Probate
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General Probate FAQs
What is Probate?
The word probate is commonly used to describe the process of administering a person’s will after they have died. In fact, the phrase comes from the court order which provides the executors of a will with the authority to deal with the deceased estate. That court order is called a Grant of Probate – hence the phrase ‘probate’.
What are Letters of Administration?
Letters of Administration is simply a type of ‘Grant of Probate’ where the deceased died without having made a will. Like a Grant of Probate it provides executors with the authority to deal with the administration of the estate. In this case, the executors are actually called ‘administrators’ (not executors)!
What is intestacy?
This is where someone dies without a valid will in place. In this situation, the law sets out the rules dictating who gets what.
Here is a link to the Government’s website which will take you through who would inherit under the rules of intestacy:-
https://www.gov.uk/inherits-someone-dies-without-will
Is Probate difficult?
There is no legal requirement to have a solicitor act in probate. If you have the time, inclination, and skills to deal with it yourself, then you can.
However, and for various reasons, you may want someone else to do the work for you. If you do want help, we can relieve of that burden and deal with everything on your behalf.
How difficult it is depends on the individual circumstances of the estate as they are all different. If there are shares, a trust, no will, property or inheritance tax payable there is more involved and as executor/ administrator you want to ensure that everything has been completed properly.
What is Inheritance Tax (IHT)?
IHT is a tax on the estate (property, money and personal items) of someone who has died.
Here is a link to the Government’s website for information on inheritance tax:-
https://www.gov.uk/inheritance-tax
Can you help me with Probate?
Yes! And, we can do as much or as little as you’d like.
We can look after everything for you from start to finish. This will include notifying banks and other organisations of the death, gathering the date of death (‘probate’) valuations, applying for the grant of probate, collecting in/selling the assets, assessing and reporting on income tax, capital gains tax and dealing with inheritance tax.
If you just need our help in obtaining the grant of probate we can do this too.
How long does Probate take?
This depends on the individual estate. With our help, here is a broad overview of the timeframes you might typically expect:-
- Gathering probate values – 3 -5 weeks
- Probate application prepared – 1 week
- IHT return submitted to HMRC and receipted – 2 – 4 weeks (if applicable)
- Probate Registry process the application – 7 – 9 weeks
- Close/ transfer assets – 2 -4 weeks
- Settle income tax – 4 – 6 weeks
Where there is a property to be sold or inheritance payable the administration of an estate will take longer.
If you would like our help with just the probate application, you would expect everything to be completed in 8 – 11 weeks where there is no inheritance tax payable or 10 – 14 weeks where there is.
Whilst we will progress things as quickly as possible for you there are times where we are waiting for other people to complete their role eg HMRC, the Probate Registry. In these situations, their timescales may change. We will always update you of this.
How much does Probate cost?
It is important to differentiate between legal fees, and those costs that an estate will incur in any event.
Legal Fees
We offer a free initial meeting which is always the best place to start. We’ll take you through everything that is involved. We’ll also be able to find out more details on your particular estate to give a costs estimate which is specific to you.
If you would like our help with just the probate application where there is no inheritance tax payable, our fee is fixed at £750 + VAT (£900 inc VAT). If there is no inheritance tax payable, but unused residential nil rate bands available either on the estate or to be transferred over from a spouse’s estate, our fee is £850 + VAT (it’s also a fixed fee) (£1,020 inc VAT).
Where you would like us to complete the probate application and there is inheritance tax payable, a full return is needed or you are applying for the grant of probate on someone else’s behalf (eg as an attorney) we charge on an hourly basis. Roughly speaking our fees are generally £1,500 – £2,500 + VAT (£1,800 – £3,000 inc VAT) depending on what exactly is involved for your application.
Our hourly rates vary depending on the qualification and experience of the person looking after you. Our current hourly rates are:-
£135 + VAT – paralegal
£155 + VAT – trainee solicitor
£275 + VAT – solicitor
£295 + VAT – solicitor, director & head of department
£350 + VAT – solicitor, director, CEO/MD
If you would like our help with everything from start to finish we can do this. Our fees will depend how many assets there are, how many beneficiaries, the size of the estate, whether there is inheritance tax payable along with if there are any other complicating factors (eg an invalid will, a claim against the estate).
