Estate administration (sometimes called ‘probate’) is simple on the face of it – but can be frustrating!
Probate is in fact the name of the legal document that gives the appointed executors the authority to deal with the administration of an estate (the ‘grant of probate’). But the phrase [probate] is often used to describe the process itself.
As a process, probate is on the face of it fairly simple. However, it can be very time consuming, it can drag out over many months (or even years), and sadly can even cause rifts in otherwise happy families.
So here, we push aside those complications, and take a very simple look at the basics of estate administration. That same process exists however complicated the estate might be.
Immediately after passing, the death of the testator needs to be registered. The hospital or funeral directors will help with this. And thereafter, the funeral arrangements can be sorted. Again, the funeral directors will guide you through all of this.
What are the stages of probate?
After the registration of the death, and the funeral plans are put in place, the administration of the estate can begin. In its simplest form, the stages of probate is:
- Establish the Estate
- Apply for Probate
- Cash in assets/pay bills
- Pay the Beneficiaries
- Loose ends (inc estate accounts)
1. How do Executors ‘Establish the Estate’?
So ‘establishing the estate’ is where the executor(s) contact all asset holders and creditors to notify them of the death of the testator. They will be required to send a copy of the death certificate. The main reason for doing so is to ask for the ‘probate value’ of the asset or bill. However, the executor could/should also:
- Mail – ask that all future mail directed to executors
- Income tax – details of apportioned income to date of death
- Closure process – ask what will be needed to close the account when probate granted
This prevents ‘double digging’ and having to make contact with companies multiple times.
Having gathered the value of all assets and liabilities this ‘establishes’ the gross and net value of the estate. This will decide what process is needed to apply for probate (stage 2).
There are particular ways that different assets are valued for probate. You can read more about how to establish the estate check out our article on How do you value assets for Probate?
Establishing the estate is likely to take some weeks as you wait for all of the asset holders and liabilities companies to reply.
# TOP TIP! It is worth running a simple spreadsheet to keep tracks on everything. At the outset, list all possible assets and liabilities, and then fill in the probate values as you receive them. Check out our example schedule of assets and liabilities. It is something we use on our own estate administrations to keep on top of things. It is also worth keeping tracks on income details coming in too – this will save time later down the line. So, it is worth keeping a similar schedule for that info coming in. If it doesn’t arrive when the probate values are sent, it is worth chasing sooner than later so that you have that to hand.
Remember – the executors may need to disclose lifetime gifts as potential ‘assets’ as well as those that are still held in the name of the deceased at the date of death. This generally will only include gifts within the 7 years prior to date of death, and/or those gifts to which the deceased ‘retained a benefit’.
Find out more about lifetime gifts:
2. How do Executors apply for Probate?
So, you’ve established the estate, now what?! Well, it’s apply for probate time. How you do that will depend on a number of things – most notably whether Inheritance Tax (IHT) is payable or not.
If the estate is ‘excepted’ then you will simply apply direct to the Probate Registry for the grant of probate. In short, an excepted estate is one where IHT is not payable, AND it meets certain other criteria. Check out our article Excepted Estates – when it Probate not required?
If the estate is not deemed ‘excepted’, then it will be necessary to submit details of the estate to HMRC before the application can be processed by the Probate Registry. There won’t necessarily be Inheritance Tax (IHT) payable, simply that the estate is deemed to fall outside of the excepted estate provisions. If there is IHT to be paid, then it must be paid before probate is granted (or at least all of it relating to cash assets). This can be a challenge for executors given that all accounts will be frozen until probate is granted! If you would like to know more, read When do you pay Inheritance Tax (IHT)?
Once the probate application is in, you are in the hands of HMRC and the Probate Registry. At the time of writing, the Probate Registry alone have lead times of 4 months to process applications!
#TOP TIP – when you were establishing the estate, you would have done well to ask for confirmation of the process for closing accounts etc. With that info to hand, stay ahead of the game! So, when the Probate Registry is processing your application, finalise the paperwork ready to get everything encashed. That way, the moment you receive the grant of probate, you can send everything straight out. That’s all you can do with probate – and that’s to process those things in your control as quickly as you can. The passage of time (which can cause great frustration for beneficiaries) will often be due to being in the hands of others.
