Upon the death of a family member, relatives are often in a state of shock .

.

.

a feeling not alleviated when their solicitor talks of inheritance tax at 40%, and then mentions the problems of borrowing money to pay the tax.Clients find it hard to understand why they must borrow money when there are funds available in the deceased's own bank account.

The solicitor then has to explain the catch-22 situation whereby funds cannot be released by the bank without a grant of probate .

.

.

and that cannot be obtained without having paid the tax.Borrowing entails expense.

Banks state that charges depend on individual branches and their relationship with their clients.

Most charge 2% above current base rates, with either a fixed 1% arrangement fee or a sliding scale fee.

For example, a loan of £40,000 could cost £640 on top of interest charges.

Not insignificant amounts for a virtually no-risk loan.If the deceased had money in a building society, the society may agree to send the balance or an appropriate part of it direct to the Inland Revenue's capital tax office.

In practice, most societies will agree to release funds providing at least £1 is left in the account.

Some will also allow payment of funeral expenses and even probate fees.A number of societies have recently changed their policies, and several that would not release funds, or would only release part, will now do so.

If you have been refused in the past it is worth trying again on each occasion.The attitude of banks appears different.

The TSB, Midland and Barclays said they would not advance funds.

The Midland quoted the 11th edition of the British Bankers Association practice rules, which states that any balance cannot be released to the executors without sight of probate.Barclays quoted Halsbury's Laws of England which makes the same point, and s.11 of the Revenue Act 1884 which states that the production of a grant of representation is necessary to establish the right to recover or receive any part of the personal estate.

Barclays pointed out that if a rival personal representative under another will obtains probate, there could be a lengthy case and the bank's position would be at risk.

It would be accused of acting for the particular personal representative and not in the best interests of the estate.There appears to be no real likelihood of a bank's position being at risk if a rival will has appointed other executors and the estate remains the same.

The inheritance tax must still be paid.If more liabilities are found in the estate, and less tax is due, or a rival will gives the estate to an exempt beneficiary, would the Revenue refuse to refund the tax? Presumably it would refund the money with interest.

It must be in the estate's interest to incur as little cost as possible, but if a lengthy dispute arises and an inheritance tax loan has been taken out, then the amount of interest payable could be considerable.

If the tax is not paid at all then interest will often be payable on the unpaid tax six months from the date of death.It appears unlikely that a bank would be sued for making payments direct to the Inland Revenue.

Lloyds apparently saw no risk.

It may, at its discretion, release funds to the Revenue upon sight of the will and with a solicitor's undertaking to produce the grant of probate when issued .

.

.

a change of attitude, due, it says, to a desire to 'facilitate administration of the estate'.A spokesman for NatWest said that in the normal course an executor would be offered 'an advance for inheritance tax', then, if refused, in 'exceptional circumstances' the bank might release funds.

It lists various conditions, including the possibility of insisting that an insurance company joins in an indemnity and charging a fixed fee for arranging the release of funds.If the bank tells customers of these two options then customers are very unlikely to accept the loan.

They will obviously ask for funds to be released, unless they consider the charges and fees to be prohibitive.

On the other hand, if the bank does not inform customers of the options, then with the bank loan as apparently the only resort, they will not learn of the second alternative.If the beneficiaries have the ability to lend the cash interest free it is in their interest to speed the matter .

.

.

and cheaper than the alternative bank loan.If they do not have available funds it may be possible for a testator to arrange for money to be available by way of a Married Women's Property Act policy or a policy written in trust for the beneficiary.

In these situations the insurance company will not demand the grant of probate, but will be satisfied with production of the death certificate.Other easily realisable property would be that jointly held with the deceased, such as a building society or bank account.

Both will be transferred to the beneficiary on production of the death certificate.It may be possible to sell assets, provided the deceased left a will appointing executors.

An administrator has no power to sell assets before the grant of representation is made.

Assets such as furniture, paintings, china or book collections could be sold without the grant.

Land, of course, cannot be sold as a grant is needed to prove title.

Shares, however, provided they are UK quoted, can be sold before any grant is issued.

The sale of assets may be an ideal way to raise funds, but is dependent upon the beneficiary's wishes and, of course, may not raise sufficient funds to settle the inheritance tax bill.There are certain small sums which can be paid without obtaining probate.

The power to release the funds is discretionary, and is under the Administration of Estates (Small Payment) Act 1965, which allows such payments to be made, provided the amount in the account does not exceed £5000.

This can be requested from National Savings (in practice, the director of savings will look at the total in National Savings across all accounts), arrears of salary or benefits due to government employees and pensions of the Army and Royal Air Force.

The Building Societies Act allows the corresponding amount to be released from building societies.A more unlikely recourse is to the Inland Revenue provisions allowing it to accept land in a total or partial satisfaction of the tax liability of the estate.

The land must have some kind of amenity value, and the public must be able to enjoy reasonable access.

Other items accepted by the secretary of state to be of national, scientific, historic or artistic interest are also acceptable.When considering a client's will, if the payment of inheritance tax cannot be avoided, it would be worthwhile considering where the funds will come from to pay the tax.

A policy written in trust or held jointly has the added advantage of providing ready cash for beneficiaries.If these are not appropriate and cash is held on deposit, it may be worth transferring it to an organisation that will allow its release to pay the tax rather than have to rely on loans from banks.I had hoped to report on the Post Office's attitude on release of funds in order to pay tax, but it has yet to reply to enquiries.