Before and hereafter -- some of the key issues facing probate practitioners in advance of the first anniversary of the launch of a specialist section for them

Next month marks the anniversary of the launch of the Law Society's first special interest body, the probate section.

If success can be measured in numbers alone then it will be an occasion worthy of celebration.

In its first year the probate section, the advisory group of which is chaired by Law Society Council member and partner at Kent law firm Cripps Harries Hall, Peter Raymond, has attracted more than 2,300 solicitor members.The probate section aims to provide a networking forum and range of services for probate solicitors and to enhance their prominence.

'It's turned out considerably better than our wildest expectations.

It must show that the Law Society is doing something right,' said Richard Bark-Jones, a founding member of the advisory group and chairman of the Law Society's wills and equity committee and partner at Liverpool firm Morecroft Urquhart.On 7 July, at the Law Society's third Annual Conference for Wills Probate & Trust Practitioners (see box), members will appoint an executive for the section and decide on a constitution.

The Society has staked much on the success of the new section and hopes to achieve the same kind of practical benefits that the American Bar Association has with its own 34 sections.Mr Raymond says: 'Considering there are 4,500 solicitors who say that probate work is their principal area of business we are very pleased with the numbers we have got.' He says the success of the probate group, which involves the provision of services by probate lawyers for probate lawyers to assist in day-to-day practice, shows that the concept of sections can be extended to the whole profession.'It will help make the Law Society stronger and more relevant to practitioners,' says Mr Raymond.Next month, encouraged by the success of the probate section, the Society will launch its second specialist section, dealing with law management.

This will provide the framework for a national network to link up the estimated 6,000 individual solicitors and other law firm employees who are managers as well as lawyers.With some adaptions, the model for the new probate section has been drawn from similar bodies around the world, particularly from the Law Institute of Victoria which gives sections a high priority.Already the probate group has hosted a number of seminars and workshops; kept its members supplied with probate literature; and published a quarterly newsletter which updates them on developments in the law.

Mr Bark-Jones has led two seminars - in Manchester and Newcastle - on how probate practitioners can keep ahead of the competition.

It is the twin threat of competition from will writers and the emergence of authorised probate practitioners which partly led to the Law Society selecting probate work for its first spe cial section.Mr Bark-Jones's clarion call to members has been 'be ready to meet the threat when it arrives'.

This is crucial, he says, because the Lord Chancellor's Department may still plan to activate provisions in the Courts and Legal Services Act 1990, which allows the creation of a new category of probate practitioner.

Mr Bark-Jones says: 'My message is: get your probate department effective and profitable to meet the threat if it arrives.' However, competition from the commercial will writer has not yet materialised.

Explains Mr Bark-Jones: 'They are effectively an unregulated rabble.

I don't think they represent a real threat because they are disorganised and are no cheaper than the profession.' A marketing ploy Mr Bark-Jones would like to see solicitors use against will writers is to emphasise the lack of protection afforded to clients of non-solicitor will writers.

'There is absolutely no regulation, compulsory insurance, bonding, training requirement - anybody can set up and write wills for reward,' he warns.It had been anticipated that the Law Society's probate section itself might have to face down the threat of competition from the 2,000-strong solicitor membership of the Society of Trust and Estate Practitioners (STEP).

Since 1996, entry to STEP has been by examination only.

This applies to solicitor members as well.Mr Bark-Jones is a member of both groups.

'There are areas of overlap but STEP is more trust than probate-orientated,' he says.

'The probate section is addressing a much wider field of financial services, Court of Protection, charities and services for the elderly generally.'But STEP chairman, Geoffrey Shindler, a partner at Manchester law firm Halliwell Landau, says the emergence of a Law Society-sponsored probate section is partly owed to the success of STEP.

'They've seen probate practitioners as the obvious starting point because they've seen how focused practitioners have been through the STEP connection.' He adds: 'Imitation is the sincerest form of flattery.'Mr Raymond answers: 'When it made its decision [the Law Society] Council considered the interests of the profession.

It was particularly concerned to support the hard hit high street practitioner.

That is the reason probate was selected.'Nevertheless, Mr Shindler stresses that the distinction between the two groups is that the Law Society has had to confine itself solely to solicitors' interests while STEP has a much wider range of members, including accountants and bankers.

Forty per cent of STEP members are non-lawyers.

Mr Shindler maintains that probate work is no longer the monopoly of solicitors.

