Bankrupt Beneficiaries - The Risk to Probate Solicitors
In most countries across the world if a person is bankrupt, they lose the right to control their own assets. A ‘Trustee in Bankruptcy’ or equivalent is appointed to take control of their finances instead.
If an inheritance payment is made directly to a bankrupt beneficiary, the payment is likely to have been incorrectly distributed.
In those circumstances, the Trustee or creditors can make a claim in relation to the incorrect distribution. This claim is not made against the estate but against the executor/administrator personally who would be liable to pay from their personal finances.
A solicitor or probate practitioner instructed to assist with the estate administration, could also be professionally liable if they had failed to advise the Personal Representatives (PRs) of the need to undertake a bankruptcy search before distributing the inheritance to the beneficiary.
Is there a duty to undertake an overseas bankruptcy search?
The Trustee Act 2000, provides that a Personal Representative owes a ‘duty of care’ and requires that their responsibilities are carried out with ‘such care and skill as is reasonable in the circumstances’.
PRs acting in a professional capacity, ie solicitors appointed as executors, are considered to have a higher duty of care given their particular knowledge and expertise.
Where a legal professional is instructed to assist the PR with the estate administration, they have a duty to act in the best interests of their client.
Given the personal risk to the PR in making a distribution to a bankrupt beneficiary, a bankruptcy search should therefore be advised in all cases. This includes where the beneficiary lives overseas.
How can probate solicitors mitigate the risk?
The potential personal risk to the PR and the professional risk to their advisors of distributing an inheritance to a bankrupt beneficiary can be easily mitigated by conducting a bankruptcy search in relation to the beneficiary in the country where the beneficiary is resident.
A bankruptcy search in the relevant country will identity whether the beneficiary is subject to any bankruptcy proceedings so that any necessary steps can be determined.
Bankruptcy procedures differ from country to country but in many jurisdictions it is the responsibility of the personal representative to ensure that an inheritance due to a bankrupt beneficiary is properly declared.
Laws and processes relating to personal bankruptcy vary from country to country. The way that bankruptcy records are stored and searched also differs, so locating bankruptcy information in a specific country requires considerable expertise.
International Bankruptcy Searches can conduct bankruptcy searches in most countries across the world to ensure that any instances of bankrupt beneficiaries are identified before a distribution is made, mitigating the risk to PRs and probate practitioners.
If you are dealing with an estate where there are beneficiaries abroad please get in touch.
or contact us on 01244 470339