There are two ways we charge. If the estate is straight forward (for example, but not limiting to, a will, no inheritance tax payable) we charge on an hourly basis. It is very hard to estimate how long an estate would take as some estates may have 1 bank account and others 20 different share holdings. Some estates may have 1 beneficiary and others 15. For an estate where there is a couple of assets (bank accounts or shares), a property, no inheritance tax payable and one or two beneficiaries our fees could be £4,000 – £5,000 + VAT (£4,800 – £6,000 inc VAT). If there are many beneficiaries and assets then this will take longer and could be £5,000 – £8,500 + VAT (£6,000 – £10,200 inc VAT).
Where the estate is large or complex, we might charge on a ‘time plus value’ basis. This is where we charge for the work we do (the ‘time’ element) plus a percentage of the estate (‘value’). The percentage will not exceed the guidance from our regulator of 1.5%.
As with any aspect of legal advice we provide a specific tailored costs estimate for you from the outset. If you have any questions as to what our fees could be for your estate please do contact us on 03300 020 863 or pcd@Qlaw.co.uk.
Are there any other costs involved?
The court fee for the application is currently £155. If you require further copies of the grant of probate to send people they will be £1.50 each. There is no VAT on court fees.
Occasionally accountants will become involved for complex tax affairs where it is more cost effective to use an accountant. We will obtain a quote first before they go ahead. If you have an accountant we can of course use them.
There may also be some companies who pay for valuations eg estate agents or auctioneers. Always asked for a quote before they complete the work.
What are the stages of Probate?
In broad terms, the stages of Probate are: value assets; pay IHT (if due); apply for Probate; gather in assets; pay all liabilities; pay cash legacies; settle income tax; provide the residuary beneficiaries with estate accounts; pay the balance to the residuary beneficiaries.
What happens if an estate is Insolvent?
If an estate has less money than bills, then creditors will generally agree to accept an amount proportional to their debt (versus money available and other creditors). If all bills can be paid, then the remainder is the residuary estate and is paid to the residuary beneficiaries. One anomaly arises and that is where there are fixed cash legacies due. If there are, they take priority over gifts of residue. This is why fixed cash legacies should only ever be token gestures, and not seek to deal with the bulk of your estate (ie they should be a small proportion of the likely value of your estate).
Are Executors liable to pay estate bills if there is no money left?
No, executors have no personal liability to make up a shortfall in an estate between assets and liabilities.
Executors FAQs
What is an Executor?
An executor is someone that you appoint in your will to look after the administration of your estate when you pass away.
How many Executors should I appoint?
You can appoint up to four executors, though most people will limit this to no more than two.
Who can not act as an Executor?
Any adult of sound mind can act as your executor. More importantly, you should ask yourself if they have the necessary skills set to deal with it. It is a big job acting as an executor, and unless the person you have in mind does not work, they likely have a busy life already!
Does an Executor have to act?
No. Just because you are appointed as an executor in a will does not mean that you have to act as an executor when the person dies. You can refuse or ‘renounce’ the appointment. If an executor ‘intermeddles’ in the estate before the grant of probate has been issued, then they must take the grant of probate and can not then ‘renounce’.
Will appointed executors always act?
Executors – what is power reserved?
Power reserved means you have not fully renounced the appointment, but instead you will be left off the grant of probate for now. If you are then needed at a later stage you can be added.
What is intermeddling?
This is where an executor (prior to a grant of probate being issued) has taken actions in administering the estate. Dependant upon what those actions are (ie are they significant), if they are deemed to have ‘intermeddled’ then they MUST take the grant of probate.
What if an Executor dies before I do?
If the executor appointed in the will dies before the testator, the appointment simply falls away. Those people who do take the grant of probate will, as part of the probate application process, confirm that the deceased executor has passed away.
What if an Executor dies after I do but before the Grant of Probate is issued?
If an executor dies after you but before the grant of probate is issued, then those ‘proving executors’ (ie the executors that take the grant of probate) will, as part of the probate application, confirm that the executor in question has passed away and can not therefore take the grant of probate.
What if an Executor dies after the Grant of Probate has been issued?
If an executor dies after the grant of probate but before the administration of the estate is complete, it should be OK as long as there is another named executor, or one to whom power is reserved. Executors can act jointly and severally (meaning together or independently) and so most institutions will take the instructions of one executor. They may ask for proof of the death of the other (eg by way of a death certificate). As regards the sale of a house or other property, technically executors can not act jointly and severally.
Can an Executor retire?
No, generally not once probate has been granted. The Probate Registry does have the power to remove an executor with the consent of all, but this is rarely done. There are also processes in place to allow court applications to have executors removed. This is an expensive process, and tends to be in circumstances where there is some sort of issue around the executor’s dealings with the estate.