'It needs other disciplines to be brought into play to advise the client fully,' he says.Ed Nally is another founding figure in the creation of the probate section and chairman of the Law Society's conveyancing and land law committee.

His own firm, Fieldings Porter in Bolton and Blackburn, has a probate practice comprising up to 20% of the business.Mr Nally says an important role of the probate section has been to act as a contact group for solicitors working in what is regarded as a 'backroom' business.Says Mr Nally: 'This gives us a lot more marketing clout than solicitors could traditionally muster.

As a section of legal practice it also gives us the opportunity to fight back against the big influences of the accountants and the banks.' In terms of direct impact on Fieldings Porter, the new probate section has helped the firm review its own training requirements for its probate solicitors.

A number of the firm's probate lawyer s have taken part in relevant seminars and workshops which offer a practice update service.

Mr Nally adds: 'We were most interested in the workshops which looked at care for the elderly because this has growing significance for probate practitioners.' Mr Nally says the seminars have helped focus the firm's training.

However, it is too early to say whether the section's initiatives have directly contributed to an increased workload for its member lawyers.

Comments Mr Nally: 'It would be unrealistic to say it has transformed the practice.' Nevertheless, for a modest £50 membership fee probate lawyers now have the opportunity of combining social contact with updates in best practice for probate work.Contact the probate section on 0171 320 5708 Probate is a rich source of financial services work.

Ian Muirhead offers the typical example of the bereaved widow Probate work is one of the main generators of financial services business in law firms.

Which is hardly surprising, given that death - like birth, marriage and divorce - is one of the turning points which necessitates a complete reappraisal of financial as well as personal plans.The client most likely to be in need of financial advice is the bereaved widow, who finds herself thrust into the driving seat previously occupied by a husband who regarded financial matters as the male domain.

She may have little knowledge of, or interest in, finance and be concerned at the apparent complexities, but she will be reluctant to seek advice and uncertain as to where to find it.Such a woman is likely to be delighted if the firm which she has come to trust and rely on during the course of the administration of her late husband's estate is able to offer to look after her finances.

Even more so if it can also assist her children, who may have bequests of their own and will in any event have an interest in their mother's welfare and their own ultimate prospects of inheritance.Solicitor financial advisers introduced to such clients will find their initial fact-finding task simplified by the availability of probate schedules and valuations.

Equally, their room for manoeuvre will be increased by the absence of capital gains tax (CGT) restraints.One of the first questions to be discussed will be whether the widow intends - and can afford - to remain in the matrimonial home.

For the less affluent, a move to less expensive accommodation may be necessary.

Alternatively, the possibility may be considered of effecting a home income plan as a means of releasing capital while obviating the necessity to move house.

The worst variants of these plans - which were based on the patently flawed assumption that equity returns would always be adequate to fund fluctuating interest rates - are happily no longer available, but the economics of the new generation of 'safe' plans are often unappealing and many elderly clients are rightly reluctant to contemplate incurring debt.Invariably, it will be appropriate to undertake an income and expenditure analysis, possibly using a bespoke computer software package, and the widow may well appreciate being provided with a monthly budget to which she can work.

It is likely that the value of her pension will have reduced on the death of her husband whereas most daily expenses will maintain their previous levels.

It may also be that the value of the widow's pension will not be inflation-proof, so the terms of the pension scheme will need to be investigated.To the extent that it may be necessary to supplement pension and any trust income with income from whatever inve stments may be available, it will often be necessary to switch to high income investments or even to adopt a policy of systematically depleting capital to augment income.

This will depend among other things on age, health and life expectancy.

But the priority should be to maximise the widow's quality of life.

There is little point in investing to maintain capital values for the benefit of the Inland Revenue or the beneficiaries of the widow's own will.In some cases it may be necessary for the adviser to counsel a measure of belt-tightening and suggest particular economies, reminding her of the example of Mr Micawber.

Provision will also need to be made for any foreseeable major outgoings, such as home repairs, holidays and possibly a new car.One means of maximising income is to invest in purchased life annuities, the value of which can be enhanced for impaired lives.

Their advantage over pension annuities is that the part of each payment which represents a return of capital is tax free.

Also, the purchase of an annuity has been known to galvanise the annuitant into a determination to out-live the actuarial expectation.

However, it must be remembered that annuity purchase involves a permanent loss of capital, to the detriment of the widow's estate.Other packaged investment products provide different tax benefits.

