Death is always devastating, especially when you are left to handle the estate. This can often be an overwhelming and complex task, so we have broken down some of the main elements of the Estate Administration process below.
What is Estate Administration?
Estate Administration is the process of managing the deceased person’s assets, settling their liabilities, paying any taxes due on the estate and distributing the residual estate to the beneficiaries. The Personal Representative (‘PR’) is the person responsible for administering the estate. If the deceased left a Will, an Executor will be appointed as the PR who will apply for a Grant of Probate in order to deal with the estate. If the deceased died without a Will, an Administrator will act as the PR instead and they will need to apply for a Grant of Letters of Administration.
The Estate Administration process
The Estate Administration process typically involves:
- Valuing and collecting the deceased’s assets
- Calculating and paying any inheritance tax due
- Applying for the Grant
- Collecting the assets and settling debts
- Preparing the Estate accounts
- Distributing the residual estate to the rightful beneficiaries
The deceased’s assets
The PR must prepare a valuation of the estate in order to assess the inheritance tax position and apply for the relevant Grant. This process involves writing to the relevant financial institutions for the date of death value of any assets and liabilities, requesting a valuation of any properties and businesses in the estate, and requesting a valuation of any personal possessions such as jewelry, art, furniture etc.
Inheritance tax and applying for the grant
Inheritance tax is the tax due on a death estate and this needs to be paid before the PR can apply for the Grant. There are several factors to consider when calculating the Inheritance tax position and it is always worth getting expert help to ensure the tax is calculated correctly. In general, these are some of the main points the PR will need to consider when assessing the inheritance tax on an estate:
- The PR will need to establish how much of the Nil Rate Band (‘NRB’) the deceased had remaining at the date of death. Any value above the NRB which is not exempt, for example, not passing to a spouse, will typically be charged at 40% tax. The PR will also need to determine if any lifetime gifts were made before death, as this will impact the available NRB and tax due. If the whole estate falls under the NRB, or is exempt, no inheritance tax is due and the PR can proceed to apply for the Grant.
- The tax will be due six months after the end of the month in which the deceased passed away. For instance, if someone dies in February, the tax due is at the end of August.
- Paying the inheritance tax may not always be straight forward if there are no liquid assets in the estate which can be released to the PR without a Grant (see below). Should this be the case, the PR can request the relevant financial institutions to pay the Tax directly to HMRC, or they may consider taking out a loan if this is not possible.
- In the case of inheritance tax tied up in properties, there are options to pay the tax in ten-year instalments, subject to interest.
- Once the tax has been paid, the PR can apply for the relevant Grant.
Collecting the assets and settling debts
Once the Grant has been received, the PR can send official copies of the Grant to the financial institutions so that the assets can be released. They now also have authority to sell/transfer any properties in the estate. It is worth noting that some assets can be released to the PR without the Grant, for example, some banks or building societies may release funds under a certain amount.
The PR can also begin to settle any debts in the estate at this point. If the PR has concerns regarding the solvency of the estate, they may consider writing to the debtors to explain the position and explore the options available. If the PR has any doubts as to the known creditors of the estate, an advert should be placed in the London Gazette and the deceased’s local newspaper in accordance with Section 27 of the Trustee Act 1925.
Estate accounts and distribution
The PR needs to prepare and maintain a set of Estate Accounts for the estate once the relevant valuations have been provided. The PR needs to update these accounts throughout the administration process to record all the incoming and outgoing payments in order to determine what the final residual estate will be. Once the administration process is complete, the Estate Accounts can be finalised and presented to the beneficiaries for their review and approval. The beneficiaries of the estate will be stated in the Will, and if there is no Will, the PR must determine the beneficiaries in accordance with the intestacy rules.
The PR may also have to submit income tax and capital gains tax returns for the estate depending on the deceased’s assets. Where relevant, the residual beneficiaries will also receive a statement of income for their own personal tax returns.
Last words
Estate administration is not a simple task; rather, it can be quite a lengthy and time-consuming process. An expert Probate Solicitor can make a real difference in the Estate Administration process by using their expert legal knowledge to ensure the estate is administered as smoothly and quickly as possible. This is particularly helpful in cases where the estate is complex and there may be inheritance tax to consider.
On the other hand, even when the estate is straight forward, it may still be beneficial for the PR to instruct an expert Probate Solicitor so that they can process their loss without worrying about the estate. Our team at My Probate Solicitors are on hand to offer their expert support to any PR no matter how simple or complex the estate.
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