What if an Executor is not dealing with things properly?
If an executor is not dealing with an estate properly, the residuary beneficiaries should first raise their concerns with them. If things don’t improve, there are grounds upon which a court application can have executor(s) removed.
This is one significant benefit of having a solicitor act as your executor. By appointing a solicitor you should in the first instance maximise the likelihood of things happening as quickly and efficiently as possible. But critically, your residuary beneficiaries will also have the considerable comfort of the regulatory body for solicitors (the SRA), and they can also look to the Legal Ombudsman to adjudicate if it is felt that service levels are not acceptable. No such protection exists when you appoint a lay executor.
Can Executors be removed?
Yes, if executor(s) fail to exercise their duties correctly they can be removed. This requires a court application and is time consuming and expensive. Perhaps the key is to choose your executors wisely.
Do Executors have to act jointly?
No. Other than the sale of land, executors can act ‘jointly or severally’ ie together or independently.
Who can act instead of an appointed Executor?
If your lay executors decide they don’t want the time and trouble of dealing with your probate, they can appoint a solicitor to do the work on their behalf. Although technically speaking they are still executor, all of the day to day work is carried out by the solicitors. And, both your executors and th residuary beneficiaries then have the protection of the SRA and Legal Ombudsman if they are unhappy about the standard of service provided by the solicitor.
Do the Executors sign or witness the will?
Absolutely not. The only person who signs the will is the testator, and two independent witnesses.
Are Executors liable if things go wrong?
Yes. Executors are personally responsible for the administration of the estate. Lay executors are often appointed by family or friends having never dealt with probate before. It is a huge ask of anyone and not one to take lightly!
What is the difference between an Executor and a Trustee?
An executor deals with the administration of the estate. Once all money is in, and bills paid, they pay the balance to the residuary beneficiaries and that’s that.
Sometimes, trusts may arise in the will. This could be anything from simply holding money for minor children until they reach the age of entitlement, through to holding a house on a lifetime trust for a surviving spouse. These are just two examples of ‘trusts’ – in simple terms gifts which have ongoing conditions and are not therefore outright or absolute gifts. The persons that look after those assets are known as Trustees. In the context of a will, they will invariably be the same named people as the executors – it’s just two separate jobs.
What is the difference between an Executor & Trustee?
Can an Executor also be a Trustee?
Yes, an executor can, and invariably is also a trustee (if there a trusts in the will).
Can an Executor also be a beneficiary?
Yes, an executor can and often is a beneficiary. A good example of this is perhaps a married couple with children. What would be very normal in this example is for the parent’s mirror wills to say something like ‘everything to each failing which the children in equal shares’. And as regards the executor appointment, the same sort of thing – ‘I appoint my spouse of failing her/him my two children’.
Can my spouse be my Executor?
Yes, a spouse can and invariably will be the first executor.
Can my children be my Executors?
Yes, children are very often executors. One point of caution is to consider whether they have a strong relationship. Sadly, many families find themselves in dispute over the administration of an estate. And so, if you are concerned that there is any chance of your children disagreeing, you should be very wary of appointing them as executors.
Who can act as an Executor?
Anyone that is an adult and of sound mind can act as your executor. The real question for you when making your will is – are they right person for the job, and do they want to do it?!
Does an Executor have to a solicitor?
No. And invariably testators will appoint family members or friends as executors.
Can an Executor also be a Guardian?
Technically yes, an executor can also be a guardian. However, it creates a very considerable conflict of interest that you should think carefully about. Ideally, you would have different people acting as executor vs acting as guardian.
Trustees FAQs
What is a Trust?
A trust is a gift with conditions. The assets are held on those conditions by the nominated trustees. Trusts often arise in wills – for example if gifts are made to children but they can not inherit until 18 or older. Trusts are not exclusive to wills. We can ‘settle’ assets on trusts during our lifetime – known as ‘inter vivos’ trusts.
What is a Trustee?
A trustee is a person nominated to take responsibility for trust assets, and to hold those assets on the terms of the trust in question.
What does a Trustee of a will do?
The trustees of a will may have to (eg) hold money for minor beneficiaries until they reach 18 (or such other age specified in the will. A will may also create more complex trusts – eg holding a property on a ‘lifetime trust’ for a named beneficiary.
What sort of Will Trusts are there?
The main types of will trusts are: contingent or bare trust (eg for minor beneficiaries before they reach 18); interest in possession trusts (also know as life interest trusts); and discretionary trusts.