Good estate administration will include the executors always being ‘one step ahead’.
3. How do Executors cash in Assets and pay all bills?
So, probate arrives, and now you can ‘unlock’ the assets, and pay all bills. As above, good practice is to make sure you are ahead of the game and have all closure forms signed and ready to go (ie deal with this whilst the probate application is being processed).
As money is received you can start to pay bills.
#TOP TIP! Use the assets and liabilities schedules to keep a central record of money in, and bills paid.
Something likely to happen around this time is also that the executors may (if they choose to) place Statutory Adverts also known as Trustee Act Notices, or s27 Notices. These provide the executors with protection from unknown creditors coming forward later in the administration making a claim against the estate. Find out more about What are Trustee Act Notices?
There is often two ‘tranches’ of money in the administration of an estate. The first is normally cash assets (banks accounts, investments, and so on). And then secondly will normally be the house sale proceeds. This impacts how and when beneficiaries are paid (see below).
You can read more about this topic at How do Executors realise cash assets and pay bills?
4. How and when do Executors pay the Beneficiaries?
Although the will is a confidential document immediately after death (until probate is granted), it is considered good practice for executors to contact beneficiaries and notify them of the death of the testator and the extent of their entitlement to the estate. This is no ‘reading of the will’ – this is the stuff of movies!
There are potentially two main types of beneficiaries, who receive different types of legacy:
- Cash Legacy
- Residuary Estate
Cash Legacies are fixed sums used to make ‘token gestures’, rather than deal with the bulk of your estate. This article goes into more detail What is a Cash Legacy?
Residuary Estate is the balance of funds ie money in less money out. For various reasons, executors may wish to consider making interim distributions not least that the money often comes in in two stages (cash assets and then house sale). Also, the very final sum (after ‘loose ends’ have been tidied up) is impossible to predict literally until the final payment (often this will be income tax paid to HMRC) has been made.
Payment of legacies, residuary legacies, and all money in and out generally should be detailed in estate accounts.
What are estate accounts?
The best estate accounts are often the simplest. Even where there are lots of assets and or beneficiaries, the key is that the residuary beneficiaries understand the accounts and so can ‘sign them off’.
Typically, estate accounts will include:
- Probate valuations – showing gross and net estate
- Cash account – showing all money in and out
- Distribution account – showing legacies and residuary distributions
- Copies of important documents like the will, death certificate, and probate
It is the executors responsibility to produce the estate accounts, and they should have the residuary beneficiaries approve them. If you are an executor dealing with the administration of an estate personally, but would like help preparing the estate accounts, this is an ‘ad hoc’ service that QLAW can provide.
Read more about – What are Estate Accounts?
5. What loose ends will there be for Executors?
The bulk of the administration of most estates can happen within 12 months of the date of death. And, as cash assets are received, and bills paid, the executors should look to make interim distributions to the residuary beneficiaries as soon as they can, and with as much of the residuary estate as is safe to do (ie they must of course hold back enough to cover all final bills).
There are however ‘loose ends’ that will need to be tied up before the estate can be formally concluded. There are two main candidates – HMRC for IHT, and HMRC for income tax!
In short, executors should obtain formal clearance from HMRC on both fronts (if applicable). And, until they have that formal clearance, HMRC can demand more (eg if there is an error in their earlier calculations).
This can be a very frustrating period for all concerned as HMRC will often take months or even more than a year to close things off. And during that time, there is no process to help executors expedite the particular estate in question.
Need help with Probate?
If you are an executor already dealing with the administration of an estate, or one just about to embark on the probate process, we hope you find this and our many other guides helpful. Do remember that they are intended as generic guides, NOT legal advice specific to you. If you would like legal advice/help with the administration of an estate, we’d love you to choose QLAW! So do reach out with a comment below, a call, or an email.