Most portfolios will contain PEPs and TESSAS, and advisers are now starting to look ahead to the introduction of individual savings accounts (ISAs) in April 1999, as a medium principally for deposits and fixed-interest investments.Collective investments offer the benefit over direct equity investment of permitting risk to be spread more widely, and they can provide features such as a consistent, high monthly income and capital drawdown facilities which may be attractive to elderly clients.

These products have also been favoured by two recent tax changes.

First, because internal dealings are exempt from CGT, they provide a means of avoiding the dauntingly complex - and therefore administratively expensive - calculations which will be required under the system of tapering relief announced in the chancellor's 1998 Budget.

Secondly, they reduce the impact of the disallowance of indexation losses as from 1995/96, by permitting tax to be confined to the overall gain.

For all these reasons, and for the sake of simplicity and convenience, it may often be best advice to relinquish inherited direct shareholdings in favour of collective investments.While financial plans are being discussed and cash is available, consideration may also be given to the question of long-term care.

On current figures, one in four elderly people will need residential care.

Some 40,000 homes have to be sold each year to fund the cost of such care, which will typically exceed £1,000 per month.

For people between the ages of 60 and 80, long-term care insurance can be arranged via a single premium payment, with benefit rates guaranteed.

On occasion, the potential beneficiaries of the widow's estate may offer to foot this bill.The bereaved widow is one of the most vulnerable clients, and the most in need of solicitors' financial advice.

There is a real risk that if solicitors do not offer such advice, these clients, through naivety, will succumb to the blandishments of the tied salesperson; or, through timidity, do without financial advice altogether.THE RECORD OF NEGLIGENCE CLAIMS SHOWS SOLICITORS ARE TRIPPING UP IN PROBATE WORK.

ANDREW NICKELS IDENTIFIES THE PITFALLSSince 1 September 1994 - the beginning of the 1994-95 year of indemnity - 1,128 claims have been reported to the Solicitors Indemnity Fund (SIF) arising from trust and probate work, which have been settled (£8.6 million by SIF) or are currently reserved (£24 million).

Deductibles of £2.25 million have been collected to date from liable principals.Of these claims, 217 related to the preparation and execution of wills.

The basic principles established in such cases as Banks v Goodfellow [1871] LR 11 Eq 472 and Parker v Fellgate [1883] 8 PD 171, that the client must have both the capacity and intention to make a will have, in many cases, been overlooked.

If there is any doubt about the testator's capacity or any suspicion that this might be challenged, the solicitor drafting the will should take appropriate steps at the preparation and execution stage.

A medical report can demonstrate that the testator has the required capacity.

The solicitor should arrange to be present at execution and make and retain file notes of his or her view of the capacity of the testator.

A working knowledge of s.9 Wills Act 1837 (as substituted by s.17 Administration of Justice Act 1982) relating to attestation formalities, would prevent some claims.Other common causes of claims included delay in drawing up a will before a testator's death which can create a liability in negligence to disappointed beneficiaries (White v Jones [1995] 2AC 207 House of Lords) and failing to ascertain the nature of the tenure of real estate and to advise the testator of the need, where appropriate, to sever any joint tenancy to give effect to a gift (Kecskemeti v Rubens Rabin [1992] The Times 31 December 1992).Failures in communication with clients can be clearly identified in 58% of all trust and probate claims.

Full and clear instructions prior to the drafting of a will can reduce the risk of a claim.

The use of checklists in collecting essential information can assist.

These should include provision for the personal details of the testator and the testator's family and dependants, the size and nature of the estate, the proposed contents of the will and the existence and whereabouts of any previous will.

Problems may be identified at the outset in relation to potential claims under the Inheritance Act 1975.The tax implications of the testator's instructions also need to be fully discussed.

Wills can be structured to minimise inheritance tax but this may not be the testator's prime intention.

Failures in communication can also result in drafting errors.

Precedent clauses have been included in many wills that do not reflect an understanding of what the client wants, what the options are and what the will needs to achieve.

In 37 claims, the final engrossment was not checked to ensure compliance with the client's instructions.Accurate records should be kept of all wills, including those retained for safe keeping and those released to the testator and receipted.

This will facilitate a prompt response to enquiries by prospective clients and by other solicitors already instructed to locate by advertisement the very existence of a will.The administration of an estate is not without risk.

If the solicitor is the personal representative or is acting on behalf of the personal representative, the potential for conflict of interest must be recognised if the solicitor is also advising members of the family or beneficiaries.Some 131 claims related to the realisation of assets.

