The perils of probate

In recent years banks have increased the amounts of cash that they are prepared to release to the  executors of an estate without having seen a grant of probate or letters of administration. This is welcome for small, simple estates, but it is possible that this trend could lead to more executors attempting to administer estates without professional help.

The amateur executor can encounter many problems and your clients need to be aware of the following pitfalls:

Identification of beneficiaries

This is a crucial task for any executor and may not always be  straightforward. Named beneficiaries in the Will may have died before the testator and the Will might state that their children should receive their deceased parent’s share of the estate. In those cases the children have to be traced and it has to be established that they are who they say they are. Sometimes legacies are left to charities that are no longer in existence and it can be difficult assessing which organisation receives the legacy instead. If there is no Will then an accurate family tree has to be prepared and beneficiaries correctly identified.

Once a beneficiary has been found and identified their bankruptcy status needs to be checked before any legacy is paid to them. If a beneficiary is an undischarged bankrupt the legacy will be due to their trustee in bankruptcy and not to them .

Failure to take into account potential claims

It is not only beneficiaries named in the Will who must be identified. In some cases there may be individuals who are not beneficiaries of the Will but, because of their relationship to the deceased or their financial dependence on them, they may have a potential claim against the estate. This could include an adult child or someone who the deceased was financially maintaining at the time of their death. Such an individual has six months from the date a grant of probate is obtained to begin a claim against the estate in the courts. Once the claim is issued they have a further four months in which to serve it on the executors. It can therefore be easily over a year from the death before an estate can be safely distributed.

Failure to identify creditors

There may be some obvious creditors of the estate, for example, house bills or unpaid care home fees. However, there may also be creditors who are not obvious, and if they are not paid the executors could find themselves personally liable for the debts. Executors might not be aware, for example, that the deceased had a large income tax liability that has not been paid, or that the deceased was receiving benefits when in fact he was not entitled to do so. There is also the possibility that if the estate has large debts it may be insolvent, which means that the debts must be paid in a particular order set out in legislation.

It is possible for the executors to protect themselves against liability arising from unpaid creditors if advertisements are placed in line with a statutory procedure.

Failure to account properly for inheritance tax (IHT)

If an estate is liable to pay IHT a return has to be made to HMRC. Interest will begin running on the tax due at the end of the month falling six months after the deceased’s death. If the estate’s assets are not declared correctly, or valuations are not made in the proper way, then HMRC can impose penalties which can amount to up to 100% of the tax due. Penalties can also be imposed for claiming a relief which is not in fact due. It is not just the assets owned at the date of death that affect the amount of tax due and it is possible that amateur executors will overlook the importance of disclosing details of lifetime gifts to HMRC.

Conversely, as IHT is  a complicated tax, it can be easy not to claim what is due to the estate (perhaps, for example, the  residence nil rate band) which can lead to too much tax being paid and the beneficiaries losing out.

Failure to implement the Will’s provisions

Finally it should be remembered that not all Wills are straightforward. In particular many Wills drafted before 2007 contain nil rate band discretionary trusts on the first death of a couple. These trusts cannot be ignored; they either need to be implemented or action taken to bring them to an end and any action should be evidenced by a deed. Similarly other will trusts such as life interests for the surviving spouse have to be set up or formally terminated.

If an executor decides to administer an estate themselves then they should consider all the above pitfalls: being an executor can be an onerous task and they should be aware of the liabilities that may arise.

Contact us

For more information, please call us on 0800 915 7732.