Is a Trustee different from an Executor?
It is a different job, but it is often the same person(s) doing the two different jobs. An executor administers the estate, pays the residuary beneficiaries and that’s that. A Trustee is responsible for holding assets on any trusts that follow on from the administration of the estate.
Can a Trustee retire?
Yes. Unlike an executor (who is tied in once the grant of probate is issued), trustees can retire. It is a straightforward process requiring a deed of retirement and appointment to be executed which removes the trustee, and appoints a replacement.
Does a Trustee sign or witness the will?
No, trustees do NOT sign the will. The only persons to sign a will are the testator and the two witnesses. Those two witnesses must be independent of the will and an appointed executor or trustee can NOT act as witness.
Can a Trustee also be an Executor?
Yes, a trustee can also be an executor (and often will be).
Can a Trustee also be a beneficiary?
Technically, there are circumstances in which a trustee can also be a beneficiary, but the starting point is invariably that it should be someone independent. And, there are circumstances in which a beneficiary can not be a trustee come what may. For example, a gift in a will to a minor beneficiary could not include the beneficiary as trustee as a trustee must be of majority (over 18).
Can a Trustee also be a Guardian?
Technically yes, but it creates a very undesirable conflict of interests/moral dilemma. It is considered much more appropriate to have different people act in the two roles. In simple terms, the reason is that a trustee’s role is to look after the money that the minor beneficiary will in time inherit. However, alongside that they must also make money available to the Guardian to raise the child. Those two responsibilities conflict – one is to grow the pot, the other is to deplete it. It is not difficult to see how a guardian (who is also a trustee) may feel guilty paying money to themselves (with their guardian hat on) and may therefore resist doing so when it would have been totally proper to have done so. Worse still, they may end up dipping into their money to overcome that dilemma!
Guardians FAQs
What do Guardians do?
Probate isn’t just about the money side of things. Far more important than that is perhaps the ongoing care and upbringing of any minor children. For this, our wills can (and should) appoint ‘guardians’. Guardians take on the legal parental responsibility that we are automatically given as parents. Remember, this is the ‘care’ side of things – putting a roof over their head, holidays, decisions over education, and so on. The money side of things is looked after by the trustees.
Does a Guardian appointment start if there is a surviving parent?
No. A guardian appointment will only apply when both legal parents have passed.
When does the role of Guardian stop?
Technically, the role of guardian (as with ‘parent’) stops when the child(ren) reach majority – ie 18 years old. The practical reality is of course (one would hope) that the relationship would be ongoing even though the legal responsibility falls away.
Why do I need Guardians?
If your will did not appoint a guardian, and there is no surviving parent, then it would be for someone to apply to the courts. The simple inclusion of a guardian appointment in your will overcomes that considerable inconvenience.
Who can be a Guardian?
Any adult of sound mind can be a guardian. Think about who you think might be right for your children, and of course check with the potential guardians that they were willing to take the appointment should the unlikely happen and you die before the children reach 18.
When does a Guardian appointment apply?
A guardian appointment will only apply where both parents have died (and or there is a survivor who for some reason is unable to parent).
Can my Executors also be Guardians?
Technically yes, but it creates a considerable conflict of interest and moral dilemma if you appoint the same people to both roles. Ideally you should choose different people.
Can Trustees also be Guardians?
The job of a Trustee is in the first instance to protect the pot of money they are holding for minor beneficiaries ready for when they inherit (18 or some other age specified by the will. However, they must also meantime make money available to the guardians for the cost of bringing the children up. Those two roles are totally at odds with each other, and can leave the guardian (albeit the same person!) reluctant to pay themselves totally legitimate financial contribution from the children’s inheritance.
Can Guardians be given money to raise my children?
Guardians should not be left out of pocket for bringing the children up. The children’s inheritance can be used to pay money to the guardians ahead of them (the children) inheriting. This is why it is generally considered sensible to have different people acting as trustees v guardians. Otherwise you leave the one person wearing both hats facing an impossible moral dilemma when it comes to them paying money to themselves so that they are not out of pocket.
How is money paid to Guardians?
Why should I have different people acting as Trustees and Guardians?
The role of a guardian is the day to day care and upbringing of the children: put a roof over their head; make decisions about education; take holidays etc etc. They should NOT be left out of pocket in doing so. And so, the trustees will pay money to the guardians for legitimate costs arising out of the upbringing of the children.
