Canada Life  

Why use a discretionary probate trust?

  • Identify who can benefit from using a discretionary probate trust
  • Explain why they are useful in certain circumstances
  • Describe how a discretionary probate works
Why use a discretionary probate trust?
Emma Bauso from Pexels

Following a backlash in 2018 over the proposed introduction of bands where some higher value estates would have been charged up to £6,000 in probate fees, the government is now consulting on aligning the fee payable for probate applications with the cost of providing that service for all users.

When someone dies the property, money and possessions they own at death are valued to establish whether probate is required. As failed gifts or assets held in trust (except where the deceased is the absolute beneficiary) are not owned by the deceased neither are included for probate purposes but both would be included for inheritance tax purposes. And while it is not a requirement that every estate must go through probate, where your client is the sole owner of an investment bond and the death benefit or surrender value (if there are surviving lives assured) is above the provider’s de minimis limit, probate will be required.

Organisations holding money belonging to the estate, for example, banks, building societies and life offices, need to know that the people they ultimately pay the money to are legally entitled to have it. Organisations call this process ‘giving a good discharge’ because if they pay the wrong people, they may have to pay the money all over again to the correct individuals. The grant of probate is proof that the people named in it are entitled to receive the money and they can then distribute it to the people who inherit the estate, during their lifetime.

Professional applicants pay less than individuals

Currently, an application for probate in England & Wales made by a professional attracts a £155 fee, whereas an application made by an individual in a personal capacity is subject to a £215 fee. The new consultation proposes that the fee payable for probate applications, regardless of who is applying, should be £273 from April 2022. 

If your client also holds an investment bond in another jurisdiction, probate may be required in that jurisdiction as well. For example, where your client is domiciled in the UK but holds an investment bond, with a value exceeding £50,000 with an insurance company in the Isle of Man, UK probate and Isle of Man probate will be required, with the current probate fee being £266. 

The process of obtaining both UK and Isle of Man probate can take many weeks, currently HM Courts & Tribunal Service are reporting delays of eight weeks or more and this, coupled with the extra probate fee where your clients hold investment bonds in other jurisdictions, can cause stress and delays for their loved ones.

Putting an investment bond in trust and appointing trustees can ensure that on a client’s death the provider can deal directly with the continuing trustees without the need for probate. But you find that where clients, during their lifetime, need the ability to access their investment the bond is not normally written in trust.  

Using a probate trust

Using a probate trust can negate the need for obtaining probate on death while allowing clients to retain access to withdrawals. A probate trust can either be written on a bare or discretionary basis and can ensure the family does not have to wait for the formalities of probate to be completed, if there is at least one surviving trustee, before they can access the investment.