More often than not, challenges arise during the management of the deceased estate when dealing with a complicated probate process. Appointed representatives are legally and financially responsible for administering the deceased estate and can be held liable for any mistakes during the process. However, many personal representatives lack a general understanding of probate and could make costly mistakes.
Here are a few tips to be aware of before accepting the role of a personal representative.
What is a fiduciary duty?
Personal representatives have a fiduciary duty to act in the best interest of the deceased person and the beneficiaries, including avoiding loss or injury to the estate. If suspected to have breached this duty, the executor can be taken to court and charged with theft.
While more recent figures were not available, the High Court of Justice revealed a rise in claims lodged for breach of fiduciary duty rose from 107 to 368 cases in 2013. The possible explanation is the number of non-professional people appointed as executors rather than professional solicitors.
When difficulties arise in the estate administration process, non-professional executors often do not know what to do and attempt to resolve matters themselves, accordingly aggravating the problem. Therefore, personal representatives should always consider whether they need professional assistance either at the outset or when they feel they cannot handle a problematic situation.
Do all estates need probate?
Probate may be required depending on the financial value of the estate. Generally, the probate thresholds for financial institutions, banks and building societies vary from £5,000 to £50,000.
Instances when probate may not be required
- Small estates with low financial value do not necessarily require probate. For example, if the deceased had less than £5 000 in their accounts, many banks will not require a grant of probate to release the funds.
- Insolvent estates. The value of the assets in the estate amounts to less than the debts left by the deceased. Any personal representatives appointed to handle insolvent estates should act with caution and consider seeking professional advice.
In addition, other factors can prevent the execution of probate and they include;
Jointly owning property
Having your spouse or friends as a joint owner of your property, shareholdings, or money makes it easy to transfer the assets to them when you die without needing probate. Under UK law, the property is passed directly to the surviving spouse, civil partner, or friend otherwise referred to as joint tenancy.
However, tenancy in standard permits all owners equal rights to the entire property, but each owns a specific portion. Upon death, the property rights do not automatically go to the other joint owners but are passed on to the next of kin according to the will or intestacy rules if no will exists.
Opening a Trust
Property held in trust is not part of your estate upon your death. Generally, the trustee controls the trust assets and distributes them according to the terms and conditions stated in the trust.
However, there are many rules relating to the taxation of trust, and you should seek professional advice on how to handle assets within the trust.
Open accounts payable upon death
For bank accounts, pension plans and insurance policies, it is possible to select beneficiaries payable on death. The financial institutions offer forms to be filled out, and upon death, the funds are transferred to the beneficiaries, and the account is closed.
How long is probate supposed to take?
On average, the Probate process usually takes between 6 to 12 months. The grant of probate takes 4 to 8 weeks after submission.
However, depending on the status of the estate, it might take up to one year. Usually, if the estate consists of property to sell, or overseas shares and investments, the probate process is likely to be prolonged due to possible complexities. (Find out on how to successfully resolve overseas probate)
Contentious probate cases have been on the rise despite the process of contesting a will costing thousands of pounds. According to an article on Which?, between October 2020 and April 2021, one law firm stated a 111% increase in enquiries concerning contesting a will compared to the previous six-month period.
Reasons for a surge in contested probate cases attributes to the growing popularity of online will writing, homemade wills, complex families, and the prevalence of properties with high value in people’s estates.
If the will’s administration is contended in the probate court due to conflict over the administration of the deceased assets, the probate process will take longer than necessary.
What reliefs & exemptions exist for inheritance tax?
Calculating inheritance tax is done by subtracting outstanding debt from the net value of all the deceased assets. Assets over £325,000, also known as the Nil Rate Band (NRB), are taxed at 40% tax, and the executor must fill out Form IHT 400 for the inheritance tax. If the estate is below the IHT threshold (£325,000), the executor will fill out the IHT 205 form.
If the estate is liable for inheritance tax, it must be paid by the end of six months after the person’s death. Failure to pay the inheritance tax will result in HMRC charging interest. A reference number needs to be obtained at least three weeks before making the payment.
Within the first six months of the death, the executor should start making tax payments if the estate is likely to exceed the inheritance tax threshold. Doing this helps the estate cut down the interest it could be charged if there is a delay in disposing assets and paying creditors.
The Residence Nil Band Rate (RNBR)
In addition to the nil-rate band, the residence nil rate band introduced in the 2017/18 tax year is available where the deceased leaves a property in which they have lived at some point to their direct descendants (children and their issue).
With the IHT thresholds maintained up to 2025/26, the RNBR is benched at £175,000 with a £2 million taper threshold. Unused NRB and residence nil band rate can be, transferred to a surviving spouse.
Dealing with Capital Gains Tax
Any property or assets that weren’t sold before the passing of the deceased do not incur any Capital Gains Tax. However, if the property or asset is sold during probate and its value increases since the date of death, Capital Gains Tax will be liable.
Generally, Capital Gains Tax is calculated on how much the increase is since the person’s death. Assets inherited by beneficiaries are transferred at their probate value.
With respect to other assets, Capital Gains Tax is calculated on how much the increase in value is since the person’s death.
In other words, Capital Gains Tax will be paid on the increase in value from when the person died to when it was sold or given away.
Income received after a person’s death for example rent from a property belongs to the estate. This type of income usually does not have tax deducted before it is received. The executor, however, must report this to HMRC as part of probate so that an accurate appropriate amount of tax is calculated and paid by the estate.
The usual tax-free allowances a person have when alive for example personal allowance or personal savings allowance do not apply to the deceased estate.
Share Data’s highly skilled team of specialists offers a range of services for Executors, Administrators, and beneficiaries, whether they reside in or outside the United Kingdom. Services include, but are not limited to:
- Domestic and overseas estates and assets
- Probate valuation and verification
- Resealing Grants of Probate
- US shares and Estate Administration
For assistance with probate and valuation services, contact the Share Data team by email at [email protected] or call +44 1403 271 170