Delay in the realisation of assets, whether the sale of real estate or of stocks, shares and currency had in 58 cases lead to a loss in value of assets and subsequent claims .

Other common causes of claims included a failure to insure assets or to notify insurers that real estate is not occupied and having cover denied when the property is damaged.Another 210 claims arose out of wrong advice or action taken in respect of tax matters.

Common claims included a failure to recognise that interest on inheritance tax will be charged after six months from the end of the month within which the death occurs, and a failure to appreciate that valuation on death may be altered where an asset is sold within a prescribed period for less than the valuation at death.

The sale proceeds can be substituted for the purposes of inheritance tax and capital gains tax.

The most common cause of claim, however, was the failure to execute a deed of variation within two years under s.142(I) of the Inheritance Tax Act 1984, and to make an election to the Inland Revenue within six months from execution to obtain the benefit of inheritance tax relief under s.142(2).

These claims, wholly avoidable by effective diary management, have attracted the penalty deductible where the negligent act has occurred since 1 September 1996.Some 212 claims arose from the distribution of estates.

Commonly, distributions are made without verifying the inheritance tax, capital gains tax and penalty interest payable, with the result that beneficiaries are overpaid.

Action can be and is taken to recover overpayments from beneficiaries.

However, full recovery is rare.

Claims of this nature could be prevented by ensuring no distribution is made until such time as all the liabilities of the estate are known, including any liability to the Department of Social Services in respect of overpaid benefits (see [1998] Gazette, 20 May, 42).Allied to probate work is the management of trusts in respect of which 114 claims have been settled or are currently reserved, which relate primarily to investment management where the solicitors concerned have acted other than in accordance with the provisions of the trust deed or of the Trustee Act 1925.

Some 41 claims have arisen out of settlements where drafting errors in the first instance have lead to action taken, or legal advice given, which subsequently proved to be incorrect.

Accumulation and maintenance trust deeds must be drafted with appropriate conditions complied with to obtain favourable tax treatment.Of the 40 Inheritance Act claims reported, 16 related to the missing of critical dates either in respect of the initiation of proceedings or failures to comply with interlocutory orders made in the course of the litigation.

Effective diary management would have prevented these claims.Another 17 claims arose out of applications to the Court of Protection.

In the main, procedural rules had not been complied with and enduring powers of attorney had been drafted or executed incorrectly and held to be invalid (see [1998] Gazette 4 February and 11 February, 31).Lastly, it should be noted that 97 claims (8.5% by number, 12.1% by value) arose as a result of the dishonesty of principals and their employees.

Such dishonest conduct occurs mainly when realising assets, and at the distribution stage, and by abuse of powers of attorney for personal gain.

Many of these claims could be avoided by the regular monitoring of files and financial transactions and by all principals having a working knowledge of, and control over office accounting systems.Probably the most significant developments in probate law during the last year will prove to be the changes to heritage property and capital gains tax (CGT) contained in the 1998 Finance Bill, writes Lesley King.In an article of this length it is impossible to deal with the detail of the changes to the Bill.

However, personal representatives will be particularly affected by the following: the rate of CGT is increased to 34% on all gains realised by personal representatives and by all trustees on or after 6 April 1998.

This seems very harsh.for gains realised on or after 6 April 1998 indexation will be available only for the period up to April 1998.

Thereafter, a taper relief will operate to reduce the amount of the chargeable gain.I do not suppose that I am the only person to have laughed hollowly when comparing the press release's avowed aim of simplification with the Byzantine complexity of the calculations required - particularly where losses are involved.

And all this in a self-assessment regime.the changes to the offshore trust provisions are extremely widely drawn and will impose a charge to CGT on any UK beneficiary who receives a capital payment from an overseas trust.the changes to heritage property are quite worrying.

The new test is 'preeminence' rather than 'museum quality'.

Access by appointment is no longer acceptable.

All of this is comprehensible if not particularly pleasant for owners of items seeking conditional exemption.

The alarming aspect is that existing arrangements can be renegotiated.What else has been happening?Help for personal representatives in dealing with contingent liabilities One of the most interesting cases of last year was Yorke Stone v Chataway (1997) TLR 451 The Times 11 August 1997.

The deceased had been a member of Lloyd's and had died in 1991.

There were open years for some of his syndicates.Substantial calls had been paid and outstanding liabilities had been reinsured through Equitas.

Therefore, the executors would only need to use estate assets if Equitas proved unable to meet the liabilities.

