This guide is to help executors and beneficiaries understand the issues involved in an estate administration and likely timescales and matters to consider in advance of decisions needing to be made during the estate administration period. If you are a beneficiary of an estate then tailored advice based on your circumstances is recommended and please ask for a quotation if tax planning is being considered.
If you are appointed to act in an estate by Will, then you have the following options once you have considered what is involved in the administration and whether you wish to proceed:
- to accept your role and act in the estate
- to take a step back and let other executors act in the role, but have power reserved so that you can step back in if needed at a later date (if your co-executor was no longer able to act for example)
- to renounce your appointment and have no further involvement or legal responsibility (but you can still be a beneficiary unless the gift was contingent on you acting in the estate)
Estate Administration Responsibilities
If you accept the role to act as Personal Representative in the estate then you are legally responsible for ensuring this is administered correctly and are responsible for ensuring the following matters are carried out:
- checking that the Will you hold is the last valid Will of the deceased or if no Will is held checking the Intestacy Rules to clarify the beneficiaries entitled.
- tracing and identifying the correct beneficiaries entitled to the estate first checking whether any of them are on the Government Sanctions List, are bankrupt or have entered in an Individual Voluntary Agreement and, if so, liaising accordingly and advising them of likely timescales to receive payment and advising them not to enter into contracts to purchase goods until they actually are due to receive funds from the estate in case of delays by third parties.
- tracing all assets belonging to the deceased (including any loans made and outstanding as at the date of death) and confirming all liabilities due at the date of death.
- checking the deceased’ s bank statements and for any records of lifetime gifts made the by deceased in the last 7 years (or up to 14 years if a Chargeable Lifetime Transfer into Trust occurred).
- checking the bank statements for any unusual withdrawals made before death (such as by an appointed attorney or deputy) and advising the beneficiaries if there are some as they may wish to seek advice regarding any request for repayment if unauthorised.
- checking the Will and estate of any spouse or civil partner who died first and claiming any available allowances to be transferred.
- preparing and submitting IHT Return of Estate Information Form and if the larger form any schedules required.
- arranging and paying any Inheritance Tax due and interest (if any) to HM Revenue & Customs as a result of the deceased’s death (interest is payable after six months from the end of the month of death)
- checking any lifetime recipients of gifts if taxable that they are paying any additional tax due or liaising with trustees if trusts were set up and tax is due as the debt can fall on the Personal Representatives if they fail to pay the same.
- updating HM Revenue & Customs should assets or liabilities change after submission of the IHT Return of Estate forms and arranging to pay any extra tax due and interest (if any) by way of a corrective account or putting in a claim for repayment if a refund is due to the estate (loss on sale reliefs for shares and property for example),
- completing any outstanding lifetime tax returns covering the period up to the date of death for the deceased.
- completing any estate tax returns during the trust period declaring income and capital gains (if any) for the estate bearing in mind the relevant allowances and taking advice as needed and obtaining final clearance for income tax.
- checking if the beneficiaries wish to vary the estate by Deed of Variation within 2 years of the date of death and whether this effects the tax due (can be read back for IHT and CGT) and, if so, you need to counter-sign the same and update HM Revenue & Customs.
- obtaining final clearance for Inheritance Tax (if a taxable estate)
- taking the beneficiaries’ instructions re disposal of the assets bearing in mind they should be advised to seek financial advice and tax advice as appropriate (capital gains for example when disposal of shares and property takes place and whether to appropriate first).
- transferring the assets to the beneficiaries entitled within a reasonable time.
- providing a set of Estate Accounts to the beneficiaries for approval showing all funds received and payments made and the balance left to be distributed to the beneficiaries.
- taking only allowable expenses (mileage at HMRC rates, postage, telephone calls, stationery) when acting as Personal Representative unless specific authority has been given in the Will.
- providing form R185ei to any taxable beneficiaries confirming the income received each tax year (when distributions are made) and tax paid.
Grant of Representation
This confirms the persons with legal authority to act (usually the persons named in the Will or persons entitled to apply in an Intestacy) and is issued by the Probate Registry. It allows the collection in of the larger assets in the estate (some assets can be released pre-Grant, but sales of property for example will require a Grant first before exchange of contracts).
Where an estate is taxable or reportable then HM Revenue & Customs must be contacted first and an Inheritance Tax Return and schedules lodged setting out the values in the estate and paying any tax due and they will then advise the Probate Registry that no tax is payable or that all tax due has been paid for them to release the Grant of Representation.
Payment of Liabilities
The Personal Representatives are responsible for payment of any debts due from the estate and can be held personally liable if not dealt with correctly, and recovery is not possible from the beneficiaries if distributions have been made, so it is important to double check the same. You can place Trustee Act Notices for you to advertise for creditors in the local and national newspapers and this is recommended.
HM Revenue & Customs are the priority creditor so ensure sufficient funds to pay them are available before payment of any other creditors. Funeral and testamentary expenses then follow and then remaining creditors. There is a set order for payment if an estate is likely to be insolvent so do double check if this is likely to be the case and consider whether you wish to accept the role.
