Missing Beneficiary

Trusts Discussion
1

I have some missing beneficiaries of an estate. I have received a quote from a title research agent offering a ‘contingency fee’ option (i.e. if the beneficiary is found, the agent’s fee will be a percentage of the inheritance received by the missing beneficiary).

The paperwork suggests that the other known beneficiaries can be paid out in the meantime as the agent’s fee will come out of the missing beneficiary’s share.

This seems to go against the principle of the Administration of Estates Act 1925 in that tracing costs are normally an administration expense payable by the estate before the estate is divided between the beneficiaries.

Does anyone know of an authority to allow the executor to proceed on a contingency fee basis without breaching AEA 1925.

Zoe Riley
Wright & Lord

2

In entering into such an arrangement, the executor is not entering into
any contractual relationship, but leaving it for the beneficiaries to do
so, if they so wish. Instead the executors are providing confidential
information to a stranger to enable that stranger to exploit such
information for their own commercial gain.

It will not enable the estate to be wound up more quickly, or absolve
the executors from needing to consider and validate any claim.

It might be beneficial to consider instructing the agent to try and
trace the missing beneficiaries. If unsuccessful, their report could
form the basis of an application for missing beneficiary insurance,
which might enable the estate to be fully administered with any
successful claimants being paid out by the insurers. This arrangement
has received judicial blessing.

With regard to the underlying question, whilst generally the costs of
tracing a missing beneficiary fall against the residuary estate, there
are instances where it would be seen as reasonable to charge such costs
against the missing beneficiaries’s entitlement.

Paul Saunders

3

There doesn’t appear to have been much response to this question. This is perhaps unsurprising, as the position is not clear.

One option, as always, is to seek directions from the Court but, without knowing the sums involved, it isn’t possible to recommend this procedure or not. It may not be cost-effective.

Re Evans, Evans v Westcombe [1999] - the authority which is always quoted in the context of missing beneficiary indemnity insurance – is a case in which the court approved the cost of such insurance falling on the general estate.

The Personal Representative may consider it unjust that the cost of identifying and locating known or unknown missing beneficiaries be borne by the estate as a whole, and might regard the contingency fee method as more equitable in the circumstances of the particular case. Having the extra research costs impact upon the missing kin rather than on the estate as a whole is arguably preferable to using estate funds to instruct and pay a researcher, particularly as with the latter there is so often a significant ‘mission creep’ following initial low quotes or estimates and the eventual cost can become a large estate expense. In contrast, contingency work, in the hands of qualified researchers, brings out the researchers’ bloodhound mentality and helps to ensure determined effort and swift results.

There is the further point that, with the contingency option, a reasonable fee percentage can be set in advance in order to ensure that excessive fees aren’t obtained, and that they are kept proportionate to whatever is at stake. Other criteria can be imposed to ensure fairness.

As for making an early payment, if it was an intestacy, we would advise against making any distribution, even an interim one, until research is complete and an MBI insurance policy is in place (which is always to be recommended unless the family disposition is known with absolute certainty). Moreover, how can the individual fractional entitlements be calculated if the full extent of the entitled kin has not yet been determined?

Philip Turvey
Anglia Research Services Ltd

4

This is a very interesting question. I don’t believe there is an AEA based authority allowing the “contingency fee” approach to funding the costs of locating missing beneficiaries. I agree with you that the estate should in general bear the costs of its own administration unless there’s a good reason to apportion some part of the cost against particular share(s). There are cases where heir locators’ “contingency fee” agreements have been set aside by the courts (where they’ve been contested…) in England & Wales, elsewhere in the EU and in the US. The approach you are being asked to consider discriminates in favour of the known beneficiaries at the expense of the equally entitled unknown (which is hard to see as being in the PRs’ gift) and could easily put the PRs in an awkward position if challenged by the erstwhile missing beneficiaries to justify their having done so. These matters are usually relatively straightforward to resolve.I would recommend you shop around and seek a transparent time based fee quote. Paul Saunders is quite right to say that, in some cases, such a cost, legitimately incurred by the PRs, could be set against a particular beneficiary’s share. This is not the same as the heir locator making an agreement with a beneficiary purporting to bind the PRs to its terms.

Nick Beetham

5

I did think you had received a quote from “Title Research” this took me by surprise as it indicated that you were offered a percentage based fee that goes against what they have been preaching for a number of years.
However, on re-reading I see you used title research to describe the industry rather than the firm.

Your initial question I am afraid is a bit of a hornet’s nest that has caused many disagreements. I have a detailed opinion obtained from Christopher Nugee QC that has looked at these very questions.

The main points are covered by: Sprye v Porter (1856) 7 E&B58 and Rees V de Bernardy (1896) 2 Ch437 and Wedgerfield v de Bernardy (1908) 24 TLR 497 (Parker J), 25 TLR 21 (CA) that looks at the principle, whether a genealogist can charge an heir for providing information relating to an estate that they may be unaware. In all 3 of these cases the court ruled in favour of the ability to charge, and to my knowledge this has not been questioned again.

The argument between an hourly time spent way of charging, and a percentage based method is very dependent on the size of the estate. At times an hourly charge would be totally inappropriate as it could consume majority of a relatively small estate and vice versa on larger estates. Before the search is exhausted, there are greater chances, that an administrator is tempted to call an end to research compared to when using a percentage model that is virtually a fixed fee, and in the genealogists interest to pull out all the stops to locate all the heirs. There is however the problem that if a percentage method fails then as an administrator you may be required to pay by the hour to obtain the report which identifies heirs who wouldn’t sign with a genealogist.

The main point here though is that the executor/administrator has a duty to ascertain who the beneficiaries are [Re Gibbons’ Will (1887) 36 Ch D 486] and to do this they are entitled to engage and pay a genealogist to assist with this work. I have not come across any argument in relation to that and whether it should be as a time spent or a percentage makes no difference providing the costs are reasonable. But who should pay and when can distribution be made? It was the opinion of Mr Nugee and I quote “I can readily see the justice of throwing the cost of ascertaining the beneficiaries entitled to share on to the share in question”, this is similar to the commission agreed with an estate agent for selling a property forming part of an estate. One would never question whether an estate agent can charge a fee for selling a property, but that fee forms part of the money received from selling that one property, not from all the properties that may form the estate or from the estate as a whole.

This leads us on to asking the question: when should a distribution take place? This is a question that I am afraid requires some more information, with regard to the missing heirs. If those missing heirs determine how much the other heirs are entitled to, then it would be unwise to start an early distribution, if on the other hand there is a determinable share due to the missing heirs then you are perfectly able to commence the distribution to the others and just hold back the share due to the missing heirs. If dealing with a Will, then the whole process may be out of your hands as one would have to follow the legal context where the heirs were mentioned. However, we would need to further look at this argument, a good genealogist and certainly my firm would expect to be able to report back to an instructing party within a week of getting instruction, and requesting heirs to wait for one week should not be a concern in a well-managed estate.

For further information I would be happy to talk to you about this or any other case.

Neil Fraser
Fraser and Fraser