What Insurance Should I Consider For a Testate Estate?

If you are an executor,  you have a legal duty of care to protect the beneficiaries from financial loss, so that includes protecting any property in the estate, and we have plenty of resources on our website in this regard, as well as protecting against third-party liability claims, which is the sole purpose of our Estate Protect Direct policy.

So, let's talk about where you have a potential liability to third parties.

If there is a valid Will, you should consider:

Missing Will Insurance, because it is possible that another Will exists, which could challenge how you distributed the estate. 

In the absence of insurance, these claims can be significant. 

Imagine you’re the Executor of a £500,000 estate that was distributed seemingly without issue a few years ago.  Then, suddenly, out of the blue, someone makes a claim, as they have a copy of a different Will with different beneficiaries and different inheritance amounts.

This is a serious claim.

Firstly, the cost of the legal defence would be shared between each executor.

If they lose and the third party is awarded £500,000 plus inflation and the costs of their legal action, the total costs could easily exceed the original estate's value.

Would you and the other Executors have this money?  It is possible this could cost your house and life savings.

It is unlikely that you could recover this loss from the beneficiaries, as they would likely have spent their inheritance and would use the argument that the Executors have failed in their duty of care to protect the beneficiaries from financial loss, forcing the responsibility on you and the other Executors to find the money.

If the money can’t be recovered from the executors, let's say, after you’ve sold property and exhausted all your savings, the Beneficiaries may then face the issue of repaying some or all of their inheritance to the third party.

Thankfully, these significant losses and stress are completely avoidable with Missing Will Insurance. 

It can be paid for by the estate prior to distribution.  The cover runs in perpetuity, meaning all executors and beneficiaries receive cover under Insuristic’s policy forever.

Provided all of the deceased's documents have been searched, and you have also completed a Will Search Combined through the National Will Register, which searches their extensive Will database as well as every Solicitor and Will Writer in the proximity of where the deceased lived, then you can arrange Missing Will Insurance.

The policy protects the executors and beneficiaries' liability for legal costs and awards to third parties up to the indemnity amount you chose. 

So, it's important to ensure the legal indemnity amount includes an uplift for future legal costs.  Estate Protect Direct includes inflation protection for the first 10 years of the policy, up to a maximum of 125% of the indemnity level you chose, which provides additional protection.

So let's go back to this claim scenario, where you have a Missing Will Insurance policy.

Firstly, all you need to do is pass the claim to the insurer.  You shouldn’t disclose to the third party about the existence of the insurance policy, comment or get involved as this could invalidate your cover. 

The insurer will deal with the claim and legal defence on your behalf.

If you have an Estate Protect Policy, there is no Excess, which means you don’t have to pay the first few thousand pounds of a claim out of your own pocket, so you can get on with your life – provided you haven’t underinsured the estate, there would be nothing more for the executors to pay or do.

The insurer will defend the claim, if the defence is successful, the policy pays the legal costs and expenses.

If the claim is successful, the existing beneficiaries are unaffected; they can keep the money they had inherited.  So it is important to stress when arranging this cover that it is for the beneficiary's peace of mind as well as yours. 

The claimants would be paid their inheritance by the insurance company, which would also cover the legal costs, which is why setting the right level of indemnity is important, as you don’t want any expense at this point.

The result is that everyone is happy, and you have protected the executors and beneficiaries' liability and financial future.

It's also worth noting that many executors are also beneficiaries, so this cover would apply to you in both situations.

Now let's move on to another risk: claims that fall under the Inheritance (Provision for Family and Dependants) Act 1975.

A claim can come from a person who believes they fall under the definition of a “dependant” under the provisions of the Act, and:

If you distributed the estate within the statutory 6-month waiting period, or

Where the statutory period was met before distributing the estate, but the courts decided a dependant had a successful claim.

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, if they were married or in a civil partnership for at least two years immediately before the death
• A child of the deceased
• 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

Claimants have 6 months to claim from the date of the Grant of Probate, which is why many solicitors make you wait 6-10 months before the estate is distributed. 

Claims of this nature are becoming increasingly common. In fact, there are hundreds of law firms specialising in Contentious Probate, just search on Google for this, and you will see for yourself.

The number of claims isn’t highly visible, as the majority settle out of court, which still includes hefty legal costs and expenses, as well as awards to any successful claims from dependents.

If you aren’t insured and are instead waiting for the waiting period to expire, and are holding on to the money in the event of a claim, the executors could be exposing themselves to a significant financial risk if a claim arises. 

Firstly, the beneficiaries are likely to say that you have failed in your duty of care to protect them from financial loss, as this risk could have been insured.  Which means that all costs will likely be payable by the executors.

Then, you have the cost of defending the claim, including legal defence costs and expenses, which reduces the inheritance pot. 

You could buy an ‘After The Event Legal Expenses Insurance’ policy for this, but it is not guaranteed, as underwriters may decline to quote if the claimants have a very strong case.  If they do quote, the premiums charged are costly to reflect the extent of legal costs involved.

Alternatively, you have the Contentious Probate Solicitor market, who may take on the case if the chances of success are strong enough.  The other party will most likely be using a Contentious Probate Solicitor to make their claim.

Then, if you lose the claim, the estate will have to pay the entire claim plus legal defence costs.  If there isn’t enough money in the estate, the executors would need to fund the difference.