The roles of the trustees is to achieve the balance with two conflicting responsibilities – firstly to protect the pot of money so that it is maximised by the time the children reach the age of entitlement, but secondly (and in conflict with that) to pay money meantime to the guardians to cover the cost of their upbringing. Put all of those responsibilities on the same person(s) and you create a horrible dilemma! It is invariably thought therefore that it is wise to have different people wearing the two hats (of guardian v trustee) to remove that dilemma.
FAQs – Valuing the Estate
Who values an estate?
The executors of an estate are the person(s) responsible for obtaining values of all assets and liabilities that comprise the estate.
Why do you value an estate?
An estate needs to be valued to apply for probate. It will establish the gross and net estate (which appear on the grant of probate), and will also establish if Inheritance Tax is payable. If tax is payable then a more complicated probate application will be required including a full return of all assets and liabilities being sent to HMRC.
When do you value an estate?
The executors are free to get on and gather valuations as soon as they wish post death. You do generally need to exhibit a copy of the death certificate with the various banks and so on and so you would not have this until the death is registered.
If the Coroners Office is involved for any reason, this will delay the final death certificate being issued, and may therefore delay the ability to gather probate values. The Coroners Office will issue what is known as an ‘interim death certificate’. It looks very different to the final death certificate, and some financial institutions are reluctant to release details until they have seen the final death certificate.
How do you value an estate?
In short, an estate is valued as being all assets less all liabilities at close of business on the date of death. This will include all capital assets, plus any uncredited income apportioned to that point (eg unpaid pension, or uncredited bank interest.
Some assets require a subjective view on their value – eg houses. With property you should get 3 valuations, and take the average. If IHT is payable, HMRC well raise routine queries around property to satisfy themselves there has not been a low valuation placed to try to minimise IHT.
> How do you value estate assets?
How do you value personal items for probate?
For many of us, personal items will have very much more sentimental value than they will commercial ‘sale’ value. Personal items should be valued at the reasonable price that would be achieved if sold on the open market. An auction house or house clearance company should be able to help with this.
Personal items of particular value should be valued by suitably qualified professional with expertise in the area concerned – eg antiques, watches, and so on.
How do you value a house for probate?
Contrary to popular belief, a probate valuation for a house should NOT be deliberately low! Indeed, it can be deemed tax evasion! It should be valued as being the realistic sale price likely to be achieved at the date of death. One would expect executors to get up to 3 valuations and take the average figure.
If there is Inheritance Tax (IHT) payable, HMRC may well raise routine enquiries around the value of the property.
Does a house valuation impact Capital Gains Tax?
The probate value for the house will become the base cost for Capital Gains Tax purposes. So, whilst IHT may be saved, a CGT bill may kick in for the executors instead. The critical thing is that valuations must be transparent and provided in good faith – the tax consequences that follow are what they are. Looking to manipulate that with bogus figures is a serious matter of tax evasion!
How do you value a bank account for probate?
Executors obtain bank valuations by sending a copy of the death certificate to the bank(s) in question and asking for the capital balance at the close of business on the date of death; PLUS any uncredited accrued interest.
How do you value shares for probate?
There is a particular calculation for this known as ‘quarter up’. The executors should first contact the share registrars in question and ask them to confirm the exact/total holding(s). Once the executors have that information, they can then instruct a suitable company to provide the quarter up valuations. This can now be done quickly and cost effectively on line with companies such as Estatesearch >
How do you value a business for probate?
As with houses, this tends to be rather more complicated as it will require an amount of subjective assessment around things like assets owned, income, profitability, and so on. The natural first stop for the executors would be to ask the company’s accountants to provide their valuation at date of death.
If Inheritance Tax (IHT) is payable then there is every likelihood that HMRC’s business division will raise queries/observations of their own to look to agree a value with the executors. This can cause considerable delay to the conclusion of the administration of the estate.
Who might query your valuations?
HMRC may well query your valuations – particularly where there is subjective licence eg houses and businesses. Residuary beneficiaries my also have reason to query values if they feel they are optimistic (particularly where IHT implications follow).
Can HMRC query probate values?
Yes, and until you have formal ‘clearance’ from HMRC things remain open. So, executors should ensure that everything is agreed with HMRC before they make final distributions to the residuary beneficiaries.
When will HMRC raise questions about probate values?
This will typically be after the grant of probate has been issued. That being so, the executors will have submitted the necessary IHT forms to HMRC, who will issue a receipt allowing the Probate Registry to issue the grant of probate. This does NOT mean that HMRC are ‘clearing’ the estate, and any queries they have will follow.
