic crisis, relates to the administration of insolvent estates. Legal costs are classed as administration expenses, and therefore have priority over most other usual debts. As such, where the PRs are not the partners in the firm, provided the point is covered in the firm’s terms of engagement, the PRs could be asked to meet any shortfall as between the costs incurred, and the amount from the estate available to meet those costs.
Of course, in circumstances where the solicitors are also the PRs, the reality is that if the estate is simply insufficient to meet your costs, then you will not be paid.
8. Claims by or against the estate
At some point, it is inevitable that one of your probate matters will either face a hostile claim – for instance, a debt action by an alleged creditor – or find itself in the position of needing to bring a claim, for instance, where it is asserted that lifetime transactions from the deceased’s estate were procured by reason of undue influence.
A personal representative can be asked to meet any shortfall as between the costs incurred, and the amount from the estate available to meet those costs.
There is also an important distinction here to be drawn between administrators and executors. The latter derive their authority from the will, and so can issue legal proceedings prior to extracting the grant of probate, although executors would need to produce a grant at court to rely upon that capacity. The former can only issue proceedings once the grant has been extracted.
Aside from the examples below, in any other case the PR’s duty is to preserve, protect and secure the assets of the estate in a reasonable manner. However, what is or is not reasonable is subjective, and a PR who proactively pursues or defends litigation without unanimous beneficiary consent or approval by the court risks facing a personal costs order. As such, before proactively engaging in litigation on behalf of an estate, every PR should first obtain the consent of all the beneficiaries, provided the beneficiaries are all adults and sui juris .
In all other cases, the PRs should make an application to court using the procedure under CPR 64.2(a) to seek a Beddoe order. This is essentially an order by the court providing a PR or trustee with an indemnity on their costs, to either pursue or defend litigation, often up to a certain point at which the applicant will have to revert back to the court for further directions.
9. Disputes between or against personal representatives and beneficiaries
Disputes often arise between PRs, which can have an impact on the probate practitioner and lead to a potential conflict. In cases of doubt, the views of the beneficiaries or directions from the court should be sought.
Disputes between beneficiaries can be extremely frustrating, particularly where the dispute itself is arguably disproportionate.
While section 23 of the Trustee Act 1925 authorises PRs to employ a solicitor to deal with the estate administration, where two or more PRs are separately represented because of a dispute between them, both may be primarily responsible for their legal costs, pending resolution of the dispute.
In any other dispute against a PR, ie for their passing over or removal under section 116 of the Senior Courts Act 1981 or section 50 of the Administration of Justice Act 1985 or otherwise by a beneficiary, how and by whom costs are borne should be determined on a case-by-case basis. Again, if there is any doubt, and it is reasonable to do so, directions from the court should be sought.
Disputes between beneficiaries can be extremely frustrating, particularly where the dispute itself is arguably disproportionate. In those circumstances, the PRs have one of two options:
(i) either leave the beneficiaries to ‘fight it out’ and hold the estate assets (or sufficient assets without delaying payment to other beneficiaries) pending determination of the dispute, or
(ii) where the dispute is causing unnecessary delays and neither beneficiary is willing to issue proceedings, the PR may threaten and, if necessary, seek court directions under CPR 64.
In many cases, this will either precipitate agreement between the beneficiaries, or formalise the dispute between them. In the meantime, and to ensure that the estate assets are maximised and secured, the PR may need to consider obtaining a limited grant to enable them to collect the assets pending determination of the issues.
10. Inheritance Act claims and will disputes
Claims under the Inheritance (Provision for Family and Dependants) Act 1975 are becoming increasingly prevalent, particularly with second marriages and cohabitation on the increase.
A PR’s role when faced with such a claim is to remain neutral and to furnish the parties with relevant information regarding the nature and value of the estate (CPR 57.16(5)).
It is not uncommon for a PR to be a beneficiary or potential claimant. In such a case, it is often wise for the PR to renounce probate. However, that is not an absolute requirement and, provided the two roles are kept entirely separate (with a separate file for each capacity), and where this is unlikely to be a cause of satellite litigation, there is no reason why a PR cannot also be an active party to the proceedings in another capacity.
In disputes over the validity of a will, the extent to which a PR and, specifically, a solicitor PR can seek to propound the will, is very helpfully set out in the Law Society guidance note on disputed wills at paragraph 6.1. In short, to avoid personal liability, a PR should remain neutral and provide information to all potential beneficiaries.
Where the will in dispute has been prepared by the firm undertaking the administration, there is likely to be a conflict of interest, particularly where the firm is likely to be a witness of fact. Best practice dictates that in such a case, and failing consent by all potential beneficiaries to the firm acting, the estate administration should be referred elsewhere.
For an in-depth analysis of all these issues, members are referred to the Probate Practitioner’s Handbook, published by the Law Society.
