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Any bereavement is difficult to cope with, and there can be no doubt that an additional cause of distress can be the knowledge that a loved one’s financial affairs need to be dealt with and their estate wound up, before the family can move on with their lives.
The important job of administering an estate falls to the executors appointed by will, or to the closest relatives of the deceased if no will was made, a situation known as an ‘intestacy’. In either case, these ‘Personal Representatives’ (PRs) stand in the shoes of the deceased to deal with the estate and to ensure that the ultimate beneficiaries receive what they are entitled to.
In recent years, there has been a noticeable increase in the number of family PRs who choose to administer estates themselves, without taking any legal advice, in order to avoid the perceived high costs of instructing solicitors. This can amount to something of a false economy, since people often underestimate the amount of work and personal risk involved. In my experience, almost every PR client begins the process believing that the estate they are responsible for is ‘simple’ but this often proves not to be the case.
To begin with, the PRs must fully ascertain the assets of the estate, including details of any relevant lifetime gifts, ensuring that they obtain professional valuations where appropriate. This is of particular importance where an estate is liable to Inheritance Tax (IHT) as HM Revenue & Customs will expect detailed information to be submitted and penalties can be imposed for incorrect returns. In all but the smallest estates, an IHT return will need to be completed as part of the Court application for a Grant of Probate. A proportion of the IHT due must be paid before the Grant of Probate can be issued, and penalties apply to late returns submitted more than twelve months after death. Interest will also be added to any IHT which remains unpaid more than six months after the death. Lay executors often miss these deadlines.
The PRs will also need to ensure that they identify all the creditors of the estate and discharge any outstanding liabilities before making final distributions to the ultimate beneficiaries. A failure to do so could result in the PRs’ personal liability for any unpaid debts.
During the administration process, PRs need to account for any tax due on income received by the estate, as well as capital gains tax on any gains realised when assets are sold. The deceased’s own income tax affairs also need to be finalised, with any tax liability due to the date of death being discharged or any refund claimed. Where the deceased was overpaying or underpaying tax, it may be necessary to revisit the last six years’ income tax returns to finalise matters.
When making distributions to the beneficiaries at the conclusion of the administration, PRs should provide them with a detailed set of accounts showing how the final figures have been calculated, together with statements showing what each beneficiary’s share of the estate income amounts to so that they can include this in their own annual tax returns if required.
At Cleaver Fulton Rankin we have a dedicated private client team with considerable experience in handling estates of various sizes and are well placed to assist PRs with the administration process. We strive to handle this process in a sensitive and efficient way, as well as being clear about the costs from the outset and providing fixed-fee quotations where possible.
This article has been produced for general information purposes and further advice should be sought from a professional advisor. Please contact our Family & Matrimonial Team at Cleaver Fulton Rankin for further advice or information.