What if the value of an asset changes after death?
Most assets are easily definable with date of death values. And, because the probate value is the value on death, changes (eg) to a bank account balance won’t change its date of death value. However, for assets whose value has to be estimated (eg businesses and houses) may involve negotiation with the revenue to agree the date of death value. Events may of course crystallise this eg the sale of the house or business.
A good example of assets increasing without impacting the estate is shares. The IHT due is the quarter up value of the holdings at close of business on the date of death. Dependent upon the state of the stock market, the value of the holdings may have changed when it comes to selling the shares or transferring them to residuary beneficiaries. Although this will not impact IHT, it may impact Capital Gains Tax (CGT).
Where residuary beneficiaries take assets on account of their entitlement, they do so at the value of the transfer date – not the probate value.
Inheritance Tax (IHT) FAQs
What is Inheritance Tax (IHT)?
Inheritance Tax (formerly called death duties) is a tax paid against the net value of the assets of our estate. The basic rate of IHT is 40% on the net estate over £325,000 (this is called the nil rate). However, various exemptions and reliefs apply to this basic rate.
What is the Nil Rate Band?
The nil rate band is the exempt portion of an estate under which IHT does not fall due. At the time of writing, the current nil rate band is £325,000.
When do Executors have to pay IHT?
IHT must be paid before probate is granted. This can cause a sticking point for executors as by this time, bank accounts will be frozen until probate is issued! Many banks will make a concession and, subject to certain conditions, they may release funds from a deceased’s account for the purpose of paying IHT. Payment of IHT attributable to the value of property can be delayed.
Do lifetime gifts attract IHT?
Yes – certain lifetime gifts might also attract IHT. So, any gifts made in the 7 years prior to death may be liable to IHT, albeit subject to a reducing rate known as Taper Relief. These gifts are known as potentially exempt transfers or PETs.
Gifts where you are deemed to have ‘retained a benefit’ are known as a gift with a reservation of benefit (GROB) and the 7 year rule does not remove these apparent gifts from your estate. The value of them will remain with your estate however long ago the gift was made.
IHT – What does PET stand for?
PET stands for potentially exempt transfer. PETs create something called the 7 year rule – meaning that if you survive for 7 years the gift is then ignored for IHT purposes. If you die within 3 years of the gift IHT is payable at full rate. Thereafter there is a sliding scale of IHT known as Taper Relief.
Are any lifetime gifts free of IHT?
Yes. After 7 years, PETs (potentially exempt transfers) will be free of tax. During the 7 year rule period, there are further exemptions including: annual allowance; small gift exemption; wedding gifts; and payments out of income.
PETs made between 3-7 years of death are subject to reduced rate of IHT due to Taper Relief.
What is Taper Relief?
Taper relief is the reduced rate of IHT applied to lifetime gifts (potentially exempt transfers or PETs) made in the 7 years prior to death.
What is a Gift with Reservation of Benefit (GROB)?
A gift with reservation of benefit (also known as a GROB) is where you have purported to make a lifetime gift (PET), BUT, you have reserved the benefit of that item or asset. For example, you transfer the title of your home to your children, but you continue to live there.
How can I avoid a GROB being taxable?
If you have to or want to retain a benefit, the easiest way to prevent the gift being a GROB is to make a regular payment of ‘rent’ to the recipient of the gift. So, if you transfer your home to your children, and continue to live there, you have retained the benefit and HMRC would want the value of the house to be included in the value of your estate for the purposes of the IHT liability. However, if you paid your children a market rent from the point of transfer, this should be satisfactory and the make the ‘gift’ a PET, not a GROB. The 7 year rule would then apply including Taper Relief.
NB – transferring the family home is rarely a safe way of tax planning and this is given as a simple example of the principle of GROBs!
What is the annual exemption for Lifetime Gifts?
The annual exemption is currently £3,000 per year. You can carry forward an unused allowance from the previous tax year. The allowance is £3,000 in total (ie NOT £3,000 per recipient of a gift).
Lifetime Gifts – what is the Small Gift Allowance?
The small gift allowance allows you to gift £250 per person per year. This must not be in addition (to the same person) of any other exemption (eg the £3,000 annual allowance.
What are Wedding Gifts (lifetime allowances)?
This applies to wedding and civil partnerships and allows gifts as follows: £5,000 to a child; £2,500 to a grandchild; £1,000 to anyone else.
Lifetime Gifts – what are Payments out of income?
