An executor is always expected to act reasonably when it comes to dealing with someone’s will and estate. They must act in the best interests of the estate, and the beneficiaries named in the will. This involves a number of things including getting the best possible price for any property or assets that are sold. It also means that they should ensure that the death is registered correctly. If this is not done, there could be serious implications that affect many people, and their inheritances.
The estate must be calculated correctly as well. This is to make sure that, if any inheritance tax is due, it is paid on time, and at the correct figure. This needs to be done before any of the money and assets are distributed.
The death should also be ‘advertised’, for example it could be announced in a national newspaper. This is so that anyone who is not mentioned in the will but who is owed money by the estate can contact the executor to arrange for payment. These debts must be paid off before any beneficiaries can inherit. If this is not done, and someone makes a claim after the money has been distributed, the executor may be liable for the debt.
If someone disputes the will (ie, if they question whether the will is valid, or if they have evidence that there is a newer will, for example) then there could be further claims. Being executor is an important job with huge responsibility, and it is always worth getting independent legal advice if you take the job on, to prepare you.
Something that executors often ask is how do they pay the inheritance tax that is due on a deceased person’s estate when it is due before the estate is sold?
The first step is to hire professional valuers to come in and work out how much the estate is actually worth in terms of property, assets, savings, and anything else that is left over. Using an inheritance tax return (which needs to be submitted within six months of the death), the executor will need to inform HMRC of that valuation.
If the estate is worth less than £325,000 then no inheritance tax will be due since the estate falls into the nil rate band. Anything over £325,000 is taxed at 40 percent. So if, for example an estate was worth £800,000, inheritance tax would be due on £675,000, and, at 50 percent, that leaves a bill of £270,000.
That’s a lot of money to pay straight away.
But there are ways to deal with this. Firstly, HMRC allows the tax bills to be paid over 10 annual instalments, meaning that the amount that needs to be paid up front is much smaller than the entire bill. It could still be many thousands of pounds, though. In this case, banks and building societies are often happy to release funds from the estate in advance if they are going to pay inheritance tax. If this is the case, it may be better to pay the entire bill in full at the beginning, and be done with it.
Alternatively, if for any reason the bank won’t release any funds, there is such a thing as an executor’s loan, which can be borrowed against the property and paid back once it sells. It is best to speak to a bank about this.
Every will must have an executor. That’s the law. Or is it? Well, although it is true that there must be an executor for each will, the truth is that there must be at least one executor. In reality, it is perfectly valid and possible to have more than one should the testator require it. But why would more than one executor ever be needed?
In law, as many as four executors can be named in a single will and, if necessary, all four (or up to four) can apply jointly for probate. Once probate has been applied for, whomever is named as executor must continue in that role – but before this happens they can step down in need be. If this happens, and more than one executor has been named, then probate can still go ahead as there will be one, two or three other executors to take on the work. Executors should be told that they are being named as such in a will before the testator dies, but sometimes this isn’t the case and therefore it could well be that some of them may wish to walk away from the position. Having more than one executor makes this much easier.
Once probate has been granted, the executors must work together to make the process run smoothly. This can be difficult with more than one executor, and the concern is that some jobs won’t be done at all as everyone thinks someone else is doing them, and some jobs will be done more than once as everyone thinks it is their job to do. The best way that multiple executors can deal with the estate of the deceased is to work together, discussing all decisions before acting. It is fair, although it is time consuming and can sometimes be difficult to get in touch with everyone.
In this case, one person should be named as ‘lead executor’. How this person is chosen is not particularly important, although if someone has experience or knowledge of probate then they may well be the best person to choose. Alternatively, the executors can apply jointly to appoint a solicitor to carry out the work for them.
Before an estate can be executed correctly, it needs to be valued. And it is one of the executor’s jobs to do the valuing. It is especially important to get this right if the will of the deceased person dictates that a certain percentage of the estate must go to someone – it would not be possible to work out how much money that is exactly without knowing how much the estate is actually worth.
It is important to know the value of an estate for inheritance tax purposes as well.
