Estate accounts should provide an overview of the administration of an estate.
Estate accounts are a summary of the administration of an estate. The main focus is on ‘numbers’. They will typically show all date of death values, payments in and out of the estate, distributions to beneficiaries, but also copies of important documents like the death certificate, the will, and the grant of probate. They should ‘tell a complete story’ of the administration of the estate.
Should Estate Accounts be a certain format?
No. There is no legally prescribed format for estate accounts. And, where solicitors have either been appointed as the executors, or acted on behalf of executors, they will tend to have their own ‘in-house’ account style. The complexity or simplicity of the accounts will depend on things like what assets and liabilities there were, how many beneficiaries there are, the amount of income during the period of administration, and whether Inheritance Tax (IHT) was payable.
What should be included in Estate Accounts?
Depending on the estate in question, you would expect to see some or all of:-
- Narrative – summarising the administration
- Probate Values – a schedule of assets and liabilities at the date of death
- Cash Account – showing all money in and out
- Income Account – if income tax is particularly complicated
- Distribution Account – showing legacies and payments to residuary beneficiaries
- IHT calculations – where applicable
- Documents – eg death certificate; will; probate; HMRC clearance
Who Prepares Estate Accounts?
The executors of an estate should prepare estate accounts (or their legal representatives if they have instructed solicitors to deal with probate on their behalf).
When are Estate Accounts prepared?
Estate accounts are ‘signed off’ at the very end of the administration of an estate (often referred to as ‘probate’). However, the bulk of the probate work is often done some months before the end (during which period lose ends might be tied up – in particular with HMRC). It is good practice therefore to prepare draft estate accounts as soon as the bulk of the administration of the estate is done.
Who needs to approve Estate Accounts?
Residuary beneficiaries would ordinarily sign off the estate accounts. They are the people that loose out of the executors get anything wrong, and so their authority is what is needed for ‘clearance’.
If solicitors are acting on behalf of lay executors, then the solicitors would ordinarily ask both the executors AND the residuary beneficiaries for ‘sign off’.
Do Cash Legatees approve estate accounts?
No. A cash legacy is a fixed legacy (eg £5,000 to JOE BLOGS). You would not expect cash legatees to approve estate accounts – just the main ‘residuary beneficaries’.
The estate accounts should show all money in and out of the estate (amongst other things).
What might the narrative of the estate accounts cover?
This will summarise things like:-
- Place and date of both birth and death
- Date of the will
- Appointed executors
- Date of the grant of probate
- HMRC clearance obtained (eg for income tax and IHT)
As with all parts of estate accounts, there is no legally set protocol around the narrative of the estate accounts.
What will be included in the Probate value schedule?
Gathering probate values (‘date of death’ values) is one of the first main parts of the administration of an estate. This will dictate how the probate application is made, and whether IHT is payable. The schedule will show the gross estate, the total liabilities, and from that – the net estate.
If you would like to know more about valuing assets for probate, read our guide on How do you value assets for probate
What is a Cash Account?
This is simply a schedule of actual money in and out of the estate. For most estates this can be relatively simple. It will simply be closing balances of (eg) bank accounts, share sale proceeds, house sale proceeds, and of course payment of all bills.
Dependent upon the number of assets and also the number of beneficiaries, it may be easier to have a separate ‘income account’, and also a separate ‘distribution account’.
Why have an Income Account in Estate Accounts?
If there are lots of income generating assets in the estate, it is sometimes easier to split out capital from income, allowing things such as the preparation of income tax returns easier. Even if there is not a full income account, you would expect at least a simple schedule detailing income received and and any tax paid (ie showing whether income was paid gross or net). Executors are responsible for ensuring that the deceased’s tax affairs have been concluded to the satisfaction of HMRC. This is done in two stages – (a) apportioned to the date of death in the tax year in which the testator died, and then (b) each tax year thereafter for the ‘period of administration’ (the first one of which will of course itself be apportioned from date of death to the end of that particular tax year).
What goes into the Distribution Account?
A distribution account does what it says on the tin! It will show both fixed cash legacies, as well as distributions made to residuary beneficiaries. Given the nature of the process of probate, it is quite normal to make one or even ‘interim distributions’ to the residuary beneficiaries getting estate money to them as soon after it is received by the executors as possible. The distribution account will details all of these.
Why include an IHT calculation?
Good estate accounts will ‘tell a story’, and hopefully, a complete story. If IHT is payable against an estate then it is important to illustrate how it was calculated. It is also important to include in the accounts evidence that HMRC have formally signed off the IHT with a ‘clearance certificate’ (meaning they can’t come back and ask for more money).
What documents should I expect to see in Estate Accounts?
Again, there is no magic formula, but in providing a full overview of the estate you would probably expect to see:-
- Death certificate
- HMRC formal clearance (IHT/income tax)
Need help preparing Estate Accounts?
If you are the executor of an estate and would like help preparing estate accounts for the residuary beneficiaries – do reach out to our expert probate solicitors. We can help with everything from just obtaining probate, to just preparing estate accounts, right through to dealing with absolutely everything in the administration of the estate from start to finish.