It is not until we find ourselves responsible for things like making funeral arrangements that many of us realise how many practical issues and tasks there are to consider when someone dies. As part of our blog series on estate administration, we have put together this piece which explores some of the common issues and questions that we are regularly asked by those who have been appointed as an Executor of an estate.
Have you been appointed as an Executor?
When someone dies it can seem overwhelming, especially if you find yourself appointed as the person responsible for administering the estate.
The role of Personal Representative (PR) is one of responsibility often requiring administration, legal and tax work to be undertaken. Throughout the process a PR must act in the best interests of the estate and the beneficiaries, and they are liable for mistakes made through any breach of duty.
In this post we highlight the key responsibilities of a PR, including the personal risks they are taking on, perhaps without realising. As well as being an introduction to Estate Administration for Personal Representatives, the post can help anyone preparing a new Will to choose a Personal Representative who has the necessary skills to fulfil their duties.
*When there is a Will, the PR is an Executor. If your loved one has died without leaving a Will the Personal Representative is an Administrator. Unlike an Executor who is chosen by the deceased, the law states who can act as the Administrator.
What are the duties of a Personal Representative?
Preserve Estate assets
A PR must look after the assets of the estate and ensure they do not lose value. This can include updating insurance policies, locking or replacing broken windows and doors and protecting against frozen or burst pipes. For other assets it could involve safe storage of valuable jewellery or pieces of art, or perhaps removing a car from the road.
Accurately value the estate
A PR must obtain the value of everything the deceased owned at the date of death (their assets), such as bank accounts, savings and pensions, as well as property, household goods and personal items. The deceased’s assets also include any refunds to the estate, such as overpayment of utility bills, council tax or income tax. A PR must always find out what the deceased owed at the date of death (liabilities), such as utility bills, mortgages and money owed on credit cards, unpaid care fees. Liabilities also include funeral expenses, such as the cost of a funeral director, a headstone or wake.
Calculate and pay Inheritance Tax
A PR must identify whether Inheritance Tax (IHT) needs to be paid as they have responsibility to pay the tax due by the end of the sixth month after the date of death, although the IHT due on some categories of assets, including property, may be paid in annual instalments until the asset is sold. If IHT needs to be paid, the PR must complete a detailed Inheritance Tax Return (IHT400). The PR needs to know about any tax reliefs or nil rate bands applicable, and opportunities to vary the Will to reduce the IHT payable. The PR will need to plan early on how they are going to make the payment on time.
Know whether to apply for a Grant of Probate
A Grant of Probate is a legal document providing evidence of an Executor’s right to deal with the deceased’s Estate. If there is no Will, the Grant is called a Grant of Letters of Administration and it evidences the Administrator’s right to deal with the estate. Organisations will often ask to see a Grant before they pay out any monies to a PR.
Some property owned as joint tenants, joint bank accounts, some pensions, annuities and life insurance payments do not need evidence in the form of a Grant, and the provider will pay out to the person entitled to benefit. Some joint assets will pass to the surviving joint owner. Pensions often pay to the person nominated to receive the money, although this is not always the case.
When a Grant is applied for, PRs must report the value of the estate using the valuations they have obtained.
Distribute the Estate
Once all the assets have been collected, a PR must settle any outstanding liabilities, which will include their own expenses incurred during the administration process, such as purchase of death certificates, payment of utility bills, payment of probate fees, etc.
Finally, a PR must distribute the estate according to the Will if there is one, or according to the Intestacy Rules if there is no Will. If there are specific gifts or legacies in the Will, these will be paid first. After these payments have been made, the Will tells the PR how to pay out the remainder of the estate. Sometimes the Will creates a Trust, and the PR will need to receive specialist advice on what they need to do as Trustees.
Did you know…?
If a PR thinks there is no Will and a Will is later found, it could change who inherits and what is inherited, and the PR can be personally liable for incorrectly administering the estate. Undertaking a Will Search protects the PR from this liability.