It is an incredibly important part of being an executor, and because of this it can feel rather overwhelming. There is no need to worry, however – as long as the valuation is carried out in a clear and concise way, following the logical structure of things, it will work out in the end.
Included within the valuation are money, assets, property, and general possessions. Money includes all the money in every account that the deceased has, as well any cash that is actually in their home or even wallet or purse. It includes stocks and shares, pensions, and life insurance policies too. Assets include businesses, and it can be useful to engage a solicitor to deal with this. Property includes all buildings and land. Possessions are things such as fittings and fixtures, clothing, vehicles, jewellery and more.
Gifts that the deceased gave away but kept an interest in – knows as ‘gifts with reservation of benefit’ – also need to be included within the estate’s value. This could be a house that they gifted to someone but remained living in, for example. There are some gifts that are excluded, however. These include gifts to spouses or civil partners, gifts that were made more than seven years before the death, wedding gifts, and maintenance payments.
It can be a minefield of confusion when it comes to carrying out this valuation – so why not contact the experts who can help you out?
It is a rare event for someone to be an executor more than once or twice in their lives, and because of this no lay person ever becomes an expert in executing a will. Why should they when it is such a one off event? This does mean, however, that probate can take longer than it might otherwise have done because the person executing the will has no idea where to start. It could also mean that mistakes are made.
One of the most common mistakes is for the executor to underestimate just how much time this role will take. It is never a quick job, and with more complicated estates it can be almost like a full time job. Pre-planning can help ease the burden slightly, but it should never be assumed that being an executor is something that can just be worked on around other commitments, or, if that is the way it will need to be done then the executor will need to keep everyone informed of their progress.
Another mistake that is often made is that the executor does not keep clear records of the work they have done as they do it. This can be a problem when someone asks about how the job is progressing. Keeping a diary is the best way to keep on top of things, and know when to contact whom about what. It is a good idea to open a new, separate bank account where all the money from the deceased’s estate can be paid out of when required.
Executors sometimes also pay beneficiaries too early. If this is done – perhaps due to pressure on the executor from the beneficiaries – then it can cause problems later on when other bills need to be paid and the money has already gone. Executors also need to ask for proof of ownership of property etc, rather than simply taking things on trust. Never let a family member remove something from the estate until you have proof that they are allowed to do so.
It is always best to seek expert advice if anything confusing or out of the ordinary is found in a will that is being executed.
Ex-husband's inheritance appeal goes ahead
The Court of Appeal heard a case recently, whereby the ex-husband of a woman was granted an appeal to contest the validity of his late mother in law's will, in a bid to claim his alleged inheritance.
Prior to their divorce ten years ago, the couple had allegedly formed an agreement whereby on the mother in law's death, £100,000 from her estate would go to her daughter and the remainder of the balance of the estate would then be divided between the same daughter and her then-husband.
Although no dates are given, at some point in time after this event, the couple divorced and the wife's mother passed away. Her daughter was indeed left £100,000 but instead of the balance of £150,000 being divided between the daughter and the now ex-husband as previously agreed however, the entire balance was left to the woman's children.
The ex-husband subsequently argued that he was entitled to half of the balance which amounted to £75,000 and brought about a probate claim to challenge the validity of the will. This initial claim was turned down however, as the court found that he did not have enough "interest" in the will as a creditor of the beneficiary. The only people entitled to challenge a will it noted, are actual executors, beneficiaries and creditors of the deceased.
The Court of Appeal felt differently, however. Lord Dyson ruled that the man was connected enough to the estate to maintain sufficient "interest" and recognised that the only way he could fight for his money was to challenge the validity of the will.
The case will now go to appeal.
Writing a will is so important – imagine what would happen to your loved one – and your property – after you have died if you haven’t written a will. We’ve put together some tips on writing the perfect will to make it easier on everyone after you have passed on.
