When somebody dies, there are many complex legal, practical and emotional issues to consider. If the deceased was wealthy, internationally mobile or owned property in other countries then matters can become especially complicated. At Mishcon de Reya we offer support and guidance after bereavement. We have expertise in dealing with the most complex and difficult probate issues sensitively, quickly and efficiently.
This guide is to help you understand the probate process and to give you a simplified introduction to the main issues you will need to consider. It assumes that the deceased left a Will and appointed executors.
The role of executor
If you have been appointed executor in the deceased’s Will and you do not wish to accept this role then you must speak to us as soon as possible. Once you have started dealing with matters relating to the deceased’s estate, then it will usually be too late for you to stand down. Being executor is a role for life and can bring with it potentially significant personal financial liability.
If this is a concern, we can help you arrange executors insurance.
Registration of the death and arranging the funeral
The executors may need to register the death and arrange the funeral if there are no family members able or willing to do this.
The death should be notified to the family doctor and registered within the first five days. Funeral expenses will need to be recorded carefully.
Original Will, Powers of Attorney and other documents
The deceased’s original Will must be located as soon as possible after the death. If the deceased had a Lasting Power of Attorney and/or Enduring Power of Attorney then the originals must also be found. Other original documents such as the deceased’s passport and driving licence also need to be dealt with carefully.
Safeguarding the deceased’s home and other assets
The value of everything the deceased owned must be preserved by the executors.
If the deceased’s home is standing empty we can advise on the essential steps to be taken. Otherwise the insurance on the property and its contents may no longer be valid and the executors could be fully liable for any damage or loss.
All valuable items should be removed from the property to safe custody and a list must be made of any items removed. Deliveries to the property must be cancelled and meter readings taken. It may be sensible to organise redirection of mail.
Calculating the deceased’s assets and debts
Executors are under a duty to report to HM Revenue & Customs the full and accurate value of everything the deceased owned. The reporting requirements are onerous and must be taken very seriously.
The executors will need to establish full details of all of the deceased’s assets such as bank accounts, pension arrangements, tax affairs, shareholdings, valuable personal items and details of any debts owed to the deceased. If the deceased benefited from any trusts these details must also be established.
A thorough search needs to be undertaken and all banks and other companies holding the deceased’s assets will need to be contacted.
Accurate, professional valuations must be arranged in almost every case. We can recommend valuers if necessary.
The deceased’s accountants, stockbrokers, insurance brokers, tax inspector and financial adviser will all need to be contacted.
Steps must be taken to establish any debts owed by the deceased including unpaid bills and to contact these creditors. It may also be appropriate for an advertisement for unknown creditors or heirs to be placed. Direct debits and standing orders must be cancelled.
If the deceased made any gifts in the seven years before death, it is likely that details of such gifts will need to be included in the Inheritance Tax Account.
Dealing with taxes
Inheritance Tax
Broadly, executors are liable to pay the Inheritance Tax due on the deceased’s estate within 6 months following the death. We may be able to arrange for an early release of funds from the deceased’s bank or building society accounts to pay the tax. Alternatively, a loan to cover the tax can often be arranged. It may be possible to pay the Inheritance Tax relating to some of the deceased’s assets by instalments over 10 years rather than all at once.
The amount of Inheritance Tax to be paid is determined by completing a lengthy Inheritance Tax Account covering all assets and liabilities of the deceased. The Inheritance Tax Account must be sent to HM Revenue & Customs within 12 months of the death.
If the executors incorrectly value assets and debts or fail to mention any of these, this may result in an expensive tax penalty and interest on tax underpaid for which the executors would be personally liable.
Where the deceased was a widow(er), they may have a double Inheritance Tax allowance available to them. In this case, papers in relation to the deceased’s spouse’s probate and estate must be located in order to calculate the Inheritance Tax correctly.
Sometimes these papers could be many years old.
It can take many months for HM Revenue & Customs to review the Inheritance Tax forms and confirm the amount of tax that is payable.
Other taxes
The executors must ensure that the Capital Gains Tax and Income Tax affairs of the deceased and of the estate are finalised. Tax returns must be prepared for the periods before and after death. The executors must deal with HM Revenue & Customs and arrange for any outstanding tax to be paid.
Obtaining probate
The executors will generally need a Grant of Probate to enable them to collect in assets or transfer them to beneficiaries. The application for the Grant of Probate must be carefully drafted and signed by the executors.
The signed statement of truth and original Will must then be sent to the Probate Registry together with a Court fee and proof that the Inheritance Tax has been paid. The Grant of Probate will then normally be issued within a few weeks.
Gathering in the deceased’s assets
Once the Grant of Probate has been issued, the executors are confirmed as the legal owners of the deceased’s assets for the purpose of giving effect to the deceased’s Will. In order for the executors to collect in the assets, forms will need to be completed and signed by the executors for each bank and other asset holder. These will need to be sent with an official copy of the Grant of Probate before the funds or other assets will be released.
Distributing the deceased’s estate
The executors have a duty to pay any debts owed by the deceased and any estate expenses in the correct order.
They must then distribute the deceased’s estate according to the terms of the deceased’s Will.
If a gift of a specific item or cash sum in the Will remains unpaid 12 months after death then interest is payable to the person who should have received it.
It may be sensible to carry out bankruptcy checks against the beneficiaries before making any payment to them to protect the executors from any possible future claims against the estate.
Estate accounts
The executors must keep full and accurate records of all financial information and estate transactions and arrange for Estate Accounts to be prepared.
Final stage: winding up the estate and dealing with HM Revenue & Customs
An Inheritance Tax clearance certificate must be obtained from HM Revenue & Customs.
If HM Revenue & Customs have raised any queries or challenged any valuations submitted by the executors, a corrective IHT account may need to be prepared and additional Inheritance Tax may need to be paid before the tax clearance certificate is issued.
Once all of the deceased’s liabilities, taxes and estate expenses have been paid and the assets distributed according to the Will, the estate can be wound up.
To wind up the estate, final Estate Accounts must be prepared and then approved by the executors and the main beneficiaries.
This is a very basic summary of a complex area of law and taxation. It is not to be taken as legal advice. Before acting or omitting to act in relation to your UK tax position, you should always take specialist tax advice.