Dealing with an estate when someone has died is a puzzle for most of us. We are faced with this task so infrequently that it is not one that is routinely learned through life experience and added to this is the fact that probate and inheritance law change from time to time; what was relevant seven years ago might not be appropriate today. In Part One of this two-part article, we looked at the early activities that take place including the considerations a family normally takes into account before appointing professional help and then after the appointment, the steps and information needed to apply for a Grant of Probate.
In this Part Two, we look at the activities and time-line after the Grant of Probate has been received, that is, dealing with the assets and liabilities and making distributions to beneficiaries. Let’s first recap some of the facts of the case in question. Richard Barber was a widower who died in April 2011. Three siblings Celia, Edward and Andrew were named as Executors and beneficiaries. Richard's estate included his house and money in three bank accounts and additionally he had investments with two different institutions. Richard's net estate (i.e. his total assets at the date of his death, less his total debts and other liabilities at the same date) was just under £300,000 and therefore no Inheritance Tax was due.
Assets and liabilities
Now equipped with a Grant of Probate, Laura’s next tasks were to deal with Richard’s assets and liabilities. In practice this means encashing the assets which could not be transferred to Celia, Edward and Andrew; these assets include such things as bank accounts which are in the name of the deceased and thereby the process for this is to close the deceased’s account and move the money in it to an Executor account (held by Kings Court Trust). In simple language, an Executor account is a sort of temporary holding account for the duration of the estate administration process. Money from encashed assets is paid into this account and any liabilities that Richard had e.g. loans to pay off, and estate expenses such as funeral costs are paid from this account.
The timescale of this part of the process can vary depending on the amount of assets and the process for encashing them. What we mean by that is some banks and financial institutions are quicker than others in completing the paperwork and process needed to release the deceased’s asset (money). In Richard’s case it took 30 days to encash all of the assets. Some income had been received between the date of Richard’s death and the date of encashment of assets, and Laura advised the Tax Department of this so that they could start calculating the income tax payable for the period of administration. At this point we had also received all of the information to submit the final tax deduction certificates for the year of death.
Once all liabilities and expenses were paid, Laura proceeded to encash all transferable assets as instructed by the family at the outset, and to prepare to distribute the estate. Transferable assets are typically shares and property.
Dealing with the property
We often find that families do not decide at the outset what they want to happen to a property. They tend to decide as the process evolves whether to sell it or keep it, and if the latter then the asset is transferred in name to one or more beneficiaries. We had initially asked Celia and her brothers for their wishes regarding their father’s house but at that time they were unsure as to whether they would be asking Kings Court to sell the property for them or whether they would like it transferred to them all to deal with themselves. So Laura arranged for Celia to speak to our Legal Department to assess the options. We asked for their instructions again on receipt of the Grant, and Celia called in asking to discuss the options.
Celia told us that she had relocated to her home town to be near her father and had a job nearby. She had never bought a property as she had always moved around a lot with her work, and as ever was in rented accommodation. She explained that she would like to move into and keep the family home and wanted to know if she could take the property and her brothers take the cash. The Will contained a power to appropriate assets in lieu of entitlement, and in any event when we spoke to Andrew and Richard they confirmed that they were happy to accommodate Celia’s wishes if possible but, as the value of the family home exceeded the third of the estate to which Celia was entitled under her father’s will, they would like to find a way to receive their full entitlements to reduce their own mortgages. The family asked what we could do to assist.
As all parties were seeking a solution we suggested that Celia could purchase the property from the Estate at a price agreed by Celia Andrew and Richard.
We obtained independent valuations from three estate agents, which took two weeks to complete. Based on these, a price for the property was agreed by all three siblings at the same value as at Richard’s death, i.e. £200,000. In this case, the property market had remained stable from the date of Richard’s death. As there was no increase in value in the property, there were no Capital Gains consequences arising from the property sale for the estate.
Celia used some savings and a small mortgage and purchased the property at the agreed price. A solicitor was instructed to deal with the sale, and the estate received the proceeds.
Whilst the matter of the property was being resolved, Laura received from HMRC confirmation that Richard’s lifetime Income Tax and the Inheritance Tax on the Estate were considered finalised.
Preparation for distribution
On receipt of the proceeds of the property, a set of Estate Accounts were sent to Celia, Andrew and Richard for their approval. On receipt of the signed accounts from all three of them, Laura started to set in place the distribution of the estate.
Working with her colleagues in our Tax Department, final validation checks were made regarding Richard’s Income Tax position, the estate’s Capital Gains Tax position, and any received income since the date of death (which would have needed reporting to the Inland Revenue). They also checked that the Inheritance Tax position had not changed.
In this case no gross income (for example rental income on a property which would not have been taxed) had been received, and tax had, therefore, been paid at the basic rate on the income before it was sent to us. Forms were therefore prepared for the beneficiaries for their records and to allow them to reclaim the tax if they were non-tax payers, or top up the tax if they were higher rate tax payers.
With the tax matters all now finished, arrangements were made to make the final payments to the siblings, along with final Estate Accounts. The estate administration was now complete.
Polly Callow is a Legal Executive with Kings Court Trust and can be reached on 01225 787 111 or on firstname.lastname@example.org.