Why acting as an executor can be dangerous
Often lay Executors underestimate the amount of work that is required and the timescales involved in dealing with their responsibilities for administering the estate, which can be particularly onerous when they are also coping with the grief of losing a loved one.
Lay Executors need not employ the help of a professional, particularly for routine non-taxable estates, and they can do a lot of the initial information gathering themselves, which can help them minimise costs. They may then seek professional assistance in obtaining the Grant of Probate so that the professional can deal with the more technical aspects, including dealing with the Probate Registry and the necessary inheritance tax return for HM Revenue & Customs, leaving the lay Executors to deal with rest of the routine estate administration themselves, such as closing bank accounts; selling shares; paying liabilities, expenses and legacies; and distributing the rest of the estate.
Many Solicitors offer fixed fees for a “Grant only” service as well as fixed fees for a “full estate administration” service, and so those firms that look to charge on an hourly rate basis or unregulated firms that operate in this sector should be avoided. Oratto has teamed up with a number of firms that offer a low-cost fixed-fee probate service. Solicitors are regulated by the Solicitors Regulation Authority and are mandatorily required to have professional indemnity insurance in place so that if anything does go wrong, the Executors do have redress to ensure it is put right.
Potential problems facing executors
Executors need to be aware that they take on personal liability when they accept the role, and there may be a number of factors that arise during the estate administration that they may not be aware that they are responsible for.
The starting point would be to ensure that they are working from the latest Will that has been drawn up, as unravelling what has been done is likely to be a very costly and complex process, with personal liability falling on the Executors to put things right.
One of the key areas of liability arises from debts of the deceased. A common misconception amongst people is that when a person dies their debts disappear, but this is not the case. When a person dies their debts are paid for from their assets at the time of death. If their debt exceeds their available assets, then the estate will be insolvent. Sometimes it is not known if an estate is insolvent until the Grant of Probate has been obtained. When the estate of the deceased is insolvent, gifts and legacies cannot be distributed to the beneficiaries under the Will. This part of the law is governed by Administration of Insolvent Estates of Deceased Persons Order 1986, and specialist advice is recommended.
Otherwise, if the estate is solvent, the Executors must ensure that all the debts have been repaid. They can protect themselves against claims against unknown creditors by placing “Trustee Act” notices and advertising in the way prescribed by section 27 of the Trustee Act 1925 – i.e. in the local paper for the area where the deceased lived and in the London Gazette. The Executors can then distribute the estate after the prescribed time limits safe in the knowledge that they would be free from personal liability for those debts.
Any inheritance tax due in the estate must be paid within the prescribed time limits. Generally, the Executors must pay the inheritance tax to HMRC by the end of the sixth month after the person died, and any late payments will attract interest. Before making final distributions to beneficiaries, it is advisable to obtain a “clearance certificate” from HMRC, which is a formal letter from HMRC to confirm that they discharge the Executors from any liability for tax due on the assets declared. If, however, any assets come to light after the tax has been paid, then a corrective account can be submitted to HMRC to deal with the payment of any additional inheritance tax.
As can be seen in a recent case, Glyne Harris, an Executor, ended up owing the taxman hundreds of thousands of pounds after distributing the estate on what he claims was the understanding that the beneficiary would pay the inheritance tax owed. When the beneficiary left the country without paying the tax, Mr Harris was left with the responsibility of covering the shortfall.
Where there is a disappointed beneficiary who has been excluded from benefitting from the estate, or been under-provided for, they could make a claim against the estate under the Inheritance (Provision for Family and Dependants) Act 1975. Again, there are prescribed time limits for bringing such a claim, which generally must be brought within 6 months from the date of the Grant of Probate. If Executors distribute the estate before this time then they are likely to be held personally responsible for the amounts they distribute.
Whether you decide to do it yourself or employ a professional, you should be aware that there are many other risks in addition to the personal liability risks mentioned above that could arise if disputes and costly, time-consuming litigation ensues.
As administering an estate is a very complicated area of law that can lead to many unforeseen complications, professional legal support is highly recommended in most cases. Oratto can help put you in touch with an experienced probate solicitor who is suited to your case. Guidance can also be obtained from the Probate Registry and HMRC.