Probate warning: FCA sounds alarm on prepaid plans

The Financial Conduct Authority (FCA) has issued a warning about issues that may arise from purchasing prepaid probate plans. 

Prepaid probate plans will cover the legal costs that are involved with the administration of your estate when you die. However, as these products are unregulated, you could lose your money if the company were to collapse. 

We explain why the FCA is warning against prepaid probate plans and offer advice if you're considering one.

What is a prepaid probate plan?

In England, Wales and Northern Ireland, probate is the process of dealing with the estate of someone who has died. This generally means clearing their debts and distributing their assets in accordance with their will. In Scotland this is called Confirmation.

The process for settling someone's affairs will depend on whether you choose to do it yourself, or appoint a probate solicitor to act on your behalf.

There are several costs associated with this process, even if you decide to do it yourself. 

For example, in England and Wales, applying for probate costs £273 for all estates valued above £5,000.

If you choose to use a professional it's likely to cost more as solicitors will undertake the whole process, from applying for probate to distributing the assets. While some solicitors base their charge on a percentage of the estate, the majority apply an hourly charge for the work involved.

Prepaid probate plans have been compared to prepaid funeral plans, because the product lets you organise these arrangements before you die and pay in advance.

• Find out more: first steps when someone has died

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Why is there a warning about prepaid probate plans?

The FCA issued a warning on 25 January urging consumers to carefully consider whether a prepaid probate plan meets their needs and offers value before buying. 

It raised the following concerns: 

They are not regulated

These products are not regulated in the UK, which means if the company went bust you would not be protected by the Financial Services Compensation Scheme (FSCS). So there is no guarantee you would get your money back. 

There have been instances of these issues in the past. Last summer, before prepaid funeral plans were regulated, several providers went bust and thousands of customers lost their money.

The FCA said it has seen increased marketing of prepaid probate plans in recent months. This includes products from firms and individuals associated with funeral plans the FCA did not authorise, and whose customers lost money when they collapsed. 

Another issue is there are no rules requiring the money paid into plans to be held in a trust or backed by insurance, which could put your cash at risk.

High commission and dodgy sales tactics 

Commission is often included in the fee you pay, which increases the price of the plan. A commission ban was put in place when funeral plans became regulated, but this isn't the case for prepaid probate.

The FCA has warned consumers to be alert to any cold calls – high-pressure sales tactics could push you to take out a product which is not suitable for your needs. 

No complaints procedure 

If you had a complaint about a prepaid probate plan provider, you would not be able to resolve it with the Financial Ombudsman Service (FOS). 

The FOS is a free service that settles complaints between consumers and businesses that provide financial services.

However, if you think a business has broken the law or acted unfairly, you can report them to Trading Standards. Citizens Advice can tell you how to do this.

• Find out more: how to complain to an ombudsman

The value of your estate could change

The fee for a prepaid probate plan is usually based on the value of your estate when you purchase the plan, however, your estate could change over time.

For example, the FCA warns that if you receive an inheritance after you've purchased a probate plan it will increase the value of your estate, which would then require your family to pay additional probate fees after your death. 

You may also need to pay for care costs, which would reduce the value of your estate. This could mean probate is not needed, and the probate plan you paid for was not necessary. 

• Find out more: what is probate?

Money held in unsuitable trusts

Some companies offering prepaid probate will hold your funds in a trust until you die, and then release the funds to cover the probate costs.

However, the FCA has warned that even where plan operators choose to use a trust to manage assets, those trusts could still invest in unsuitable investments, putting your money at risk.

Before it introduced regulation, the FCA said it saw cases where this happened with prepaid funeral plans. 

You may not need probate

If your estate won't need specialist probate services, then a plan is unlikely to meet your needs.

You may not need probate if the person who died: 

• only had savings assets
• owned shares or money with others – this automatically passes to the surviving owners unless they’ve agreed otherwise
• owned land or property as joint tenants with others – this automatically passes to the surviving owners. 

Some banks will pay out a certain amount without the need to apply for probate. You should speak to your bank to find out how much money it will release when you die. 

• Find out more: DIY probate - how to administer an estate

Your family won’t have a choice 

Prepaid probate plans require your executor to use a specific nominated professional, which means they may not be able to have their preferred choice.

• Find out more: probate solicitors

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What you can do about probate before you die

If you are thinking of buying a prepaid probate plan, consider whether the product meets your requirements, whether the provider is reputable and if it has robust measures in place to ensure your money is safe. 

You may also want to: 

Create or update your will 

If you're planning to write a will, you can choose to do it yourself with the help of a solicitor, or using a will writing service.

Your will must be signed by yourself and two witnesses – these individuals can't inherit anything as beneficiaries, though they can be named as executors.

Our guide on how to make a will offers more details on how to ensure your will is legally binding.

If you already have a will, it's best practice to review it every five years.

• Are you making a will? If you want support, you can make your will and have it reviewed by Which?, from only £99

Tell your executors you’ve appointed them

According to Exizent’s 2022 Bereavement Index, one in five executors only found out about their role after the person who appointed them had died.

You can save your loved ones a lot of stress by discussing executorship with them in advance. 

Our guide on the probate process can help with this.

Keep an updated list of your assets 

The Bereavement Index also found that 40% of assets are discovered during probate.

We recommend keeping an up-to-date list of the assets you have – including bank accounts, pensions and insurance policies – to save your executors time tracking them all down.

• Find out more: what to put in your will