If a property was jointly owned the entry at the Land Registry should always be updated. If the joint ownership is “tenants in common” rather than “joint tenants” a Grant of Probate is needed. Some couples have Wills which include a life-interest clause which means they are likely to be tenants in common rather than joint tenants.
The Probate Registry will not issue a Grant of Probate until all Inheritance Tax due, or the agreed first instalment of IHT, has been paid. PRs cannot rely on using an asset to pay IHT that requires a Grant of Probate (e.g. shares). Some banks and small number of other organisations will make a direct payment from the deceased’s account to HMRC so that the Grant can be issued.
Gifts made by the deceased before they died can increase the amount of IHT payable and accurate reporting of lifetime gifts on the tax return is essential.
PRs are responsible for calculating and paying all Income Tax and Capital Gains Tax. It can be helpful to use the services of the deceased’s accountant if they had one, as they will be familiar with their tax affairs.
A PR is liable for settling liabilities they DO NOT know about, for example, outstanding finance on household goods or a ‘buy now pay later’ credit agreement. These companies can make a claim to the estate and if the distribution has already been made the PR must pay themselves. If the PR places Statutory Notices, they will not be liable to any creditors who comes forward after the notices have expired.
If there is not enough money in the estate to pay all liabilities the PR can be personally liable if they do not pay the organisations or people owed money in the correct order. Debts secured on an asset (e.g. a mortgage on a property) should be paid first, followed by funeral, testamentary and administration expenses. “Preferred debts” (e.g. employee wages), then unsecured debts (e.g. utility and credit card bills) and then any interest due on them, come next. Deferred debts, such as a loan between family members are repaid last.
If someone is left a gift in a Will and they cannot be located, the PR will be liable to pay them out of their own monies if beneficiary comes forward after the estate has been distributed. It’s very important for the PR to take specialist advice to ensure they are protected. One possible solution is for the PR to take out Insurance cover but there are other options.
If a PR pays an inheritance to a bankrupt beneficiary, they could be liable to pay their Trustee in Bankruptcy for the amount paid. A bankruptcy search should be carried out on all beneficiaries.
If the Will creates a Trust, the Trust needs to be registered if it still exists two years after the date of death. This includes Wills with a life interest which are referred to above.
PRs must be able to show a full inventory of the estate and an account of the administration of the estate if required to do so by Court. Estate Accounts satisfy the Executor and Beneficiaries that everything has been properly accounted for. Clear Estate Accounts reduce the possibility of over distribution. They can also be used for reference when completing tax returns after the estate administration has concluded.
As you can see, it’s important that a PR fully understands what is required of them throughout the Estate Administration process, and it’s essential that they carry out this work correctly.
Some estates, such as the first death of a couple where the only assets are joint bank accounts, a joint property and minimal assets all passing to the survivor could be quite a straightforward job for a PR. Intestacies, larger estates, those with a Will Trust, estates liable to IHT and insolvent estates are more complex for a lay person to deal with. If a PR has any doubts about what is required of them, or they are not completely confident in carrying out this work themselves, they can instruct a probate professional to help them.
In addition to reducing the stress and burden of acting as a PR at an emotionally difficult time, the advantages of instructing a Probate Professional include:
- An accurate reading and interpretation of the Will
- Knowledge of Intestacy Rules and how to apply them
- Understanding of how all estate assets will pass
- An accurate IHT calculation
- Current Working knowledge of how HMRC and Probate Registry operate
- Correct identification of ways to reduce the tax liability
- Assistance with planning and organising the payment of IHT
- Knowledge of how to limit the PRs personal liability
- Preparation of professional estate accounts
How we can help
At Renaissance Legal our specialist Estate Administration lawyers can assist PRs with one or more of the above and we offer a fixed fee for submitting the IHT return and obtaining the Grant of Probate. Please contact us for more details.
This post is intended to be an introduction only to the role of a Personal Representative and should not be used as an exhaustive “check list”. Correct estate administration differs from case to case, and we would always recommend that a PR seeks the advice of a professional to ensure they have addressed everything that they need to.