Anyone wishing to act as an executor should be aware of the duties and responsibilities involved before the process begins. There are a number of potential pitfalls to be aware of, including the following:
Debts of the Deceased
If debts turn up once the Estate has been settled then you may end up settling these out of your own pocket.
Claims against the estate
If the estate is finalised too soon and someone makes a claim for provision under the Inheritance (Provision for Family and Dependents) Act 1975 then you may have to settle that claim from your own funds.
Inheritance Tax and calculations
You may have to pay Inheritance Tax before you can obtain Probate, consider how you are going to find this money.
When the Estate is divided between exempt beneficiaries (such as charities or a spouse) and taxable beneficiaries there are complex calculations, which are not straight forward even for professional advisors.
Inheritance Tax on gifts
Some gifts made by the deceased during their lifetime are added to the value of the Estate and Inheritance Tax is payable on the value of the Estate, plus these lifetime gifts. Unless the deceased kept careful records these lifetime gifts could easily be missed.
If you do not know of any gifts at the time of making the Inheritance Tax return but these are discovered later you may have to pay heavy penalties and additional Inheritance Tax personally.
In the case that beneficiaries cannot be found easily, there must be a plan to find them.
Under age beneficiaries
What are your plans for their legacy or share of the residue?
Investing money for beneficiaries under 18
There are certain precautions to keep in mind, so you have to act carefully when you choose to invest.
What will you do with their legacy? If they were given a share in the residue there are complex rules to decide what happens to their share.
You could face claims from creditors if you accidentally pay money to a bankrupt beneficiary.
If the deceased left no Will, you will need to decide who is legally entitled to the Estate. If the estate in not distributed correctly, you may have to pay the rightful beneficiaries what they are due from your own funds.
Validity of the Will
It is essential to seek legal advice if you believe there may be any challenges to the validity of the Will.
There may be difficult legal questions in interpreting the wording of homemade Wills and proper advice should be obtained.
Trusts in the Will
If there is any trust in the Will it will be complicated to deal with the legal requirements and professional advice should be sought.
How will you deal with assets abroad? The law in other countries is quite different from English law. You have a duty to collect all money due to the Estate and this may prove to be difficult.
Arranging the funeral
An executor generally has the responsibility for arranging the funeral. You may need to involve different sides of the family which can lead to disputes. You may also need to pay for part, or all, of the funeral in advance from your own funds.
You must work out the type of ownership of the property and deal with it accordingly. You cannot overlook this as it will cause problems when the property is next sold.
Part of the house may also be owned by a trust, which may not be immediately apparent without legal advice being sought. If the property is sold and the trustees are not consulted then you may be personally liable and have to ‘make good’ the loss to the trust from your own funds.
Sales of houses or shares at a loss
It is your duty to claim back overpaid Inheritance Tax if you sell at a loss within a certain time.
Capital Gains Tax (CGT) duties
If you sell assets of the Estate at a profit you must ensure that the correct legal procedure is carried out to reduce the CGT liability for the beneficiaries where possible. In certain circumstances there are steps that can be taken to reduce any CGT that may otherwise be payable. If these steps are not taken, the beneficiaries may make a personal claim against you to recover the tax which would otherwise not have been paid.
Transferable Nil Rate Band and Residence Nil Rate Band (RNRB)
If the deceased has been previously married it is your duty to claim a reduction in Inheritance Tax where applicable.
The new provisions for claiming the RNRB are extremely complicated and even some professional advisors have decided not to provide this advice for risk of getting it wrong.
A new Inheritance Tax problem
In a recent case the executors of a woman’s Estate have been ruled to be liable for Inheritance Tax on the value of her pension fund which she failed to withdraw while terminally ill. This could cause a problem even when you think you are dealing with a simple Estate with no Inheritance Tax.
These are just a few examples of the problems to be considered when you act as an Executor of a Will.
In addition to the above you should remember that you are liable for any action you take (or fail to take) on behalf of the Estate. The Estate’s beneficiaries, who may be your relatives, may sue if any of the following situations arise:
Remember, it is your duty to deal with the administration of the Estate carefully and properly.
Our solicitors are insured and so the beneficiaries are protected. Personally, you do not have insurance to cover you for any mistakes that may occur throughout the process, which is why legal advice should be sought when acting as an Executor. Please contact your local branch of Humphries Kirk for guidance on your personal situation.