This was unlikely since Equitas was well financed.

The executors applied to the court for a direction that they could distribute the estate without any retention to meet Lloyd's liabilities if Equitas should fail.Lindsay J made the direction.

The most important aspect of the case arises in an obiter statement by Lindsay J in which he offered general guidance to executors.

He said that as only a court order can offer executors complete protection, it could not be wrong for executors of Lloyd's names to insist on obtaining that protection.

Professional executors can, therefore, follow this course knowing that they will not now be criticised for incurring unnecessary costs.

The procedure for obtaining a direction can be ex parte on affidavit.

There is no need for the personal representatives to attend (See practice direction, page 32).Drafting gifts to charityRe ARMS (Multiple Sclerosis Research) Ltd [1997] 2 All ER 679 is worth a careful look.

ARMS (Multiple Sclerosis Research) Ltd was a charitable company which got into difficulties through overspending and had to be compulsorily wound up.

The liquidator received a number of legacies which took effect after the company went into liquidation but before it was formally wound up.

He applied to the court for a direction as to whether the funds formed part of the assets of the company and were, therefore, payable to the creditors of the company or whether they could be applied for charitable purposes.Neuberger J held that the funds had to be applied for the creditors.A bequest to a company takes effect as a gift to that legal individual provided the company is actually in existence at the date of t he testator's death (unless the gift states that the company is to take on trust for a charitable purpose).

Including a direction that a legacy is for the company's 'general purposes' will not help.

The 'general purposes' of a company while solvent are the purposes identified in its memorandum and articles.

Once it goes into insolvent liquidation its 'general purposes' change and are governed by the insolvency legislation.Probably the standard gift to charity ought now to include a substitutional gift or give personal representatives a discretion where an incorporated company goes into liquidation.Exclusion of trustees' liabilityThere have been two recent decisions on the power of trustees to exclude liability for their own negligence - Armitage v Nurse [1997] 2 All ER 705 and Bogg v Rapley The Times 22 April 1998.

In Armitage the court had to consider the effect of a clause expressed to relieve trustees from liability 'unless such loss or damage shall be caused by his own actual fraud'.

The court found that the clause would protect a trustee no matter how 'indolent, imprudent, lacking in diligence, negligent or wilful' he may have been so long as he had not acted dishonestly.

It also found that it was not contrary to public policy to exclude liability for gross negligence by a clearly worded clause.However, Millett LJ did say he thought such clauses had gone too far although it would take parliamentary intervention to deal with them.In Bogg v Rapley the court considered whether solicitor trustees who had drafted a will containing a clause exempting trustees from liability for negligence could claim its protection or whether the testator should have obtained independent advice.

The Court of Appeal held that the trustees could claim its protection.

They had not drafted a clause protecting only themselves.

The clause applied equally to all trustees.

The will had been admitted to probate.

The testator must be taken to have known and approved the contents.Watch this space - The Law Society is considering what guidance to issue to solicitors on the appropriateness of such clauses for professionals.ACTAPSAn important development in the past 12 months has been the creation of the Association of Contentious Trusts and Probate Specialists.

The organisation currently admits experienced practitioners but is developing a training programme for the less experienced.

It is hoping to improve the general standard of contentious work and members adopt a voluntary code of conduct which includes an early without prejudice meeting to try to achieve a negotiated settlement (The secretary of ACTAPS, Robert Hunter of Allen & Overy can be contacted on; tel: 0171 330 3000).CONFERENCEThe Law Society's third annual National Conference for Wills, Probate & Trust Practitioners, 'Practical Solutions', will be held on 7 July at the National Motorcycle Museum in Solihull.

Sessions will cover the current law; tax and estate planning leading up to the millennium; and legal capacity.

There will be practical specialist workshops on:-- older client issues-- wills and will drafting-- serving clients' needs for profitable probate practice-- trustsThe conference, which is sponsored by Title Research, is accredited with 5.75 CPD hours and costs £199.95 for members of the Law Society's Probate Section and £276.12 for non-section members.

For further details or to book contact the registrar at Central Law Training; tel: 0121 355 0900.Robert Verkaik is a freelance journalist;Ian Muirhead is the managing director of Solicitors for Independen t Financial Advice;Andrew Nickels is head of the Solicitors Indemnity Fund's risk improvement unit;Professor Lesley King is a lecturer at the College of Law in London.

She will be speaking at the Law Society's National Conference for Wills, Probate & Trust Practitioners.