By Andrew Ritson, Finders International’s Legal Support Services manager
Probate solicitors will be used to dealing with beneficiaries and it is important for the estate’s personal representatives (PRs) that due diligence is carried out in all scenarios.
It is the PR’s responsibility to know and check the financial status of the beneficiaries before an estate can be distributed.
Bankrupt beneficiaries, home or abroad, are more common than one might think. Sadly, with the outbreak of COVID-19 it is also an issue that might increase over the coming months. It is therefore important that the estate’s PRs know what steps should be taken to protect themselves and the estate.
What happens if a beneficiary is bankrupt?
In most jurisdictions across the world when someone becomes bankrupt, a ‘Trustee in Bankruptcy’ is established and ultimately the individual loses the ability to control their own assets. A bankrupt beneficiary must inform their trustee about any changes to their monetary and financial circumstances. Although you would like to think that the beneficiary would inform all relevant parties, this may not always be the case, especially with beneficiaries who live abroad.
What are the possible consequences for personal representatives?
If a bankruptcy order is in place and the beneficiary did not notify either their trustee or the estate’s PRs, the money will have been distributed to the wrong person, a scenario which can have serious consequences. Those who do not follow the correct probate distribution guidelines could face legal action.
In the UK, Trustees in Bankruptcy are entitled to sue the PRs for the amount distributed in error. This is something that is becoming easier for trustees, especially for those in Europe who can use the European Neighbourhood Policy to make cross border claims.
For this reason, it is important to make the appropriate checks beforehand.
How can personal representatives protect themselves?
Because the repercussions of distributing to a bankrupt individual are not worth the risk, the Solicitors Regulation Authority encourages solicitors to carry out due diligence for both domestic and international beneficiaries. This will require an understanding of the variations in foreign insolvency law and keeping up to date with changes to insolvency and bankruptcy proceedings for individuals in different countries.
It is also important to check in for bankruptcy among UK-based beneficiaries.
Finders International provides a Overseas Bankruptcy Search service covering numerous jurisdictions worldwide, using various international insolvency databases and local research agents. For further information on this service, you can contact the Finders International’s Legal Support Services team: Andrew Ritson: Andrew.ritson@findersinternational.co.uk or Eleanor Ferguson: Eleanor.ferguson@findersinternational.co.uk
This article was submitted to be published by Finders International 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.
