Legal Update

Administering Estates - Procedures and Pitfalls

A recent survey has shown that more than one in ten people who are thought to have died intestate (i.e. without leaving a will) may actually have made a will and that a similar number of those who leave a will which is initially believed to be the last will they made did, in fact, make a later will.

Two of the main reasons for these findings are that many people change their mind about who should inherit their estate late on in life, or decide to make a will for the first time, but do not tell their relatives. This can lead to the will being challenged and, where there is a disputed will, the costs can mount up rapidly. Another reason for contentious probate is when a claim is made against the estate under the Inheritance (Provision for Family and Dependants) Act 1975, which allows people who were dependent on a deceased person to claim against the estate if they are not provided for in the will.

Dying intestate, especially where there are significant assets, is a recipe for disaster, especially as the ability to plan for and mitigate Inheritance Tax (IHT) liabilities is foregone. The estate is distributed according to set rules of intestacy, which might lead to a division of assets very different from anything the deceased person would have wanted. For example, the spouse of the deceased will not inherit the whole estate unless its value is £250,000 or less, unless there are no children. The need to share an estate with children can, for example, require an elderly person to mortgage or sell their home to provide statutory inheritances for children.

Where assets are significant, it can get very complicated indeed. The recent death of the pop star Prince, who died intestate, is likely to tie up the family in legal red tape for many years.

The duties of the executor (or the administrator of an intestate estate) are onerous and should not be undertaken lightly. Once the person appointed has undertaken an act as executor, the role cannot be rescinded.

Duties of executors are to:

  • collect the assets of an estate and settle its liabilities, such as taxes, funeral costs and so on;
  • deal with any outstanding tax matters, including filing an IHT return and an Income Tax return if there is income during the period between death and distribution of the estate assets. Until any outstanding tax liabilities of the estate are dealt with, HM Revenue and Customs (HMRC) will not give clearance for the grant of probate to be issued;
  • obtain the grant of probate (or letters of administration if there is no will) over the estate. This is done by filing the will with the probate registry together with the 'clearance' letter from HMRC; and
  • carry out a distribution of the assets of the estate in accordance with the provisions of the final will or the rules of intestacy.

If executors carry out their duties incorrectly, they can be personally liable for the outcome, so it is important to be very careful to make sure the right will is being administered and that the estate is not being distributed until all liabilities have been met and no further claims are likely to arise. Keeping appropriate records of the transactions involved is also essential, as is an understanding of what expenses can legitimately be treated as estate expenses.

One method of disputing a will is to lodge a 'caveat' at the probate registry. This prevents a grant of probate from being made. A caveat lasts for six months, but can be renewed, and initiates a contentious court procedure. As no notice has to be given to an executor that a caveat has been applied for, the receipt of the court notice can come as an unpleasant surprise.

Note: From 6 April 2018, interest earned on funds in ISAs during the period of administration of an estate is exempt from UK taxation.