There is a way

Many of us are named on a relative or friend’s will as an executor. But just what does it entail?

This article describes the law and procedures in England and Wales. The situation in Scotland and Northern Ireland is similar – especially the tax position – but the terminology and exact proceedings can be different.

The executor of an estate holds a very special position of trust. Their job is to gather together the all the assets of the deceased, discover all their debts, consider if inheritance tax is due and, if so, pay it. Then they have to obtain probate from the court (confirmation in Scotland) which gives them permission to pay the debts and distribute the remainder of the estate in accordance with the will.

Assemble the information
The first job is to establish the financial circumstances of the deceased. That means a search of the house and any other property to find bank statements and other financial documents. Once found do not destroy anything until probate is granted.

If you are lucky the deceased will have left a note of the basics of their financial life. It should show details of bank accounts, pensions, benefits, credit cards, life insurance, investments, loans, mortgages, debts, rental agreements, insurance, and so on. It may also list any gifts made in the last six years as they can affect the inheritance tax which is due.

Write to all the financial firms involved to let them know of the death. You will need copies of the death certificate. If the deceased held accounts in their sole name then these will normally be frozen. Joint accounts with a spouse usually will not. Ask for the balance of the accounts at the date of death and if any money is due to the estate. Small debts to credit card companies may well be written off if there are no liquid assets to pay them. Write to the firms concerned to ask. For homeowners the most valuable asset at death will usually be their home. Remember to establish if there is any charge against it such as an equity release mortgage.

If the deceased left valuable property such as jewellery, paintings, or antique furniture they will have to be valued. Contact local dealers and tell them you want a probate valuation – the amount the item would fetch at auction. That is lower than the insured value which is the cost of replacement. The costs of the valuations cannot be deducted before Inheritance Tax is worked out. Shares should be valued as at the end of the day of death. Unit trusts and OIECs will be valued by the manager. National Savings & Investments will provide a value for its own products. A car can be valued by a local dealer or one of the many car value publications.

If the deceased received a state pension or other benefits then the chances are one or more payments will arrive after they died. Most benefits are paid in arrears and money due for any period before the death belongs to the estate and does not have to be returned. The Department for Work and Pensions will try to recover money which was due for periods after the death. it. But executors should not give in to ‘requests’ if there are no legal grounds given. An executor’s duty is to the estate not the public purse. If the deceased paid income tax then too much may have been paid and a refund should be claimed.

Normally all debts are paid after probate but funeral expenses – including headstone – can be paid by the bank or building society which holds the deceased’s account. Send the bank the original invoice and it should send back a cheque made out to the funeral director for you to forward. A similar arrangement can pay probate fees which are just over £100.

The other debt that has to be paid before probate is Inheritance Tax. Only when it has been paid in full (or an arrangement to pay in instalments agreed with HM Revenue & Customs) can probate be granted and the estate distributed. If tax is due because of the value of a home that can cause difficulties and the executors will have to try to borrow the money in the short-term from their bank or that of the deceased. However, if there are sufficient funds in the deceased’s frozen account the bank should be willing to provide a cheque to HMRC to pay it.

Inheritance Tax
If the net assets of the deceased are £325,000 or more you will have to fill in a form called IHT400 as inheritance tax may be due. It is lengthy and several other forms have to be filled in too for property, personal effects, pensions, insurance, shares, bank accounts etc. If the deceased is a widow (or widower or bereaved civil partner) heirs will usually be able to use all or some of the inheritance tax allowance of the late spouse so tax may not be due if the value of the estate is below £650,000. You claim it on form IHT402. If the net assets are less than £5000 or the deceased owned all their property jointly with a spouse of civil partner and it passed to them on death then probate need not be applied for.

Once probate has been granted take out adverts in a paper local to where the deceased lived and the London Gazette inviting debtors to come forward. Give them at least two months to do so.

Changing the will
If all the heirs want to change the terms of a will they can do so by all signing a ‘deed of variation’. You will need a solicitor but the cost should be modest. Sometimes – especially in Scotland – relatives have the right to inherit regardless of what is in the will. Seek legal advice if such a claim is made or the will itself is challenged.

Some people leave what is called a ‘letter of wishes’ with their will. It can set out what they want to happen at their funeral, and some of the finer details of how their property is distributed. Such letters generally have no legal force, though most families will want to follow their dead relative’s wishes if they can.

Joint executors
Generally winding up an estate is not a complex legal task. But it does require an orderly approach and you will need to keep files, write letters, do calculations and deal with a sometimes inflexible bureaucracy. Professionals may charge thousands of pounds to do that job. If the will names a bank as a joint executor with a relative then the bank will insist on doing the work and charging the fee. That can be very expensive and it is worth talking to the bank at the outset to negotiate the fee. If a bank or solicitor named in the will does not act transparently and efficiently consider making a complaint. If you do it yourself and you need legal or practical advice on a tricky point, make an appointment with a local solicitor and pay for an hour or two of their time.

Further information
This brief article should not be relied on by itself. Find out more about obtaining probate (or confirmation in Scotland) at www.direct.gov.uk – put ‘probate’ in the search box. You can get useful advice and download all the forms you need from the Revenue http://www.hmrc.gov.uk/inheritancetax or call the IHT and Probate helpline 0845 302 0900. An excellent book is David Bunn Wills & Probate, London 2009, published by Which? Books.

e-mail Paul Lewis on paul@paullewis.co.uk