Inheritance tax (IHT) bills are not usually paid by the beneficiaries of an estate but in some cases they may need to if the estate itself cannot cover the debt. Additionally, income and capital gains tax may be levied on certain assets that are handed down such as property or shares.
All of this may catch unexpecting beneficiaries off guard but in recent years, heir hunters have emerged to reunite people with their inheritances and manage the process accordingly.
However, recent research from Anglia Research, the probate genealogy experts, showed an inheritance crisis may be looming as “heir hunters and local authorities enter into anti-competitive, unaccountable contracts.”
Anglia Research warned families face falling into long, costly legal battles over disputed inheritances after research found local councils in England and Wales are ignoring Government guidelines and are entering into anti-competitive contracts with heir hunters.
The company surveyed local authorities in England and Wales via an FOI request to see how they dealt with the increase in people dying without a will and with no known next-of-kin during the coronavirus pandemic.
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The research found that seven local authorities have written contracts with heir hunters, while one authority in the Midlands confirmed it charges heir hunters for the details of each deceased person, or “lead”, the Council provides them with.
Anglia Research explained what impact this will have on estate planning and beneficiaries: “Some written contracts between an heir hunter and a local authority can limit the amount of scrutiny given to each case, with some unethical heir hunters using this to only identify easy to find heirs to an estate, collect their fee and forego the rest of the beneficiaries – potentially resulting in years of legal battles for some to get the inheritance they are owed.
“Despite this the research found that many local councils are not putting the practices in places to protect themselves and bereaved beneficiaries from the actions of unethical heir hunters.
“Only 17 percent of the local authorities surveyed said they’ve put in measures to prevent their employees from making under the table referrals to heir hunters, while just 44 of the 348 local councils in England and Wales (12 percent ) said they have policies which prevent unethical heir hunters overcharging beneficiaries.
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“Similarly, less than a third (24 percent ) of local authorities provided details on how they authenticate an heir hunter’s claim on an estate – a vital step in ensuring the deceased’s assets are distributed to the rightful next of kin.
“This is despite only 22 percent of local councils believing heir hunters operate honestly and transparently.
“The best way to prevent lengthy, costly legal battles resulting from these anti-competitive contracts and practices, is to share the case information with at least three heir hunting firms at the same time, yet the research found that few local authorities are considering putting this policy in place.
“Only four percent of local councils which use heir hunters said they are considering how to improve their practices, while just six local authorities (1.7 percent ) said they have implemented or are in the process of implementing a best practice approach to working with probate genealogists.”
Philip Turvey, an executive director at Anglia Research, commented on these figures: “The probate genealogy industry has been dealing with a surge of unqualified and unethical practitioners ever since the Heir Hunters TV show sensationalised the work we do.
“As a result, we’ve seen a steady rise of anti-competitive contracts being signed between heir hunters and local councils, which may lead to a number of beneficiaries starting expensive, time-consuming court cases to obtain the inheritance they are rightfully owed.
“Our research further highlights how endemic these problems are within our industry. While the statistics might frame local councils in a bad light, the onus is on heir hunters to change their ways and become more ethical and transparent.
“With the number of people dying without a will rising by 60 percent across England and Wales during the first lockdown, local councils need the support of trusted probate genealogists to ensure that the deceased’s assets are distributed to the correct next-of-kin.
“The last thing they need in a time as busy and disruptive as this is an unethical heir hunter trying to enter into an exclusive contract that will ultimately only help them line their pockets at the expense of beneficiaries.”
Where IHT is due from beneficiaries, it will need to be paid out of the assets that have been inherited.
HMRC should contact beneficiaries directly if they need to pay it. Guidance and impartial advice on IHT can be sought from the likes of the Money Advice Service and Citizens Advice.
Philip concluded by examining how these problems will impact IHT concerns specifically: “With intestate deaths rising by 60% during the first lockdown, probate genealogists play an essential role in reuniting beneficiaries with what is rightfully theirs. Yet, our FOI Report shows that many local authorities are entering into anti-competitive contracts with unethical heir hunters, which could result in years of legal battles for bereaved beneficiaries.
“This has the potential to impact upon inheritance tax if the wrong family is identified. Regarding any payment issued to probate genealogists for their services, it is vital to remember that the fee for probate genealogists is always paid on the conclusion of the estate administration. Any probate genealogist requesting direct payment before this should not be trusted.”
Express.co.uk contacted the Ministry of Housing, Communities & Local Government for comment.