Small Print in Wills Could Make Banks £9 Billion

Lloyds Banking Group and the Royal Bank of Scotland are facing backlash, after it was revealed that millions of wills completed via the banks’ will-writing services include small print entitling the companies to significant shares of their customers’ estates.

The inheritances of 1.5m bereaved families are thought to be affected by the terms, which were included in wills offered to be written for customers in the late 1990s and early 2000s.

The wills, offered as a benefit to customers who signed up for insurance or new accounts, included clauses that allowed banks to appoint themselves as executors, meaning that they could claim up to 2.5% of a customer’s estate in legal fees.

As financial experts warn, “these small percentages may seem reasonable at the time but… can add up to tens of thousands of pounds on a customer’s death.”

For a £500,000 estate, a bank could be entitled to claim £12,500 for its services. A combined total of £9bn is thought to be profited by the banks under the scheme.

Conservative MP Kevin Hollinrake has called on the Financial Conduct Authority to investigate what he termed the “cosy cartel” of will-writing services, stating: “It’s not sufficient for the FCA to wash their hands of this.”

Hollinrake added that it would also “make sense for Parliament” to take decisive action against this perceived “abuse” of trust, noting that the revelation would likely be “damaging” to public confidence in the UK’s banking system.

Partner and wills expert, Jacqueline Almond commented:

“Banks have long been criticised for charging for probate work based on a percentage of the value of the estate. This takes no account of how complex or simple the administration of the estate is and is really no more than a crude statement that the larger the value of an estate, the more complex it is. For many years, we have advised clients that it is not a requirement to have a professional executor appointed whether that is a bank, solicitor, accountant or other. For most people, family members and/or friends are able to take on the role of executor and then decide if they need professional assistance for certain aspects of the work. In those cases, the executors can manage the cost of the work for the benefit of the estate. There can be some estates where having a professional executor is a benefit. This tends to be in very complex matters or where there are disagreements between beneficiaries“.

Banks defend “transparent” pricing whilst critics allege “sneaky” practices

A spokesperson for RBS however defended the procedure, asserting that the fees were “upfront and transparent” and “capped at a maximum amount.”

Lloyds Banking Group in turn maintained that its pricing for will-writing services was “straightforward, transparent and competitive.”

Lloyds added: “Our customers can appoint an executor of their choice in their will and have the opportunity to change the executor appointment at any time.”

Both banks underlined that beneficiaries had the option to request that the bank renounce itself as executor of a will, and that they would always “do so where appropriate.”

However, a spokesperson for finance advice website Candid Money termed the banks’ conduct “sneaky,” as the banks enticed customers with cheap prices for will-writing services and then encouraged them to appoint the bank as executor.

For customers to request a change of executor – which the bank may reject – they would have to pay a fee of around £250.

Under will-writing services currently available, Lloyds charges 2.5% on up to £1m of a customers’ assets, whilst Natwest and parent company RBS charge 2.5% in addition to a £1,500 charge with fees capped at a maximum of £15,000.

The banks wills are reportedly drafted by the same law firms.

Banks must inform customers of executor options

As executor of an estate, the bank is legally responsible for disposing of the testator’s assets in accordance with their wishes. Legally, a person can appoint up to four executors for their estate.

As analysts note, ‘If someone has an uncomplicated estate there is no reason for them to be paying a bank tens of thousands of pounds to administer it” – and indeed in many such cases, a family member may be able to take on the role for free.

Leading UK banks including Barclays, HSBC, Lloyds and RBS reviewed their will-writing services in 2011, after the Office of Fair Trading ruled that customers were not being well informed of their options regarding executors.

The Law Commission is currently in the process of a consultation to recommend possible changes to the law of wills in England and Wales, in order to modernise laws and potentially lower the age for writing a will from 18 to 16.

The current law largely stems from the Wills Act 1837 and does not account for recent innovations in medicine and technology which affect the situations in which wills are being written and used.

Contact our wills, trusts and probate experts today

If you still haven’t finalised your last wishes or would like to write a new will, contest a will, want to leave money in trust for a young relative, or are struggling with probate issues, please call us on 03456 381381. Alternatively, email us at estatemanagement@ibblaw.co.uk.