This could be something like having paid the rent for one of your children. It must be evidenced that this was clearly within your means, and it can also be added to lifetime gifts to the same person under any other relief/exemption.
Do I have to report changes in values of assets to HMRC?
If the estate is liable to IHT, and the value of assets changes then yes, you must report this to HMRC and pay the appropriate additional IHT. It is much more likely that you find additional assets, than the value of individual assets change. This is quite normal.
Does an estate pay Inheritance Tax on gifts to a surviving Spouse?
No. Gifts to a surviving spouse are free of IHT irrespective of the amount paid to them. A similar exemption applies to gifts made to charities.
Does an estate pay Inheritance Tax on gifts to Charity?
No. Like gifts to a spouse, gifts to a charity will be free of tax. If your will includes a gift of 10% or more to charity, and an IHT bill applies to the remainder, then a reduced rate of IHT is paid at 36% (down from the standard rate of 40%).
IHT – what is Re Benham and Re Ratcliffe?
Where an Inheritance Tax (IHT) bill arises, but part of the residuary estate passes to exempt beneficiaries (eg spouse or charity), and part goes to chargeable beneficiaries, then there are two different calculations to apply which give different IHT amounts, and impacts what beneficiaries benefit.
Should Executors get formal confirmation that all IHT is paid?
Most definitely yes! Executors should NOT distribute the final residuary legacies until they have formal ‘clearance’ from HMRC that IHT is ‘signed off’. Should the executors fail to obtain that clearance, and HMRC come back asking for more IHT to be paid, they (the executors) would be liable to meet that request if the IHT was indeed due, and the beneficiaries refused to return the amounts to the estate to pay the tax due.
Cashing in Assets FAQs
How do Executors cash in assets?
This will depend from one asset type to another, and even one institution to the next (eg even if it is within the same asset category. The basic principle is usually that the executors will send a copy of the grant or probate, along with some sort of signed instruction to encash the asset and where to send the funds. It is usually the form of signed instruction that differs – some institutions will have prescribed forms that they will require to be signed.
How do Executors close a Bank Account?
This will vary from bank to bank and you should ask each bank what they want at the beginning of the administration of the estate (ie when you contact the bank asking for the probate date of death balance). They will almost certainly need a written instruction from the executors to close the account, and to see the grant of probate.
Will the closing bank balance be the same as the Probate value?
The closing balance will often be different to the probate value. This might be because interest has been paid in, or funds released to pay for the funeral or even IHT.
How do Executors sell Shares?
You can either have a stockbroker deal with this for you, or the share registrars invariably have a selling facility too.
How do Executors sell the deceased’s house?
This is probably the biggest job for executors of any estate. It is not just selling the house, but also going through all of the personal items and clearing the house. It can be a very time-consuming and sometimes upsetting process for relatives. As to the legal sale of the house, it is just as if you are selling your own home, except you product the grant of probate to prove that you are entitled to be selling it.
How do the beneficiaries know what the closing balances were?
The executors should produce estate accounts detailing (amongst other things) all payments received and made on behalf of the estate.
Cash Legacies FAQs
What is a Cash Legacy?
A cash legacy is a fixed sum paid under the terms of a will. They are typically used as token gestures, rather than to deal with the bulk of the value of the estate.
Why have cash legacies?
Cash legacies are fixed cash sums that will be payable come what may. They are normally used to deal with relatively modest amounts (as against the bulk of the value of the estate). So, they are often for friends, more distant family members, and charitable organizations. But this, when there are surviving relatives who are to benefit in the main – eg a spouse and or children.
Is a Cash Legacy different to a Residuary Gift?
Yes, cash legacies and gifts of residue are different. Cash legacies are fixed sums. They tend to be used to deal with relatively modest amounts. The residue of your estate deals with the bulk of your estate. If there is more than one residuary beneficiary, the will usually states who gets what percentage shares.
Do I have to include Cash Legacies in my Will?
No – you do not HAVE to have cash legacies. You do have to have a clause dealing with residue however!
When is a Cash Legacy paid?
Cash legacies are generally paid relatively early in the probate process. Because they are fixed cash sums they don’t have to be offset against expenses. And, if they are (relative to the value of the estate) modest sums, it is usually safe for the executors to pay the legacies fairly soon after enough cash assets have been released.
What if there isn’t any money to pay Cash Legacies?
If an estates cash assets cant cover all liabilities then legacies and residuary gifts are not paid, and generally creditors will agree to take a proportion of whatever is there to pay off part of the debt owed to them.
What happens if there is a shortfall of cash to pay Cash Legacies in full?
