An increasing number of executors choose to deal with an estate themselves when a close relative dies, but is this really a wise move? The reality is that probate is usually a complex process, even where the estate appears at first blush to be small and straightforward.
If you take into account the feelings of grief and the need to adapt to the loss of a loved one, you need to consider carefully whether you want the responsibility of calculating the inheritance tax liability and taking on the risk of personal liability if things go wrong, as Lesley Walker, head of the private client department at Talbot Walker LLP in Hampshire, explains.
You will be personally liable
As the executor dealing with the estate, you could be liable for debts which are left unpaid. What does this mean in practice? You will have to pay out of your own pocket if a beneficiary does not receive their rightful inheritance from the estate, for example because you did not obtain the true market value for a property; or if an unknown beneficiary comes forward after you have distributed the estate; or when there is an outstanding inheritance tax bill. You will not be able to plead ignorance to avoid payment. This is a heavy risk to carry.
All the estate debts need to be settled before any beneficiaries are paid their share. The only way to avoid personal liability is to make sure the estate is dealt with properly and the best way to ensure this is to instruct a specialist solicitor who has had appropriate training and experience.
Valuing the estate
Before applying for probate, you will be required to sign a statement of truth stating the value of the estate. You may need specialist advice on how to calculate this total because different factors need to be considered, such as the amount of gifts in the previous seven years.
Tax calculations
Most estates have tax issues to deal with and more estates than ever are now liable for inheritance tax (IHT). If an estate is worth more than £325,000, IHT is chargeable at 40 per cent of the value that exceeds that amount. With many properties worth at least that amount, it is not hard to see why so many estates come within the IHT band.
There are various tax reliefs and exemptions available, including for your main residence, charitable legacies and business assets. The rules are complex, and an incorrect calculation could mean that you pay the wrong amount with the result that the beneficiaries could be out of pocket and you will be liable for the shortfall.
You also need to know that inheritance tax often needs to be paid early and this can mean a cashflow problem for the unwary. Furthermore, it is the executor’s responsibility to pay it. Passing on the responsibility for payment of IHT to a beneficiary is not worth the risk. In a recent case, the executor transferred the estate assets to a beneficiary on the basis that the beneficiary would be responsible for paying the tax – however, the beneficiary disappeared with the money and the executor was held personally liable to pay it.
There may also be other tax issues to consider, such as whether any lifetime gifts were made which could attract IHT, or if income tax is payable on any trust or rental property.
The risk of an unexpected claim
The growth in extended families has meant an increased risk of an unexpected claim by an unknown beneficiary. Suppose you deal with the estate yourself: it all goes according to plan and you have just paid the last of the beneficiaries their portion of the estate when someone makes a formal claim against the estate purporting to be entitled to a share.
Again, you could be personally liable if their claim was to succeed, unless you have publicly notified creditors of the death through appropriate newspaper adverts. Although this is not a strict legal requirement it does provide important protection should such a claim arise.
DIY probate is rarely cost effective
The reality is that if you try to do the probate yourself, you risk missing important steps which could result in a costly mistake.
It makes sense to invest in specialist advice from a solicitor who is backed by professional indemnity insurance. You will then have the reassurance that the estate is being administered properly and in accordance with the law – giving you peace of mind at what is undoubtedly a very emotional time for you and your family.
For further information, please contact Lesley Walker or Lauren Russell in the Talbot Walker Private Client Department on 01264 363 354 or email lesley@talbotwalker.co.uk or laurenr@talbotwalker.co.uk.