The emotional consequences of bereavement are hard, but it is also a time when practical steps have to be taken. There are a number of people and organisations that need to be told and, of course, a funeral to be arranged. We have written this guide for executors and we hope it will
- Help you understand the probate process and what is required
- Explain how investments are dealt with
- Know which organisations to contact and what they will need you to do
Please note that the legal process is slightly different depending upon whether you live in England and Wales, Scotland or Northern Ireland.
Tell everyone who needs to know
We suggest first contacting each organisation by telephone to check what they need you to do. Some companies, for example, will need you to supply policy documents; others may simply need sight of the death certificate. Identifying who to contact is often made easier if the deceased held an asset register or a deed box.
Bank statements, other papers and correspondence should also provide information on whom to contact. There may also be refunds due from or payments outstanding to organisations, for example TV Licensing and the Local Authority.
Once you have notified these organisations, it is normal for accounts to be frozen.
It is worth buying several copies of the death certificate, since most organisations you will need to contact will require sight of the original death certificate or an official copy – they will not accept a photocopy or a certified copy.
Valuing the estate’s assets and liabilities
The next step is to calculate the value of any assets and liabilities as at the date of death. This is known as a probate valuation and a grant of representation cannot normally be issued until all of the assets have been valued.
As previously mentioned, accounts are usually frozen: you will not have the power to move money or make investment decisions until probate is granted. Until that time, monies remain invested and investment and property prices will continue to be subject to normal market fluctuations; dividends will accrue and interest will be applied to cash held.
This means that there is likely to be a difference between the probate value and the actual value of the investments when they are distributed or sold. Inheritance Tax is based on the probate value of an estate, i.e. the value at the date of death.
If, by the time assets are sold, the value of these assets has fallen significantly, the executors may be able to claim for inheritance tax loss relief. On the other hand, if the market has risen significantly between the probate valuation and probate being granted, no further Inheritance Tax is due, but Capital Gains Tax may be payable.
As with the majority of the deceased’s estate, distribution of assets held cannot normally occur until probate is granted and the grant of representation received. The assets remain invested and their value will continue to fluctuate. The main exception is that we can sell assets from the estate prior to seeing the grant of representation if the proceeds are needed to pay Inheritance Tax or funeral expenses; a cheque payable to ‘HM Revenue & Customs’ or the funeral service will be issued in these cases.
Identifying the beneficiaries
The beneficiaries of the estate should be clearly listed in the Will. The legacies might be listed as set amounts or as percentages of the estate and should also be clear. If the Will contains provisions for a trust to be established, you should contact those nominated as trustees. In most cases, the Will itself is sufficient to create the trust and no further documentation is required. If the Will is not clear, or if the Will is being contested, or if you are unsure you should seek advice from a legal specialist.
Calculating any tax
As executor, you are also responsible for informing the tax and National Insurance authorities. There might be tax to pay or a rebate due. Once you have informed the relevant tax office they will send you form R27 ‘Potential repayment to the estate’ to complete. This return will cover the income tax and Capital Gains Tax (CGT) issues for the tax year of death.
If employed, no National Insurance contributions are payable on any earnings paid by their employer after the date of death.
If self-employed, you will need to contact the National Insurance contributions office to cancel any payment arrangements for collecting Class 2 National Insurance contributions. There is a helpline on 0845 915 4655.
In most cases there is no CGT on assets held at death but there may have been gains realised in the tax year prior to death that need to be declared. The deceased person will receive their full tax free personal allowance for the year of their death.
Inheritance Tax is charged on the transfer of assets above the inheritance tax threshold also commonly known as the ‘nil-rate band’ (£325,000 for 2011/12). The current charge is 0% below the Inheritance Tax threshold and 40% above.
Any Income or Capital Gains Tax or liabilities owed can be deducted from the total value of the assets as part of the Inheritance Tax calculation. Executors are required to calculate the inheritance tax due. This is done through the completion of HMRC form IHT400.
Inheritance tax is generally charged on assets passing on a person’s death and on some gifts made by the deceased within 7 years before death. Other gifts, to charities for example, are exempt as are all transfers between married couples or registered civil partners. Gifts that have been made in the previous 7 years normally have to be declared on form IHT403, as part or all of these may be liable to inheritance tax.
Any outstanding tax has to be settled (or a loan agreed) before the grant of representation is issued. In most cases assets cannot be distributed until probate has been granted. However, assets can be sold to settle any tax due, including Inheritance Tax.
Applying for the grant of representation
The document confirming the authority for you to collect and distribute the estate is issued by the probate registry and called a grant of representation or grant of probate.
Organisations almost always require an official and sealed version of the grant of representation. A photocopy or other copy is unlikely to be acceptable. As with the death certificate, it is worth obtaining several official and sealed copies of the grant. This avoids the need to wait for the return of the official and sealed copies to deal with each organisation in turn.
If there’s more than one executor it is usual for them to agree that one will apply for the grant of representation and administer the estate. However up to four executors can apply jointly and deal with the estate together.
Collecting the assets
Once probate has been granted, the final part of the process is the collection and distribution of the assets according to the Will. Most executors open specific accounts to hold the proceeds of the estate prior to distribution. Each organisation is likely to require an official and sealed copy of the grant of representation and will require your instructions. Payment from the organisations should be prompt given that their requirements will have already been detailed when you first made contact.
Some assets might be sold, perhaps to repay mortgages, pay expenses or meet tax liabilities. There will also be assets that might be retained and transferred to new ownership. The advantage of retaining and transferring assets is that property and investments can be passed into beneficiaries without sale costs or time out of their respective markets.
In this regard, dialogue with the beneficiaries is important. Accommodating their wishes is a desirable outcome, though clearly only if this meets your duty to follow the instructions.
Pay any creditors
Mortgages, debts and outstanding bills
Any outstanding mortgages, personal loans, debts or bills can now be cleared before assets are distributed to beneficiaries.
You are required to make full enquiries to discover what debts or outstanding liabilities there might be.
After obtaining the grant of representation, you could consider placing an advertisement in the London Gazette and in a local paper announcing that claims against the estate should be made by a specific date, normally 2 months after the advertisement appears.
Distribute the assets
The final part of the process is the distribution of the assets. This can only happen once the 2 month notice period shown in the statutory advert has expired and assumes that no new creditors have come forward.
Payments of cash are usually made by cheque or electronic transfer from the executor account.
Deeds of Variation
Under some situations, beneficiaries might agree to vary their legacies. This often happens when a will was made many years ago and the beneficiaries’ circumstances have changed. A deed of variation changes the way that assets are distributed but can only be actioned if the beneficiaries all agree.