Tracing and transfer of Assets
Once received the Grant will enable the transfer or sale of assets held in the estate but the executors may suggest that the beneficiaries seek financial or tax advice first before transfer or disposal.
It is important to correctly identify all assets due to the estate and we can assist you with an Asset Search (recommended) to help ensure all relevant funds due to the estate have been traced.
Where a deceased was married you may also consider tracing assets for any spouse or civil partner who died first in case not all assets were collected in at that point by the deceased.
Inheritance Tax (IHT)
IHT is a tax charged by HM Revenue & Customs on estates over the available allowances usually at 40%, which is subject to change. Interest is payable on tax unpaid after the end of the sixth month of the date of death. Property and some other assets you can pay the tax by instalments for up to ten years or until earlier sale, but interest would be payable.
For gifts made free of tax to beneficiaries then it may be required to gross up the gift to include the same. Gifts made to exempt beneficiaries will reduce the overall tax payable and if 10% of an estate is going to charity the overall tax rate is 36% rather than 40%.
Should there not be sufficient funds in the estate to pay the tax due you may need to fund this yourselves or raise a loan pending receipt of the Grant of Representation. We can help and assist if this is required as there are now companies offering loans to Personal Representatives and beneficiaries of an estate where solicitors are instructed.
Please note that should further assets or liabilities come to light you do need to inform HM Revenue & Customs of the same by way of a corrective account if this changes the tax due.
Should a beneficiary decide to vary the Will within two years of the date of death this can read back into the estate for IHT or CGT purposes and can change the tax payable so please advise if a beneficiary wishes to redirect a gift left by Will or Intestacy to another person to check whether a Deed of Disclaimer or Variation is suitable or whether they should accept the gift and then make a lifetime gift themselves (Potentially Exempt Transfer).
Income Tax (IT)
Untaxed income received into the estate for interest and dividends need to be reported to HM Revenue & Customs and tax paid for the administration period. If any beneficiary completes tax returns and they have received distributions from the estate they can ask for form R185ei. Should disposals exceed £500,000 in any one tax year for shares or property then a tax return will be required for the estate unless you have appropriated assets to the beneficiaries (before disposal of shareholdings or exchange of contracts for property) then the beneficiaries would declare their own share of the income/gain on their own tax returns. Please ask for a quotation if this is required.
Capital Gains Tax (CGT)
Should assets be realised in the estate administration and have increased in value over the available allowances then CGT may be payable. The beneficiaries may wish to seek advice to mitigate the same such as appropriating shares to beneficiaries or property to beneficiaries prior to exchange of contracts to utilise their own allowances and where beneficiaries are married to consider adding on their spouse too. If so, please ask for an estimate to be provided to draw up the documents (Deed of Gift or Memorandum of Appropriation) on your behalf.
Correctly administering an Estate
Beneficiaries have the right to query the handling of an estate administration and there is a limitation date of twelve years for claims to be brought against the Personal Administrators by adult beneficiaries (or possibly longer if a beneficiary was a minor at the date of the administration or the issue was only discovered later). We recommend obtaining agreement by the beneficiaries of the Estate Accounts before any distribution takes place.
Should an estate administration exceed twenty-four months then the estate needs to be registered with HM Revenue & Customs as an Express Trust under the Trust Registration Service unless the estate assets and liabilities have been ascertained and no monies are held on trust.
Should a Trust have been set up by Will then when this comes into force registration is due within 90 days to avoid penalties. If you need advice or assistance administering a trust set up by Will please ask for a quotation.
How long will the estate administration take?
The timescales for finalising an estate are difficult to predict accurately, particularly if there is a property that needs to be sold and tax matters to be dealt with. The general timescale for administering a straightforward estate is twelve to fifteen months (given current delays with both the Probate Registry and HM Revenue and Customs of around four to six months from submission to receive the Grant of Representation). More complex and taxable estates can take in the region of fifteen to twenty-four months or more to complete where we are relying on third parties for information or clearance is required.
When can a beneficiary expect to receive funds?
We strongly advise against beneficiaries entering into any contract to purchase goods or services (for example, a car) before they are in actual receipt of funds as delays by third parties may mean that payments to beneficiaries are not able to be made to meet the obligation.
Currently Grant applications may take four to six months to be obtained following submission of the forms (information can take three to twelve weeks to be received back from third parties). Thereafter if there is a risk of a claim against an estate the Personal Representatives may wish to wait ten months from issue of the Grant before making distributions to the beneficiaries to protect themselves from any potential claims under the Inheritance (Provision for Family & Dependants) Act 1975. The Personal Representatives may decide to release some funds earlier if all assets and liabilities in the estate are known and the tax has been paid but may want to protect themselves by using an Indemnity or obtaining insurance first in case other liabilities or claimants come to light, or they may decide to wait for final clearance before releasing funds due. Interest is payable on legacies if paid after twelve months.
There are now companies that offer to lend funds to Personal Representatives to pay Inheritance Tax if the estate or family cannot fund the same upfront. There are also loans available to beneficiaries in advance of any expected payment where an estate is being handled by a Solicitors’ firm. We cannot advise on the suitability of the terms or rates should a beneficiary decide to go down this route.