If, after paying the estates liabilities there is not enough money left to pay all of the legacies then they are ‘abated’ with a proportional amount being paid to each of the cash legatees.
Does the payment of Cash Legacies take priority over gifts of residue?
Yes, very much so, and this is something to be mindful of when drafting your own will. Cash legacies are intended to be token gestures. The amount of cash that is a token depends of course on the value of your estate at the point as which you die. BUT, the significant point to have in mind is that legacies take priority over residue. And, this is perhaps the driving reason to make sure that they are only ever token gestures to the value of your estate. As, in reality, it is generally our residuary beneficiaries to whom we feel we want the bulk of our estate to pass.
Residuary Estate FAQs
What is Residuary Estate?
Residuary estate is essentially anything that hasn’t already been dealt with (eg gifts of personal items or cash legacies). The net residuary estate is all of the assets as cashed in, less all of the liabilities due.
Does a Will state what assets are in the Residuary Estate?
No, a will should not state that. It will generally be worded something like this if there have been no prior gifts (eg cash legacies):
“I GIVE the whole of my estate to JOE BLOGS
If there have been prior gifts (legacies) then it would be incorrect to refer to ‘whole estate’. And so in this instance, the gist of residue would look like this:
“I GIVE the rest of my estate to JOE BLOGS
What is a Residuary Beneficiary?
A residuary beneficiary is someone entitled to all or part of the residuary estate.
When is the Residuary paid to the Beneficiary?
Unlike fixed cash legacies, the final payments can not be paid out until the executors have ensured they have paid off any and every expense/liability owed by the estate. If IHT was due, they will also have to wait for formal ‘clearance’ from HMRC that the IHT account is finalised and closed. Because of this, it is normal practice for executors to make ‘interim distributions’ of the residuary estate as soon as they can. In doing this, they can get as much money to the residuary beneficiaries as they can, whilst retaining a sum they are confident will cover all further expenses whilst loos ends are tied up.
What might slow up final Residuary Estate distributions being paid?
One notable thing that can slow up the conclusion of the administration of an estate is the sale of significant assets – eg a house, or particularly businesses. Also, any negotiations around assets such as houses, businesses, and trust values can also delay things. If there are potentially substantial differences on what liabilities might come out of that, then it sometime the case that the executors can not even make interim distributions to the residuary beneficiaries. This tends however to only be where there are unusual or problem circumstances.
Where can the Residuary Beneficiaries see what money has been paid in and out of the estate?
The residuary beneficiaries can see all payments in and out of the estate in the estate accounts which the executors should prepare, and provide every residuary beneficiary with a copy.
Do Residuary Beneficiaries approve the Estate Accounts?
Yes, you would expect executors to get the approval of the estate accounts from the residuary beneficiaries before they make the final payments to them.
Estate Accounts FAQs
What are estate accounts?
Estate accounts show (in the main) the financial side to the administration of an estate. They will typically include (at least) details of all assets and liabilities for probate/IHT purposes, plus a cash account of all money in and out of the estate after probate is granted. They will also detail the amounts paid to beneficiaries.
Who prepares estate accounts?
Estate accounts are prepared by the executors of an estate (or their representatives) for the benefit of the residuary beneficiaries.
What do estate accounts include?
You would expect accounts to include (dependent upon the complexity of the estate) some or a all of: a narrative; schedule of probate values; a cash account of all money in and out; am income account; a distribution account; copy documents; and if applicable IHT calculations and clearance.
Who signs off estate accounts?
You would expect residuary beneficiaries to sign off estate accounts. If lay executors have instructed solicitors to act on their behalf, the acting solicitors would likely have both the executors AND the residuary beneficiaries sign off the accounts.
What is a cash account?
A cash account is just that – all money in and out of the estate. It will show all receipts and payments.
What is an income account?
An income account will separate out from the cash account those items that are pure income, so for example: dividends; bank interest; and rental income on any property. Income accounts only tend to be needed in more complex probates.
What is a distribution account?
A distribution account will detail the money distributed to beneficiaries and so will include; cash legacies paid; interim distributions paid to residuary beneficiaries; and of course the final amounts paid to the residuary beneficiaries when the estate is concluded.
Do estate accounts include copy documents?
A good set of estate accounts will ‘tell a story’ that the residuary beneficiaries can understand. It is helpful therefore that the estate accounts include copies of some of the key documents relevant to the estate administration for example; death certificate; will; probate; and IHT and income tax clearance if relevant.
Contact
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