What does an Executor of a Will need to know?
If you’ve been named as an Executor in someone’s Will, you might wonder what your duties include. It is the Executor’s responsibility to administer the estate of a deceased person. If the deceased did not make a Will or they made a Will but their choice of Executor is unwilling or unable to act, an ‘administrator’ will be appointed instead. The roles of Executor and Administrator are very similar – and both are collectively referred to as ‘Personal Representatives’ (PRs) of the deceased.
Broadly speaking, PRs identify all of the assets and liabilities of the deceased’s estate. They will need to ensure they have identified all persons that the deceased owed money too – and to ensure they are not personally liable later down the line, this will include placing advertisements in appropriate publications.
PRs collect together the assets, and pay the liabilities, before distributing what’s left. The balance will either go to the beneficiaries identified in the Will or to the persons who are entitled according to the rules of intestacy, where there is no Will.
Obtaining a Grant of Probate or Letters of Administration
Before the PRs can collect or distribute assets, they will have to obtain a necessary legal document. If there was a valid Will, the correct legal document will be a ‘Grant of Probate’. Without a valid Will or where the Will has no suitable Executor, the required documentation is known as ‘Letters of Administration’. Both types of grant show banks, building societies and authorities that the PRs have the right to deal with the deceased person’s assets.
Some assets can be distributed without the need for a grant – these include chattels (personal property), physical cash and small amounts of money held in the National Savings Bank and Trustee Savings Bank (but not in other bank accounts), National Savings Certificates and Premium Bonds; or money in building societies and friendly societies. However, such payments are at the discretion of the financial institution and when the overall estate value is large, requests are likely to be refused.
Dealing with tax liability
PRs must prepare an income tax and capital gains tax return for the deceased, covering the period that starts on 6 April before the death, and ending with the date of death.
In addition, to obtain the necessary legal paperwork, PRs first have to value the deceased’s assets and liabilities, and (provided the estate is not an ‘excepted estate’) file form IHT400 with HMRC. This is an inventory of all the assets that the deceased was beneficially entitled to at his death, together with the deceased’s liabilities. The form is also used to claim any reliefs or exemptions that apply to the estate, and to perform an initial calculation of the Inheritance Tax payable (a final corrective account will be delivered later).
Typically the Executors will file the IHT400 document within 6 months, although the time limit is 12 months from the end of the month in which the death occurred. Where Inheritance tax is due on the estate, the PRs will need to apply for a reference number before submitting the form.
Not all estates need form IHT400 – Executors can instead file a shorter form if the estate is ‘excepted’. Excepted estates are those classed as ‘small’, ‘exempt’ or ‘non-domiciled’.
Inheritance tax will be due on all property that the deceased was beneficially entitled to immediately before their death, whether or not that property vests in the deceased’s PRs. Most assets are valued at the price which the property might reasonably be expected to fetch if sold in the open market immediately before the death occurred. There are a few exceptions: for example, if the deceased co-owned land with someone other than their spouse or civil partner.
There are a few types of asset that will not be relevant for inheritance tax purposes, such as life insurance policies written into trust for others, and death in service benefits under a pension scheme which are typically payable to a beneficiary chosen at the discretion of the pension fund trustees. Some property will also qualify for tax relief, including certain business or agricultural property.
It will also be necessary to look carefully at any gifts the deceased has made during the years before their death. These may be subject to inheritance tax. Once the inheritance tax liability has been assessed, HMRC may require some of the liability to be paid before a Grant of Probate or Letters of Administration will be issued. Banks will usually release funds for the purpose of paying inheritance tax.
Swearing the oath
Once the initial inheritance tax formalities have been dealt with, the PRs have to swear an oath to support their application, which is sent to the Probate Registry. If the deceased made a Will, the original is also sent, together with a receipt from HMRC confirming the initial tax calculation has been dealt with. The Oath gives both the gross value of property passing under the grant, and the net value once debts have been deducted. It only includes property that the PRs will handle – any property that passes outside of the estate (such as property written in trust) will not be included.
Collecting and distributing assets
Once the necessary legal documentation has been obtained, the PRs can begin collecting the assets. However, to avoid personal liability, they will often not distribute assets for at least six months from the Grant of Probate. This is because certain people are entitled to claim against the estate under the Inheritance Act (Provision for Families and Dependents Act) 1975 – and the time limit for such claims is six months.
Sometimes it takes much longer to administer an estate, particularly where the estate is complex or there are businesses involved. It can take years to fully complete the administration and each year, the PRs must deliver a return to HMRC setting out the income received from the deceased’s assets, together with any gains on disposals.
The above is meant as a very brief overview of the steps involved in administering an estate. Clearly administering even a fairly straightforward estate is not a simple task, and legal help should be sought early on. PRs can be personally liable where, for example, they fail to protect the value of assets or fail to pay people assets that they were entitled to. The Court has discretion to relieve a PR from liability for breach of duty where the PR has acted honestly and reasonably, but no PR wants to find themselves on the end of stressful, time consuming and potentially expensive court action.
We would always advise that you use a solicitor for some or all aspects of administering estates – whether it is obtaining the Grant, checking accounts or full administration. Speak to us about our range of probate services – call Debbie on . . .
Liverpool 0151 928 6544
Southport 01704 532 890