The Financial Conduct Authority has issued a warning about pre-paid probate plans, which are unregulated in the UK.

The warning comes after increased marketing of the plans in recent months.

The regulator said it had seen marketing from firms and individuals associated with funeral plan firms that it did not authorise, and whose customers lost money when they collapsed. 

The FCA said that when designed and marketed appropriately, pre-paid probate plans could help people organise administration arrangements ahead of their death.

But it warned: “As we do not regulate pre-paid probate firms, or the pre-payment of probate costs, there are no regulatory protections in place.”

Because pre-paid probate plans are not protected by the Financial Services Compensation Scheme, there is no financial protection for consumers if the company fails.

The FCA also warned that probate plan fees often also include commission which increases the price of the plan. That’s because there is no commission ban on the sale of pre-paid probate plans as there is for funeral plans.

Financial Planners should alert clients to the dangers of businesses offering pre-probate plans and if they discover a business has broken the law or acted unfairly, can report them to Trading Standards.

Clients should also be alerted to be wary of high-pressure cold calls about pre-paid probate plans, especially as their money may not be safe if the firm should fail.

There are no rules requiring the money clients pay into plans to be held in trust or backed by insurance, which means the cash is at risk.

Even where plan operators choose to use a trust to manage assets, those trusts could still invest in unsuitable investments, putting future benefits at risk.

The FCA said: “We saw cases where this happened with funeral plan trusts before our regulation began.”

Other problems that could arise with the plans include the possibility of additional probate fees being demanded if the value of the estate increases, such as through an inheritance.

There is also the possibility of the need to pay for care costs, which would reduce the value of the estate and could mean that probate is not needed.

In England, Wales and Northern Ireland, probate is the legal right to deal with someone’s property, money and possessions (their ‘estate’) when they die. It is usually required when the person who died owned property or significant assets in their own name. The equivalent in Scotland is called Confirmation.