What do you do if the executors say they want to take out an insurance before they distribute? Specifically, if they say they need insurance because of the 'risk' that a later Will was executed that they don’t know about?

Where there is no evidence of a challenge then statute protects the executor who distributes in good faith.  There is an alternative Court route but that is also expensive. Indemnities provide the answer.

But insurance has to be justified!

What is the scenario?

I am dealing with an estate where the executors have taken out an insurance policy against this 'risk' for 1.4% of the total value of the estate just under two million pounds.  

They have proved a Will over 18 months years ago in the estate of someone who died over two years ago – but that Will is over 20 years old. They placed Trustee Act notices and have done a Certainty search.  There is nothing in the testator's papers indicating a later Will.  But they just don't know the deceased did not make a later Will.

You want the estate distributed.  But you don't want the estate to incur (i) the cost of the insurance premium or (ii) the cost of time spent exploring insurance premiums / agreeing terms etc.

What are your options?

Economics and the wider sector

The premium of 1.4% in the estate mentioned above equates to around £28,000.  In the context of a £1.9m estate, may not feel significant (although the more legacies there are the greater the proportion of the residuary funds going to charity diverted towards the insurance premium).

Legacy Foresight's report to April 2023 recorded annual legacy income as being four billion pounds.

Let's assume insurance against the fanciful becomes the vogue, 1.4% of four billion equals £56 million.

Statute

How do you deal with the executors' anxiety?  In the scenario described above there is no reason to be legitimate reason to be anxious.

S27 Administration of Estates Act 1925 states:

27 - Protection of persons acting on probate or administration. 

(1) Every person making or permitting to be made any payment or disposition in good faith under a representation shall be indemnified and protected in so doing, notwithstanding any defect or circumstance whatsoever affecting the validity of the representation.

(2) Where a representation is revoked, all payments and dispositions made in good faith to a personal representative under the representation before the revocation thereof are a valid discharge to the person making the same; and the personal representative who acted under the revoked representation may retain and reimburse himself in respect of any payments or dispositions made by him which the person to whom representation is afterwards granted might have properly made. 

In other words, no claim can lie against a personal representative who distributed in good faith under what appears to be a valid grant.

Going to Court

The court has jurisdiction to remove roadblocks and order that the person who initially alleged the claim must start court proceedings within a certain (and relatively short) time period and, if they do not, then the executor will be permitted to distribute the estate free of the risk of any personal liability to the potential claimant.

The way the Courts have approached this issue has developed reasonably recently starting with Sherman v Fitzhugh Gates [2003].

Brother and sister Len and Emma had lived in a house in Brighton for many years. They were both in their 90s when they died. Neither married or had children.

The course of proceedings was longwinded but eventually reached the Court of Appeal.  There, Lord Justice Carnwath said 'I see no reason why [the powers of the court] could not have been used to impose a time-limit on a potential challenge to the probate — in effect a direction to ‘put up or shut up’ — following which the executor would be free to distribute under the will.'

In other words, we see the Court of Appeal considering the possibility of making a 'put up or shut up' order to prevent vexatious individuals threatening to challenge a will on tenuous grounds without ever advancing a formal claim.

The next case was Cobden-Ramsay v Sutton [2009].

Mrs Sutton had executed a will dividing residue between her two adult children: Julian Sutton and Lady Bristol.

Mrs Sutton later executed a codicil increasing the share of the estate going to Lady Bristol – the effect being that Julian lost out on £60,000.

Not unsurprisingly, Julian was unhappy and asserted in correspondence, between April and October 2007, that his mother had lacked capacity to execute the codicil.  He then went quiet, writing again only once in February 2008.  The executor provided evidence that Mrs Sutton had capacity.

Julian refused to bring any proceedings and this held up distribution from the estate as the executor was unsure he would have the protection of s27 Administration of Estates Act 1925.

The executor applied for an order permitting him to distribute unless Julian issued proceedings within 28 days.

The court decided in August 2008 that this was 'pre-eminently a case in which [a put or shut up order] should be made'. The judge highlighted that the executor had made available all material believed to be relevant on capacity, but Julian still refused to bring proceedings.

The third case which helps illustrate the Court's approach is Thomas v Thomas [2021].

Mrs Thomas had died in 2018, survived by three sons: the claimant, the first defendant and the third defendant.

Probate was granted to the claimant.

There was a question over the interpretation of the will – but the claimant sought an order allowing him to distribute the estate in accordance with its terms.

The third defendant disagreed and somewhat vaguely alleged that Mrs Thomas had been mentally ill and that the will was invalid for other unspecified reasons.

A claim was issued to interpret the will and authorise distribution.

At the hearing, the judge noted that no substantial basis had yet been shown supporting that Mrs Thomas lacked testamentary capacity or that her will was invalid for any other reason.

On that basis the third defendant was given 28 days to issue a claim or the estate should be distributed per the will.

In summary, the Court can and will step in if the estate administration is being held up if the step is not draconian, but the court will want to be comfortable in doing so as it does, effectively, stop someone making a challenge in the future. For example, the Court will expect disclosure of documents which support the will being valid.

