Early Distribution Insurance

Insuristic is the first insurance broker in the UK to provide quotes for Early Distribution Insurance online to both personal representatives (the executors or administrators) and solicitors.

You'll often hear that executors and administrators must wait six months after the Grant of Probate or Letters of Administration before they can distribute an estate.

This isn’t the case; it is a recommendation given the liability the personal representatives (the executors or administrators) have in the 6-month period following receipt of probate. 

This is often referred to as the statutory waiting period, but there is nothing statutory about it. The Inheritance Act sets no waiting period and places no duty on personal representatives to delay distribution.

So, where do the six months come from?

It refers to two separate things, neither of which is an obligation to wait.

1. It's the period in which someone can bring a claim against the estate as of right under the Inheritance Act, starting from the date of the Grant.
2. And it's the point after which a personal representative who has already distributed is protected from personal liability because they have waited until the 6-month period has expired.

Key points to consider:

• The six-month point isn't a cut-off. A court can allow a claim to be brought after it, and there is no fixed deadline on that discretion, so a valid claim can, in principle, arrive long after the estate has been wound up.
• After six months, the personal representative is protected from personal liability, but the beneficiaries are not: the law expressly preserves the right to recover money that has already been distributed, so a successful late claim can be reclaimed from the people who inherited initially.
• And within six months, there is no protection at all; a personal representative who distributes early carries the full risk personally.

Waiting is not the safe option it appears to be. Without Early Distribution Insurance, someone carries the risk either way:

One important exception: If you're aware of someone who might have a claim you should not distribute without taking legal advice first. If you're unsure where you stand, you can arrange a free consultation with a specialist contentious-probate solicitor to find out: book a free consultation.

When there are no known Inheritance Act issues, why wait? Early Distribution Insurance can be arranged as soon as the Grant is received. It removes the liability for everyone involved, and the estate pays for the policy, so no one is personally out of pocket.

There are many situations where releasing it sooner is clearly the right thing to do, for example:

• Removing liability in the event of a claim. As we have already stated, waiting doesn't remove the risk; insuring removes the financial pain that a claim would bring and protects both the personal representatives and beneficiaries from financial loss.  
• Pressure from the beneficiaries: If there are no known issues, there is no excuse to wait to distribute with an insurance policy. Creating unreasonable delays can be a cause for disputes and legal action from beneficiaries, so insured distribution can alleviate any tension.
• Beneficiaries need the funds now. Where people are relying on their inheritance, making them wait can cause real hardship.
• The estate is small and straightforward. With no outstanding tax or debts to settle, there may be no reason to hold things up.
• The personal representatives understand the estate. Where the assets and liabilities are well understood, and nothing of concern has come to light, distributing early with insurance is a reasonable step.
• The deceased wanted it. They may have wished for their loved ones to be provided for quickly, rather than kept waiting unnecessarily.

Where any of these apply, and there are no known issues with the estate, it makes sense to insure against the risk of a claim from an unknown dependant, so you can distribute early with the financial risk carried by the policy, rather than by you or the beneficiaries.

A claim can come from a person who believes they fall under the definition of a “dependant” under the Inheritance (Provision for Family and Dependants) Act 1975, and:

1. You distributed the estate before the end of the six-month period that runs from the Grant; or

2. The six months had passed, but the court allowed a claim to be brought afterwards and it succeeded.

The people who fall under the definition of the Act are:

• The spouse or civil partner of the deceased.

• A former spouse or civil partner of the deceased, provided they have not remarried or entered a new civil partnership.

• Someone who lived with the deceased as a spouse or civil partner for at least two years immediately before the death (a cohabiting partner).

• A child of the deceased (of any age).

• A child of the family of the deceased (this includes stepchildren, adopted children, and children who were treated as children of the family by the deceased).

• A dependant of the deceased (this includes people who were financially dependent on the deceased, such as a parent or sibling).

The court can make several orders under the Act, including:

• An order for a lump sum payment

• An order for periodical payments

• An order for the transfer of property

• An order for the variation of the deceased's Will

So as you can imagine, Early Distribution Insurance claims can be sizeable.

The cost of early distribution insurance will vary depending on a number of factors, including:

• The size of the estate;

• The complexity of the estate and

• The likelihood of a claim being made.

Provided there are no known issues, our insurance cover, provided by CLS Property Insight, has an average cost of £223, with the minimum policy cost being £112 (including Insurance Premium Tax).

For a relatively modest cost, the insurance provides a significant peace of mind when distributing the estate early.

If a claim occurs on an early distribution insurance policy you must adhere to all the claims conditions listed in the policy.

Failure to do this could mean the insurer rejects your claim, or they could reduce the value the policy pays out if the breach of conditions increases the value of the loss.

You should ensure you read and understand all of the policy conditions listed in the policy.

Here are some pointers on what you should do in the event of a claim:

1. You should never tell a third party about the existence of this policy.

2. If there are circumstances that might cause a claim, you must tell the insurer in writing as soon as possible. You should also provide the insurer with as much information and documentation as you can.

3. Don't incur any costs relating to a claim without first consulting your insurer

4. Never admit liability or offer to pay or settle with someone else. You should refer the matter to your insurers claims team.

5. Pass all correspondence and requests for meetings to your insurer's claims team.

For full details of your claims conditions, you must read your policy wording or speak to the insurer's claims team for guidance.

Early Distribution Insurance covers one specific risk: Inheritance Act claims.

The personal representatives have other risks to consider:

• Probate Property Insurance – a specialist policy designed to help the personal representatives reduce the risk of gaps in cover and underinsurance.
• Missing Will Insurance — protection if another Will is discovered after the estate has been distributed.
• Missing Beneficiary Insurance — protection if a beneficiary who was unknown or untraceable at distribution later comes forward.
• Section 27 Insurance — protection against claims from unknown creditors, without the cost and delay of placing a Section 27 notice.

If you aren’t sure which legal indemnity insurance policies you need, these guides walk through it by scenario:

• Insurance to consider if there is a valid Will (testate)
• Insurance to consider if there is no Will (intestate)

If your firm is handling the full estate administration, offering legal indemnity cover is part of protecting both the client and the firm.

The personal representatives have a duty to protect beneficiaries from financial loss. Where a risk, such as an Inheritance Act claim, could have been insured but wasn't, and the firm providing a full estate administration service didn't offer it, that creates a liability exposure for the personal representatives and a potential professional indemnity claim against the firm. Offering it to every client and recording any decision to decline cover removes that exposure.

So, the best practice is to offer this to every client whose estate you're administering, as soon as the Grant is received. Solicitors can arrange cover through our portal in seconds, as there are fewer questions to answer, and the client is unlikely to find cheaper cover elsewhere. You can read more on our probate legal indemnity insurance for solicitors page.

Even on a grant-only service, you should raise the risk with the client and record it in your correspondence as evidence. You still have a duty to advise on the risk, even where you aren't responsible for arranging the cover, and a failure to advise, or to evidence that you discussed it, could result in a professional indemnity claim. A simple step is to email our Probate Risk Management checklist to every client.

For clients: if you've instructed a solicitor on a grant-only basis, the position is different. The firm is obtaining the Grant for you, but the estate administration, including arranging any insurance, remains your responsibility as the personal representative. If you're unsure which service you've engaged, it's worth checking, because it determines who is responsible for protecting the estate against these risks.

The following resources are useful for anyone acting as an executor or administrator:

• Probate Checklist - outlining the risk management searches and policies available to you.
• Executor Insurance Guide
• Risk Management Resources