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 can be 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 Wendy Mustard, solicitor and head of wills, trusts and estate planning with Richard Reed Solicitors in Sunderland explains.
You will be personally liable
As the executor dealing with the estate, you could be personally liable for debts which are left unpaid. What does this mean in practice? It means that 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 swear a statement to the Court 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 any gifts in the previous seven years.
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 the increase in property values, 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, as executor, 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 the recent case of Harris v HMRC (2018), 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.
We are able to assist to verify a family tree or, where there are still doubts, we can obtain appropriate insurance to protect the executors.
Again, there is a risk that you could be personally liable if a creditor successfully claims against the estate – it is not a defence to say that you did not know about the liability. The executor can gain some protection if they have publicly notified creditors of the death through appropriate newspaper adverts.
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 on any aspect of obtaining probate, please contact Wendy Mustard or Debra Lawler in our experienced private client team on 0191 567 0465 or email firstname.lastname@example.org.