The first key duty of an Executor is to establish a full understanding of the deceased's assets and liabilities. This information can be used to complete the appropriate tax return which is submitted to HMRC to determine whether or not there is any Inheritance Tax (IHT) payable.
For most assets, valuations will be clear cut such as the amount of money in a bank account, or the value of a life insurance policy. However other assets such as the value of a property can be more difficult to determine as they are subject to a degree of opinion. Executors should always consider obtaining a professional valuation of any property in the estate as they have a duty to ensure the tax return is as accurate as possible.
It is likely that an Executor will be issued with a Grant of Probate before they receive a response from HMRC as to the agreed IHT liability. Prior to receiving tax clearance from HMRC an Executor is commonly in possession of the deceased's funds, has settled all known debts and may feel they are in a position to distribute the estate to the beneficiaries. However this is where lay Executors are commonly unaware of the personal liability they may face if they do not ensure the following is dealt with first.
After the IHT return is file with HMRC they will begin reviewing the Executors' IHT return and will look closely at any valuations provided. In the case of property, HMRC may ask the Valuation Office Agency (VOA) to consider the valuation provided and request a determination on whether or not the property valuation is accurate. If HMRC disagree with the valuation that the Executor has submitted, the Executor will be required to liaise with the VOA to agree a revised valuation of the property. This may mean the Executor needs to incur more professional fees and may result in more IHT.As an Executor is personally liable to pay any IHT, it is essential that the estate is not distributed too soon and instead funds should be retained until the tax position has been agreed.
In addition to IHT, an executor is also liable to settle all Income Tax and Capital Gains liabilities, both arising during the lifetime of the deceased and after death.
In addition to the Inheritance Tax, the Executor is also responsible for settling the deceased's debts at the date of death, such as loans and credit cards.
However, there may be cases where an Executor does not know about all of the deceased's debts and therefore distributes the estate leaving some of them unpaid. In this case, creditors are entitled to pursue the Executor personally for repayment.
In order to avoid this scenario, the Executor should place advertisements in a local newspaper (to the deceased) and the London Gazette. These advertisements are known as "Trustee Act Notices" and are a common method of notifying any creditors that a debtor (the deceased) has died. Once a period of two months elapses from the date of the advert the Executor is no longer personally liable and can distribute the estate.
All Executors need to be aware of claims being brought against the Estate for reasonable financial provision.
Only certain categories of people can bring claims against an Estate and they are defined in the Inheritance (Provision for Family and Dependants) Act 1975.
Once again, if an Executor has distributed an estate and a successful claim is subsequently brought, he is likely to find himself in a position where he is personally liable to settle the claim.
An Executor is afforded statutory protection from such personal liability if distribution of the estate is deferred for a period of 6 months following the date of the Grant of Probate – in all but exceptional circumstances this is the statutory window of opportunity that a claimant has to bring a claim.
This article seeks to address some of the main and specific pitfalls for executors. It should of course be borne in mind that an executor has an overriding duty to actively progress the administration an estate whilst maximising the eventual amount payable to the estate beneficiaries.
As you can see, the duties and responsibilities on an Executor can be quite onerous and very costly if mistakes are made.
Executors are able to instruct professionals to act on their behalf if they require help in carrying out their duties. Any professional fees can also be paid from the Estate so the Executor is not out of pocket for simply ensuring things are been done properly.
If you would like more advice on the role of an Executor, Pinney Talfourd are here to help.
We have an experienced and dedicated team of specialist solicitors based in our offices across Essex and London. We have evening and weekend appointments available for clients that find it difficult to arrange meetings during working hours.