What's more, the existing beneficiaries may then sue you for their loss, as this could have been avoided with Insurance.

Sounds stressful, doesn’t it?

All of this can be avoided by arranging an Early Distribution Insurance policy when you have the Grant of Probate, regardless of whether you are distributing the entire estate.  Perhaps you are still waiting for the property to be sold before distributing the funds in full.

Provided there are no known issues at the time you buy the policy, it is easy to arrange in a few minutes with Insuristic.

With a policy, you are covered from the point you have the Grant of Probate up to the level of indemnity you choose, keeping in mind this needs to be sufficient to cover the legal costs as well, so set a level that is higher than the estate value.

So it's best to arrange the policy as soon as you have the Grant, so that no one needs to wait 6 months for their inheritance, you can distribute some or all of the funds as soon as you are ready.

It is common for Beneficiaries to put pressure on Executors for timescales of when they will receive their money, which can get heightened if, in their mind, things are going slower than they expected, which is often outside of your control.

You can tell the beneficiaries early in the process that it is your intention to distribute early, provided everything is in order and there are no known disputes, when you have the Grant. The knowledge of this might make the process less stressful and confrontational for you.

Known disputes, on the other hand, will almost certainly go down the Contentious Probate route; we can help put you in touch with a specialised firm that will provide you with some free consultation.  The best practice here is that as soon as you have a sniff of a dispute, you should get advice; you could nip it in the bud early and prevent a financial and legal headache down the line.

We have a link to a free continuous probate consultation within the probate risk management section of our website.

Lastly, the executors and beneficiaries need to consider claims from unknown creditors that arise after the estate has been distributed.  The relevant policy for this risk is Section 27 Insurance.

However, before I discuss the cover, I wanted to talk to you about a common practice and misconception regarding how to protect against this risk.

There is a documented best practice that solicitors have used for many years: place a Section 27 Notice and advertise the death in the local papers.  Not only does this delay distribution by 2 months whilst waiting for the notice to expire, but it is also expensive and provides little cover against creditor claims.

The Section 27 Notice is supposed to protect the executors from claims from unknown creditors.  With the Notice, creditors have 2 months to make their claim; after this period, the executors can pass this debt on to the beneficiaries without financial liability.

This practice is widely used in the legal market; however, in reality, it provides you and the beneficiaries with no protection against unknown creditor claims.

If you rely on the notice and there is a claim, the beneficiaries could argue that by not arranging Section 27 Insurance, the executors were negligent in their duty of care to protect them from financial loss and push this liability back to the executors.

This is where Section 27 Insurance makes much more sense for everyone involved.

The cover protects the executors and beneficiaries from unknown creditor claims.

The executors don’t need to incur the expense of placing a Section 27 Notice and expensive newspaper advertisements.

For smaller estates, the insurance is usually much cheaper than placing the notice and advertisements anyway, with better financial protection.

And, when paired with Early Distribution and Section 27 Insurance, you can safely distribute the estate within the statutory 6-month waiting period.

You can arrange cover with or without a deceased credit report, although having one can save you approximately 20% of the cost of Section 27 Insurance, so this makes sense.  Lay Executors can get this report for free from either Experian or Equifax, or there are paid solutions that might speed things up.

You can find details of all these policies within the Probate Risk Management section of our website.

You might have heard of Missing Beneficiary Insurance and be wondering why I haven’t mentioned it.

In short, it is not usually required when there is a legally valid Will, with no ambiguity about who the beneficiaries are and how much they are inheriting. 

We have seen instances where the Will writer has been negligent in drafting a Will by using ambiguous terms, such as "each child will inherit X," without naming them, which then creates a Missing Beneficiary risk.

As this scenario is relatively rare, I won’t cover it in this video.  I will instead cover this in a separate post and video.  So if this applies to the estate you are administering, there will be a link to it on this page and if you are on YouTube, below the video.

So I hope you found this video useful when protecting the executor's liability against third-party claims.  You may also find it useful to share with the beneficiaries, too, as the cover equally protects them.

When arranging this insurance, you may find the options for lay executors limited, as most providers will insist on a solicitor's involvement, which isn’t always the case, with many executors choosing to DIY probate, particularly for small or non-complex estates.

Insuristic was the first Insurance Broker in the UK to provide an online solution for both lay executors and solicitors.  For estates with no known issues, you can get a quote and buy cover online in 2 minutes from the point you have the Grant of Probate.

So to recap.

All these policies run forever, protect the Executors and beneficiaries, have no excess to pay in the event of a claim, and are automatically indexed linked for the first ten years of the policy to help you protect against underinsurance.

If you are an executor of a Testate Estate, so a valid Will, with no ambiguity in terms of the beneficiaries, the key policies you should consider are:

• Missing Will Insurance – to protect against the risk of another Will being found.
• Early Distribution Insurance – to speed up the distribution of inheritance, with protection against Inheritance Act-related claims.
• And Section 27 Insurance, to protect against claims from unknown creditors, and when paired with the other covers, to speed up Estate Distribution.
• Missing Beneficiary Insurance is usually required for intestate estates, not where there is a legally valid Will with no ambiguities about who the beneficiaries are and how much they will inherit.

If you have further questions, visit our Probate Risk Management FAQs page.