The claim should be vague, unparticularised or unspecified for the court to make a 'put up or shut up' order (although if there is a genuine claim then executors are unlikely to want to distribute in any event).

A 'put up or shut up' is not a silver bullet for beneficiaries as it only protects the executor from potential future claims. It does not prevent a potential future claim against beneficiaries who have received sums which it transpires they should not.  

From a beneficiary's perspective, suggesting that an executor apply for a 'put up or shut up' is almost certainly attractive to get the estate administered. Even if it is thought that a claim really might be brought down the line the longer the disgruntled beneficiary leaves it the less credible the claim is likely to be seen.

What is good faith?

Unhelpfully the Courts have tended to insist that it depends on context.

'Shorn of context, the words “in good faith” have a core meaning of honesty. Introduce context, and it calls for further elaboration. Thus in the context of a claim or representation, the sole issue as to honesty may just turn on its truth. But even where the content of the statement is true or reasonably believed by its maker to be true, an issue of honesty may still creep in according to whether it made with sincerity of intention for which the Act provides protection or for an ulterior and, say, malicious, purpose. The term is to be found in many statutory and common-law contexts, and because they are necessarily conditioned by their context, it is dangerous to apply judicial attempts at definition in one context to that of another.' 

Street v. Derbyshire Unemployed Workers' Centre [2004] EWCA Civ 964 (Auld LJ at [41]) 

A test of rationality, by comparison, applies a minimum objective standard to the relevant person's mental processes. It imports a requirement of good faith, a requirement that there should be some logical connection between the evidence and the ostensible reasons for the decision, and (which will usually amount to the same thing) an absence of arbitrariness, of capriciousness or of reasoning so outrageous in its defiance of logic as to be perverse.'

Hayes v Willoughby [2013] UKSC 17 (Lord Sumption at [14])

Importantly in Cobden-Ramsay it was acknowledged that there might be a question as to whether section 27 protection was available because the executor knew that Julian was unhappy.  There Julian had at least actively intimated a challenge.

Does worrying that there is a later Will mean any distributions are not made in good faith?

There is no real logic to expressing concern that there may be a later Will just because the Will is twenty or thirty years old.  If the test is certainty that a later Will was not executed there will be very few circumstances in which an executor can have no doubt that there is no later Will.   It is not unknown for a testator to make a Will only to change it the following day.

It is true that the older the Will by definition the more opportunity the testator had to make a new Will.  But if age of the Will is the only factor how old does the Will have to be before distributions are not 'in good faith'?

There must be something concrete to justify executor concerns because otherwise s27 becomes meaningless – and Parliament will not have intended legislation that has not meaning.

Indemnities as an alternative

Ideally, the executor would not issue a Court application with the associated cost, delay and even potential PR risk.

Firstly, we say that the Executors have statutory protection under section 27 of the Administration of Estates Act 1925. Under this, as long as the executors are acting in 'good faith', they are entitled to (and should) get on and distribute the estate in accordance with the Will which they believe – and have sworn on an oath – to be the last valid will.

So in the unlikely situation that the Will is successfully challenged in the future, and the grant of probate overturned, the executors can rely on the protection in the statute.

But, for some executors, this explanation doesn't give them the reassurance they want where there has been an earlier suggestion that the Will is invalid. To benefit from the s27 protection, the executor must be acting in 'good faith'. The executor may question whether they will be seen to have acted in 'good faith' in distributing when they knew about a potential claim.

Executors are often enthused about getting insurance.  But insurance is usually costly to put in place, both in terms of premium but also the time taken to organise. And it usually only protects the executors (ie it doesn't stop a claim against the original beneficiaries).  

If that is their mindset, you will very likely want to encourage them towards an indemnity.

How long is the risk?

There is no time limit applicable to a challenge to probate.  Which adds to executor concerns that they are potentially on the hook forever.   

But the claim they face is a claim for wrongful distribution – devastavit.

Under s22 of the Limitation Act 1980, there is a statutory limitation period of 12 years for an act of devastavit. The statute says that the 12 years begins to run 'from the date on which the right to receive the share or interest accrued'.  This is usually deemed to be a year after the death – taking us to 13 years in total.

If there have been delays, the executors might be nervous about when the time for any claim starts to run. In these circumstances, there may be an argument that the 12 years starts to run from the date of distribution.

There is nothing in s22 Limitation Act which suggests that it is only limited to validly appointed personal representatives.  So it seems that if the executor had a grant of probate, but that grant later turns out to be based on an invalid will, the statutory limitation periods still apply, even though the executor is no longer a 'valid' personal representative.

If there is a validity challenge in the future the executors should be neutral and so will not (or at least should not!) incur any legal costs.  

Conclusion

Charities need to be alive to the risk of estate funds being wasted on unnecessary insurance policies and be ready to step in promptly as soon as they get an indication that executors are minded to go down that route.

<< BACK TO HOMEPAGE