In a nutshell, an ‘Executor’ is responsible for establishing exactly what assets and liabilities the deceased had, collecting in those assets and paying any debts, before finally accounting to the beneficiaries. If it is your spouse that has died, and they held little in their sole name, you may find it very easy to deal with things yourself. However, many estates are likely to be more complex, and if you are taking on this important role, you need to be aware of potential pitfalls as an executor can be held personally liable if mistakes are made.
Pre-Grant of Probate
Unless the estate is very small, you will need to obtain a grant of probate to prove that you have the Court’s authority to collect in and deal with the deceased’s affairs.
No grant of probate can be issued without involving HMRC. A form detailing all the deceased’s assets and debts has to be submitted. However, you firstly need to decide which of two forms you need to complete, and this depends on the size of the estate, the nature of the assets, and the status of the beneficiaries.
To complete the required form, you will need to go through the deceased’s papers to find bank statements, life policy details, share certificates etc. You will also need to be able to show how you arrived at any value you put on the deceased’s property or personal possessions.
You will need to know whether the deceased made gifts of cash or other assets in their last seven years, and whether they were the beneficiary of any trust arrangements.
A trust arrangement is likely to exist where you might not expect, such as if the deceased had a right to occupy a property during their lifetime (owned by others). Warning - It is necessary to put some time and effort into providing the required information because HMRC can impose a financial penalty if they believe you have been careless or negligent in submitting the information. Depending on the size of the estate, Inheritance Tax may be due and this has to be paid before a grant of probate is issued.
Some banks and building societies can pay money direct to HMRC for this purpose, but if there is not enough cash available, you may have to fund this yourself in the short term, or ask the bank for an executor’s loan. If tax is due, you will need a receipt from HMRC before the application can proceed. After Grant of Probate Once you have the Grant of Probate, unless you are the sole beneficiary, you need to open an Executor’s Account. It is very important that you do not mix any estate money with your own – you need to think about what complications would arise if you were to die with money belonging to others in your bank account! You can now proceed to collect in or transfer the assets. Beneficiaries are entitled to be provided with a set of accounts showing how you have dealt with the estate.
You should complete a form for each beneficiary, telling them how much of the estate’s income they have received, so that they can keep their own tax affairs in order. However before you transfer any assets to beneficiaries you need to consider the following. Tax Considerations – Have you Paid all Tax Due? You should not underestimate the tax reporting responsibilities of an executor. Even if no inheritance tax is due, you will need to finalise the deceased’s income tax affairs – you are likely to receive a form from HMRC within a couple of weeks of the death! If the estate contains any assets other than cash, you need to consider whether the estate’s annual allowance has been exceeded and capital gains tax is due.
Ideally, you want to have clearance from HMRC that all tax liabilities have been met before you distribute an estate Acting under the Wrong Will – Are you Certain You have the Last Will? Even if you act in good faith, if you take out a grant of probate, and a later Will comes to light, beneficiaries that lose out may be able to reclaim from you. If you are proceeding on an intestacy, you need to be certain that no Will exists. Failing to Meet all Claims Against the Estate Any estate is potentially liable to a claim from a creditor, somebody who wishes to challenge the validity of the Will, or, someone who thinks they have not been adequately provided for by the Will. There is a six month time period after the grant of probate in which a claim could be made, and it is wise to consider not distributing the estate until that time period has elapsed. A creditor has six years to pursue a debt. If a debt comes to light after you have distributed the estate, again you can be held personally accountable.