Taking precautions against legacy fraud
Whilst a recent Supreme Court decision limits an insurer’s ability to avoid liability for fraud, you have to spot the theft in the first place to be able to seek redress. In autumn 2021, this journal reported on a Court of Appeal decision that a solicitor’s dishonesty alone is not a sufficient link between a number of claims for an insurer to aggregate those claims.
In other words, if a fraudulent solicitor has stolen from a number of estates they are administering, an insurer cannot seek to limit its liability on the basis that all acts by that solicitor (even if there is no connection between them other than the solicitor) should be considered as one insurance claim, thus subject to one insurance limit.
If a law firm only has the minimum level of insurance in place (£2 million or £3 million for aggregated claims), it is astonishing how inadequate the insurance could be were it possible to consider all claims as one.
A theft from a deceased person’s estate is rarely an isolated event. The more likely scenario is that the solicitor steals again, whether from the same estate or a different one.
The thefts Linda Box committed (which led to the case mentioned above) smashed through the £2m insurance limit her firm had in place rapidly and that is where her firm’s insurer wanted its involvement to end.
The Court of Appeal did not allow that to happen and now the Supreme Court has drawn a line under the matter by way of its refusal of the insurer’s application for permission to appeal the Court of Appeal’s decision.
Whilst this is great news for beneficiaries of defrauded estates, a disproportionate percentage of which are charities, those charities can only make a claim if they notice that they have been a victim of fraud.
There is no getting away from the fact that charities are easy targets for those willing to commit legacy fraud. In the vast majority of cases, charity beneficiaries do not know how much the testator/testatrix was worth so have no idea what they should expect to receive as a share of residue.
However, there are a number of practical steps charities can take to guard against (or at least spot sooner) those who seek to exploit a charity’s vulnerable status.
COMPARE GROSS AND NET ESTATE VALUES IN ESTATE ACCOUNTS (OR SCHEDULE OF ASSETS AND LIABILITIES IF THAT IS PRODUCED FIRST) TO THE FIGURES ON THE GRANT OF PROBATE. Is there a significant drop in value that cannot be explained by events during the administration that you have been notified about, or the reasonable costs of an administration? Many executors never notice/forget about the figures on the grant and thus it can often not occur to a fraudulent executor that this may catch them out.
DO NOT ACCEPT PARTIAL ESTATE ACCOUNTS. A regular trick is to just deliver a distribution page from an apparently larger set of estate accounts, or a synopsis of a larger account (say a global figure for the total value of the alleged assets and a global figure for the total value of the alleged liabilities) to support the sum distributed. The chances are that a proper set of estate accounts does not exist or, if it does, the executor has a reason he/she does not want you to see it.
USE EXTERNAL SOURCES TO VALIDATE ENTRIES IN ESTATE ACCOUNTS. Estate agent websites and Google searches on properties can help substantiate figures in a set of estate accounts. You may discover that the deceased’s property is being marketed for sale for a considerably greater sum than is attributed to the property in the estate accounts. Alternatively, you may even discover that the deceased’s property has been sold by the executor and then immediately marketed for sale for a considerably greater sum.
There have been a number of cases where the executor has sought to make a “quick buck” with an initial sale as part of the estate administration to an accommodating third party, who promptly sells on with, one assumes, a cut of the gain making its way back to the executor.
ASK FOR DOCUMENTS TO SUBSTANTIATE THE VALUE ATTRIBUTED TO SIGNIFICANT ASSETS AND/OR LIABILITIES. As much as an executor may try to argue otherwise, you are entitled to such documents if it is reasonable to request them.
ASSESS THE RISK. The reality is that the risk of fraud is greater if an estate is not being dealt with by a professional, or there is a professional executor but they are operating alone (say a sole practitioner solicitor or a financial adviser).
By virtue of the involvement of other people it is considerably more difficult to steal from an estate if the executor works alongside others and, specifically, there is more than one person dealing with the administration.
If you have a query about an administration, say an apparent lack of progress and/or incomplete information and you phone a small practice and are told there is only one person who knows about an administration and no one else can even access the file/papers, a red flag should be raised in your mind. If that set of circumstances has arisen and the executor is working absolutely alone, the red flag should be billowing forcefully in the wind.
BE WARY OF DELAY. We all know that it can take a considerable time to administer an estate. However, an unexplained delay or repeated prevarication should set alarm bells ringing. Sometimes estate administrators hope that if they stall for long enough charity beneficiaries will give up in preference for closing their files. Persistence will usually pay off in the end.
SCRUTINISE LIFETIME GIFTS. If there are instances where solicitors misappropriate funds from estates, then it is logical to assume that the same temptation is present, and acted upon, where professionals act as a deceased’s attorney during his or her lifetime. In these instances, it is helpful to know how long they acted in this capacity, the fees they charged and to what these charges related.
The legacy officer should ask for details of lifetime gifts, request IHT documents and scrutinise estate accounts for mention of unexpected IHT, even if this is mentioned by way of a rebate, indicating that some IHT was paid initially and thus gifts were allegedly made. There are strict rules on gifts to attorneys, so it is unlikely that the former attorney, now estate administrator, will be able to cover their tracks in this way.
GO WITH YOUR GUT INSTINCT. Sometimes it is hard to piece together all the information which one is given initially, but you can get a sense that something is not quite as it should be. Perhaps a will clause looks out of place, an estate account item does not feel right, or an estate administrator is being particularly evasive. If so, then it is worth asking questions. Whilst the vast majority of professionals are above board and working to a high standard, it is amazing what can be uncovered by a vigilant legacy officer.
FOCUS ON FEES. This can be such a hotly contested area and it is appreciated that the more complex the administration, then the higher the costs. If the charges rendered seem out of proportion to the work it seems to you the estate administrator did then, again, a red flag should be raised.
A breakdown of costs can put the legacy officer’s mind at rest (as there could well have been work carried out behind the scenes) but the red flag should be hoisted further where the breakdown is not provided or the information within it is opaque.
Some of these charges are eye-watering and, whilst the professional is performing a chargeable service for which there is a contract, the charges must be fair and reasonable in the circumstances. The level and justifications behind the billed time do sometimes feed into the narrative of charities being easy targets.
ABOVE ALL, COMMUNICATE. Charities are great at doing this. Tell each other what information you have received and what distributions you have received. Do not assume your co-beneficiaries have received the same. It is astonishing how often executors will distribute different amounts to beneficiaries with the same interest and/or different estate accounts.
If executors have given you any cause for concern, e.g. they have been slow to notify you of a legacy; they are reluctant to part with information/documents; unresponsive to communications; displaying an attitude that you should just be “thanking and banking”, then it is worth checking in with your co-beneficiaries. There is strength in numbers and information is power.
The harsh reality is that there is nothing you can do to protect your charity against some criminal activity. Linda Box’s victims had no way of knowing she had diverted the deceased's assets before they had even reached her law firm’s accounts (the fact that the appointment as a personal representative is a personal appointment, thus assets can be cashed in via cheques into that person’s own name, facilitates this).
Nor did the victims know, say, that the deceased person did not have an MBNA credit card liability (and that instead the bill was one of Linda Box’s which she was paying off via the estate). However, there are steps you can take, as outlined above, to remain vigilant and to enable you to take swift and decisive action when the circumstances justify it.