Lootman wrote:An issue can arise if the estate can be distributed without going through probate, as may be the case here. If all assets will be released without probate then any creditors will not be paid off. It would then be up to them to initiate probate themselves, since the beneficiaries would have no reason to. In the case of HMRC, they have the ability to start an investigation if they think they've been stiffed.
Actually the issue of an estate being distributed without first paying creditors off can arise more-or-less independently of probate: with one exception, an executor who has obtained probate can do it just about as easily as one who hasn't. And the legal remedies for the creditors are the same: an executor who distributes the estate without first paying creditors off becomes
personally liable for any shortfall that the creditors suffer - i.e. the shortfall becomes payable from the executor's own assets, not just from the estate assets. And the executor cannot escape that by then renouncing the role: by distributing the estate, he or she has "intermeddled" with the estate, and a condition for renouncing the role of executor is that one hasn't done so.
Alternatively, an executor who first renounces the role and then distributes the estate is purporting to transfer ownership of assets from the estate to others without any authority to do so, and is subject to the same legal remedies as anyone else who purports to transfer ownership of assets they don't own without authority to do so from the owner. Those would certainly include civil liability to anyone who loses out as a result, and I think could well include criminal liability as well. And of course, the same applies to anyone who takes on the job of distributing the estate without either being named as an executor in the will or being appointed as the estate's administrator in cases like intestacy, all executors renouncing the role or being unable to act, etc.
Whether probate has been obtained doesn't feature in any of that: an executor's authority over the estate assets exists from the moment of death and obtaining probate doesn't alter it. It's perfectly possible to distribute estate assets before obtaining probate even in cases where probate is needed, and quite usual to do it in at least minor ways: for instance, one generally wants to start clearing the deceased's house before one has obtained probate, that involves distributing its contents, and some of those contents will probably have
some monetary value. And it's perfectly OK for an executor to do that before obtaining probate as long as
either they're confident that the remaining assets in the estate will be enough to pay off creditors
or they're willing to accept the possibility that they'll become personally liable for the value of the distributed assets.
What probate does do is act as official recognition of an executor's authority, that will generally convince people and organisations that the executor does actually have that authority. They can choose to be convinced in other ways (e.g. letters of indemnity), but they do take a risk in doing so: if they allow someone to act as an executor and it turns out that that person didn't have the authority (e.g. because there's a newer will naming someone else as executor), and that person becomes personally liable as a result but is unable to meet the resulting financial obligations, then they could end up bearing the loss... And so they limit the risk they're willing to take, e.g. by setting a maximum amount for which the alternative way of convincing them will work - and different organisations are quite free to set different maxima, as that basically just means different decisions about how much risk they're willing to take.
The one exception to that general rule about creditors being just as easily 'stiffed' by an executor with probate as one without probate is any immediately-payable IHT due to HMRC - and that's not due to the legal remedies being different: it's just that paying that IHT is a pre-condition for obtaining probate. Other debts of the estate, including other taxes due to HMRC (such as IHT payable by instalments or Income Tax incurred but not accounted for before death), are no different for executors with and without probate. And of course, when that exception does exist, the sums involved are large enough that it would be rather impractical to avoid the need for probate - one would need to split the assets up among at least about 15 independent accounts and not own a property to make an IHT-liable estate not require probate...
None of that affects the answer to this particular question, of course, since we now know that probate
is required to get access to the estate's biggest asset. But my point is that if anyone is thinking that avoiding the need for probate might help the estate's beneficiaries get more at the expense of its creditors, the answer is basically that no, it won't: it will neither make it easier nor harder, and it won't alter what legal steps the creditors can take in response. There are other reasons to avoid the need for probate when practical, such as a wish to avoid unnecessary paperwork and delay, but that isn't one of them.
Gengulphus