Early Distribution Insurance: A Practical Guide for Executors and Beneficiaries

Early Distribution Insurance is often misunderstood.  It is not a single policy that can be purchased to cover all the risks associated with distributing an estate early. 

The cover is focused on protecting executors and beneficiaries against claims by unknown dependants under the Inheritance Act 1975.

This post explains the cover and what other policies should be considered when distributing the estate early.

What is Early Distribution Insurance?

The Inheritance Act 1975 provides a mechanism for individuals to challenge the distribution of an estate if they believe they have been unjustly excluded or inadequately provided for.

To safeguard against potential claims, executors are typically required to wait six months after the issuance of the Grant of Probate before distributing the estate, as mandated by the Act.

If the estate needs to be distributed early, Early Distribution Insurance can be arranged.  This policy protects executors, personal representatives, and beneficiaries from potential claims by unidentified dependents arising under the Inheritance Act 1975.

Whilst it may be prudent to wait for the statutory 6-month period to expire, there are instances where early estate distribution may be warranted.  Such as:

  1. If beneficiaries or dependents face immediate financial hardship, early distribution can alleviate their distress.
  2. For small, uncomplicated estates with no outstanding taxes or debts, early distribution may be feasible.
  3. When executors and personal representatives have a comprehensive grasp of the estate’s assets and liabilities, and no known issues exist, early distribution may be considered.
  4. If there are no known individuals with a legitimate claim against the estate, the risk associated with early distribution is reduced.
  5. If the deceased expressed a preference for swift estate distribution, perhaps to ensure dependents’ financial stability, early distribution may be in line with their wishes.

In cases where early distribution is deemed necessary, early distribution insurance can be considered to safeguard against potential claims from unknown dependents.

Where can claims come from?

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

  1. Where you did not wait until the end of to the 6-month expiry period; or
  2. Where the statutory period was met before distribution of the estate but where a dependant has a successful claim outside of the statutory limitation.

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 a number of 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.

Therefore, you can probably imagine, the cost of Early Distribution Insurance claims can be considerable.

The benefits of Early Distribution Insurance

The policy runs in perpetuity.  This means the executors and beneficiaries can relax in the knowledge that they will always have cover, even if a claim is made many years after the estate has been distributed.

From the executor’s perspective, it means they can distribute the estate sooner and save on costs.  They also wouldn’t need to worry about any future personal liability if an unknown dependent was to make a claim against the estate.

From the beneficiary’s perspective, it means they can receive their inheritance quicker without having to worry about the risk of paying it back if a claim is made by an unknown dependent.

How much does Early Distribution Insurance Cost

The minimum premium for the Early Distribution Insurance provided by Insuristic is just £112 (including Insurance Premium Tax).  But the cost will vary depending on:

  • The size of the estate.
  • The complexity of the estate; and
  • The likelihood of a claim being made.

If the entire estate is not being distributed early, it is possible to arrange cover on a first loss basis at a reduced premium.

For example, if the estate is valued at £500,000 but only £150,000 is being distributed early, it is possible to get a quote reflecting the full estate value but priced on the £150,000.  The first loss cover would mean the maximum payable in the event of a claim would be £150,000.

Is this the only cover I need to be able to distribute the estate early?

If you are only worried about claims from unknown dependants then this policy should provide the comfort you need.

However, there are other covers you may want to consider, such as:

1 Missing Will Insurance. 

Are you 100% confident that the Will used as the basis to distribute the estate is the most recent version?

Industry statistics suggest that 20% of people who have made a Will go on to make revisions.  So, it is possible that another Will exists.

If it turns out the Will used as the basis for distributing the estate isn’t the latest, in the absence of insurance it can be become very costly in the event of a successful claim.  For example:

  • There will likely be additional legal costs associated with redistributing the estate.
  • The beneficiaries may need to repay some, or all of their inheritance to enable the estate to be redistributed on the right basis. This might be challenging if these beneficiaries no longer have their inheritance to repay.

A Missing Will Insurance policy would give peace of mind to the executors, any personal representatives and beneficiaries that should a claim be made they have protection.  The policy would respond to pay legal costs, expenses, and reimbursement of third parties up to the level of indemnity.

  1. Section 27 Insurance

Whilst you may have conducted the relevant financial and liability searches on the estate, it is possible that an unknown creditor can come forward for payment after the estate has been distributed.

If the executor has placed a Section 27 Notice, they can pass on this liability to the beneficiaries to repay the creditor.  In the absence of insurance, this may cause problems for the beneficiaries if they no longer have the funds to repay the creditor.

If you arrange insurance, you can protect both the executors and beneficiaries from claims from unknown creditors.  The insurance can also be arranged with or without a Section 27 notice (which might be more cost effective).

  1. Missing Beneficiary Insurance

For large, complex estates, it may be worth considering Missing Beneficiary Insurance.  This insurance can be arranged once a genealogy report has been produced (the insurer is likely to need a copy of this to consider the cover).

It can be arranged in two scenarios:

(a) For peace of mind to protect against claims from unknown beneficiaries that aren’t discovered by the genealogist.

(b) When a beneficiary is known to exist but cannot be contacted, thus preventing the estate from being distributed.

It is clear that there other risks that should be considered when distributing the estate early.  The policies above can be combined with an Early Distribution Insurance policy for additional peace of mind.

What’s more, some insurers will provide a discount for purchasing multiple policies in one go.  If you buy 2 or more policies from Insuristic, our Insurer may provide a discount of up to 30%.

You can find out more about Insuristics full range of Probate Insurance products here.

Insuristic Limited (No: 13926650), is an Appointed Representative of SJL (Worcester) Ltd, who are authorised and regulated by the Financial Conduct Authority with the reference number 763599. This can be checked by visiting https://register.fca.org.uk/s/.

This article was submitted to be published by Insuristic as part of their advertising agreement with Today’s Wills and Probate. The views expressed in this article are those of the submitter and not those of Today’s Wills and Probate.

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