What is probate?
Under certain circumstances, an executor has to apply to Court in order to be able to complete the estate administration. This is usually required when:
- property is held in the sole name of the deceased
- the deceased held assets with financial institutions typically worth £5,000 or more although certain banks and building societies increase this threshold
- the deceased benefited from a trust during their lifetime
What is estate administration?
Estate administration is the process by which the estate of someone that has died is dealt with according to their last wishes and includes all necessary tax, legal and administrative duties.
What needs to be done in estate administration?
Register the death,
arrange the funeral,
secure the assets.
Step 2:Register the death at financial institutions, obtain probate valuations, notify the beneficiaries.
Prepare probate papers and Statement of Affairs,
File HMRC account,
pay Inheritance Tax,obtain probate
collect estate assets,
pay liabilities,update beneficiaries on estate.
Transfer assets to legatees, pay legacies,
interim distribution to beneficiaries, pay any Capital Gains Tax, finalise Income Tax,obtain Inheritance Tax clearance.
Transfer assets to beneficiaries, prepare estate accounts, produce Tax Deduction Certificates (if required),pay final distributions to beneficiaries, set up any trusts.
What does an executor have to do?
Secure the estate
This will involve notifying the building insurance company or arranging new insurance where there is no insurance in place. The executor also has to put in
place measures to prevent any estate assets decreasing in value. Administer the estate in accordance with the will Whether an executor agrees or disagrees with the terms of the will, their duty is to distribute the estate in accordance with the will. If an executor intends to make a financial claim against the estate or challenge its validity, they should not act as an executor otherwise a conflict of interest will arise.
Financial & tax
Establish the assets and liabilities
Contact all financial institutions to confirm the value of any assets and liabilities.
Pay the liabilities of the estate.
The executors must pay any liabilities in accordance with detailed rules as to the order of priority of estate liabilities. Executors should be aware of their potential liability if they fail to follow the correct procedures.
Submit details of estate assets and liabilities to HM Revenue & Customs (HMRC)
Executors have to provide HMRC with details of all assets and liabilities (including joint assets) and any gifts made by the deceased during the seven years prior to the death. HMRC expect executors to make full enquiries into the deceased’s finances, check with the deceased’s family and review the deceased’s bank statements for the previous seven years. Failure to carry out their responsibilities could result in financial penalties against the executor.
Pay any Inheritance Tax (IHT)
If the deceased’s estate is liable to IHT, the executors are primarily responsible for paying any IHT due before any assets are distributed to beneficiaries.
Liaise with beneficiaries
Distribute assets to the beneficiaries
The executors will need to pay any legacies and distribute what remains of the estate to the beneficiaries once the estate assets have been identified, the estate liabilities paid and any IHT settled.
Provide financial information to beneficiaries
Executors are expected to take reasonable steps to keep beneficiaries informed regarding the administration of the estate. At the end of the administration of the estate, residuary beneficiaries are entitled to receive a detailed account setting out the estate assets and liabilities, any capital additions, the costs and expenses of the estate and any income earned during the administration of the estate.
Treat beneficiaries equally and fairly
All beneficiaries are entitled to the same information and to receive their legacy or bequest at the same time. Executors should only pay legacies when they can pay all legacies or make part payment of all legacies. Likewise, when making interim or final distributions, these should only be made when all payments can be paid or part payments made in the same pro rata proportions.
What choices does an executor have?
Administer the estate and prove the will
This will involve dealing with the administration of the estate, providing details of the assets and liabilities to HMRC and obtaining a Grant of Representation.
Renounce probate. If you do not want to act in the administration of the estate, you can sign a renunciation which means you will not be involved in the administration of the estate.
Have power reserved
If you have power reserved, you will not deal with the administration of the estate. However, if the proving personal representatives no longer deal with the administration or subsequently become unable to administer the estate, you can take out a later Grant of Representation.
Can there be more than one executor?
Yes but if there are multiple executors they need to act unanimously. Ultimately if the executors cannot agree on joint instructions, it may be necessary to apply to the court for directions on how the estate should be administered. In such circumstances, the court also has power to remove one or more of the executors from their role in administering the estate.
How long will this all take?
There are no formal timescales for the administration of the estate and the time required will depend on a number of factors, such as the number of assets, the
value of the estate and whether IHT or other taxes are payable (such as Capital Gains Tax or Income Tax). However, there are certain relevant time periods which need to be taken into account.
- The executors have “the executor’s year” to deal with the administration of the estate, effectively one year to deal with all of estate the administration. The vast majority of estates are wound up well within the executor’s year, however larger or more complex estates can take over 12 months to administer.
- If IHT is not paid within six months of the last day of the month in which the death occurred, interest will accrue on any unpaid tax until it is paid in full
- The relevant HMRC form (Form IHT205 or IHT400)should be delivered within 12 months of the date of death, otherwise a £100 penalty may be levied.
- If anyone intends to make a claim against the deceased’s estate for reasonable financial provision under the Inheritance (Provision for Family and Dependants) Act 1975, a claim must be made within six months of the date the Grant of Representation is made. Therefore personal representatives should consider delaying the distribution of any estate assets within the six month period. In certain situations, the court may give leave for a claim to be made outside the six month period.
- Legacies should be paid within 12 months of the date of death. If they have not been paid within this period (for example due to a delay in administering the estate or in obtaining HMRC clearance) then interest becomes payable on any unpaid legacies.
How we can help
When someone dies, most people want the stresses of dealing with financial and administrative matters to be taken away by someone who is expert in how these processes work. The Wright Hassall team are probate experts and have supported families dealing with estates ranging from a couple of assets to multi-million pound portfolios.
We can help with
- obtaining a Grant of Probate or Grant of Letters of Administration;
- advising you on your duties and responsibilities as a personal representative;
- helping you to deal with beneficiaries;
- producing the necessary financial information; and
- assisting in completing the necessary inheritance tax forms.
We never lose sight that this is an emotional time for you, sometimes accompanied with financial worries. We are happy to have an initial discussion with you to help you to decide what support you need.