1. Choose reliable executors
The job of executor is an important one, and one that has a lot of responsibility behind it. Choosing someone to take on the role is a decision that should be carefully thought about. It should be someone who is organised, reliable, able to deal with money (large or small sums), and who is able to follow your instructions well. Make sure they are happy to take on the role before you commit their name to paper.
2. Appoint guardians
Another potentially difficult yet essential decision is that of who would be your children’s legal guardian after you die. If you child or children are under 18 and you haven’t appointed a guardian then the courts will appoint one for you, and that person might not be the best person to care for your children.
3. Be specific
When writing your legacies, be specific in what you want to be left to whom. If anything is unclear it could lead to problems in probate and a lengthy court case.
4. Make sure there is money left over
No matter what you want to leave to people, you must make sure that there is money put aside to pay off the estate.
5. Make sure everything is accounted for
It is also important to ensure that everything you own is accounted for. If not, your will and estate could become subject to partial intestacy which could cause problems further down the line.
6. Finish up
Once you have written your will make sure that it is signed by you, and by two witnesses. Once it is complete, your will should be stored somewhere safe that is easy to find and access in the event of your death.
The executor of someone’s will has many duties, and one of them – the first one – is to value the estate of the deceased. This job can wait until the grant of probate has been received, but once that is done it really must be the first thing that is done. Without a proper valuation, it is impossible to divide the estate up as it should be.
The value of the estate impacts on everything that is written in the will, especially if the deceased has included percentages rather than actual figures (ie a beneficiary should receive 10 percent of the estate, for example) as without knowing the value of the entire estate the actual legacies cannot be worked out.
The estate’s value is also needed to work out how much inheritance tax is owed.
But despite – or because of – its importance, the idea of valuing an estate can often be a daunting prospect to any executor.
In order to carry out the valuation, certain things must be included. These things are property, assets (including businesses, partnerships, and business assets), any possessions, stocks and shares, and money including any savings. Money also includes pensions that are paid in a lump sum after death and life insurances, and can even include trusts if there are any that come to maturity.
Despite their name, gifts also need to be included in the value of an estate if they are ‘gifts with reservation of benefit’. An example of this is a house that was given away but the deceased continued to live in (without paying any rent). Some gifts, however, are exempt and include gifts given to spouses or partners, wedding gifts, gifts that were given more than seven years before the death, and any maintenance payments.
Being someone’s executor is a job that comes with many responsibilities and many obligations that have to be fulfilled in order for a will to be dealt with properly. It is not an easy job, and not one that some people will either enjoy doing or be equipped to do. So before appointing a family member as your executor just because you think you should, it might be worth doing some research into using a ‘professional executor’ instead.
Whomever you choose will have a big job on their hands, and whether you decide on a family member, a friend, a work colleague, or a professional, you will need to sit down and discuss your will with them before the time comes for them to do anything. Make them aware that probate can take many months, and that many issues can arise, all of which they will be responsible for. If the person you have chosen is not comfortable with being your executor, you can’t force them to do the job. You will have to pick someone else.
You will need to personally consider whether asking someone who is close to you to be your executor is a good idea. They will just have lost you, and dealing with your estate might become too hard and they could find it overwhelming as they also deal with their grief.
Another question to ask is will you pay your executor? The job is a hard one, and it can take a long time to complete, and a professional will require compensation. Why then would someone else not need paying for their services just because they knew you well? The problem then becomes an issue of fairness; other family members may see the executor as gaining more from the will than anyone else, without perhaps realising all the work that goes into dealing with probate, work that can impact on the executor’s life and day job. Feuds can erupt from something like this.
Hiring a professional executor can relieve the burden of responsibility from your family and friends. Plus, since they are well versed in what they are doing, they can deal with any problems that arise quickly, including tax questions and the setting up of trusts. They will also be able to value the estate, deal with potential claims, and trace missing beneficiaries should they need to.
The only possible downside to using a professional executor is that they can be costly, sometimes charging a large percentage of the entire estate as their fee.
IWC offers a fixed fee for this service, which will work out much less expensive than traditional solicitors’ fees, as well as giving you peace of mind that everything is running smoothly. Contact us for more details.