Beneficiary indemnity

I have a client who is one of two residuary beneficiaries of an estate. He is to receive a 20% share of residue with the other beneficiary receiving 80%. The other beneficiary is also the Executor along with her husband. There is a property in the estate which the Executor beneficiary wishes to take as part of her inheritance and account to the estate for the shortfall, as the property value is in excess of her 80%.

The solicitors acting for the Executor are insisting that my client sign an indemnity protecting the Executor against any future claims against the estate relating to the property and also agreeing to be solely responsible for such claims. I have advised him not to sign it and have asked the solicitors if they are aware of any forthcoming claims or any issue with the property value (I suspected that the property was worth more than the probate value) and so they have had a RICS survey done which confirms the value of the property.

They are still refusing to pay out my clients inheritance without him signing this indemnity. I have never had such a situation before and still cannot fathom why they would insist on this for my client to receive his entitlement under the Will.

Can any members shed light on what I am missing?

Many thanks

Gemma Van Duke
Bishopsgate Law

I am not a solicitor so do not comment on any legal aspect, but in my experience, indemnities are given to trustees or Executors for property received not for property NOT received. He should therefore be prepared to indemnify the Executors against any claims arising against the Estate excluding the property, but not in respect of the property. It is the beneficiary who is taking the property who should indemnify herself and her husband (as Executors) in respect of any claims that affect the property.

If as you suspect, the property was worth more at death than has been returned to HMRC, in addition to any further IHT liability that may arise; a 20% share of the whole will be greater than the sum that she would have accounted for. I imagine that she believes she should be able to claim a contribution towards any further IHT that may be due (which may or may not be correct, but should be explicitly stated in any indemnity) although she seems to be conveniently forgetting that she would then owe more to the other beneficiary as she would have received in excess of 80% and any IHT contribution demanded could be netted off. This should perhaps be pointed out and also be explicitly covered in any indemnity.

Maxine Higgins
Citroen Wells

Hi
Thanks for your response. There is no IHT to pay as the estate is under £325k and the property has recently been RICS valued. They are refusing to pay out his his entitlement without the indemnity, which I cannot see is correct.

They have also not placed statutory notices to creditors.

Gemma Van Duke
Bishopsgate Law

There seems to be a practice at some law firms to demand an indemnity ‘just in case’ when distributing the estate to residuary beneficiaries. I don’t see why beneficiaries should provide this. The duty of the executors is to pay the estate to the persons entitled to it, once all (known) liabilities have been settled. A formal indemnity is only appropriate if there is a known, but contingent liability. Personal representatives have an equitable right to recover money from beneficiaries in any event to pay unanticipated liabilities.

Paul Davies
Clarke Willmott LLP

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Slightly different point, but as the Executor is appointing to herself, your client should be asked for consent.

On the basis the value of the property is “agreed”, including with HMRC if applicable, why do they need an Indemnity? Is it one of those cases where they are asking for an Indemnity to distribute before the 75 Act claim period has expired?

Justin Wallace
Brewer Harding & Rowe

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Gemma mentions That the value of the property is more than the value of the 80% share. If the amount which that beneficiary has to pay into the estate is more than £40,000, don’t forget that stamp duty land tax at 3% will apply.

Patrick Moroney

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Thank you all for replying - I have gone back to them and said that we will not be advising our client to sign the indemnity and that we expect our client to receive their entitlement without further delay. What is the next step (litigation wise) if they refuse to pay the funds over without the indemnity? I am not experienced in contentious matters…

Patrick - the sum being paid into the estate is just shy of £40,000 so SDLT is not going to be applicable but thank you for raising that!

Gemma Van Duke
Bishopsgate Law