By Shelley Faulkner, solicitor with AMD Solicitors.
I began working in the field of probate law full of confidence that the probate process could be sped up considerably. Why should the administration of an estate take so long? I have since reached the conclusion that probate is an area where acting in haste may in fact lead to increased costs, frustration and, in the long run, further delay. Here are some examples to explain why.
It is tempting to start making distributions to the beneficiaries of the estate as soon as the balance held by the estate begins to look substantial. However, while beneficiaries are, in my experience, always very pleased to receive funds from an estate, they can be expected to be less enthusiastic about paying them back again.
Before the estate administration is finalised it is possible that additional liabilities will be discovered, or that additional tax may be found to be due. It is even possible that additional beneficiaries (such as previously unknown children of the deceased) may be discovered. If over-generous distributions have been made prematurely, there may be insufficient funds remaining to meet any such claims. Asking the beneficiaries to repay a proportion of the funds they have received to meet the costs of an unexpected claim is not likely to prove to be popular.
Tax on sale of estate assets
Rushing to sell the assets of an estate can also be counter-productive, since the tax position needs to be thoroughly investigated in order to establish the most beneficial way for the assets to be sold. This may take a significant amount of work and thought-power.
Where assets have increased in value during the administration period, for example, Capital Gains Tax may be incurred on the sale. If this is the case, a decision must be taken as to whether the assets should be sold by the executors, or alternatively, transferred to the beneficiaries to be sold directly by them. These decisions cannot be taken in isolation, since the total gains of the estate need to be taken into account to establish whether any such tax is payable, and whether exemptions or reliefs can be applied to reduce the tax due. A beneficiary may have losses which can be set against the gains, if the assets which have risen in value are transferred to them before being sold.
Advertising for claims against the estate to be made within a set period (usually two months), will protect the executors from liability for claims made post the administration period. However placing such advertisements will not prevent a claimant from pursuing their claim against those who have received the assets of the estate. Unless sufficient funds have been kept on account, each of the residuary beneficiaries must be asked to pay a share of the balance to discharge the liability.
Even where assets of value are discovered at a later stage, there will be the inconvenience of re-tracing the earlier steps of the administration, such as negotiating values with HMRC, and re-calculating the Inheritance Tax position. Clearly carrying out full investigations during the administration period will reduce the chance of surprise discoveries later on.
Accounting for every penny received, paid and taxed in the estate administration is inevitably a time-consuming and therefore expensive business. However, drawing up the estate accounts before distributing the estate is a dangerous step to avoid. Without the requirement of accounting for every penny in the final accounts, it is difficult to be certain that the loose ends in respect of each asset have been tied up. Should the executors fail to provide HMRC with complete details of the estate, penalties could be imposed, for which they (rather than the estate) could potentially be personally liable.
Rushing the administration of an estate is often tempting, particularly in the face of beneficiaries pushing to receive their share as soon as possible. Given the potential pitfalls of trying to take shortcuts, however, ‘more haste’ can very often mean ‘less speed’ in the probate process.
AMD’s team of experienced private client solicitors and practitioners includes full members of the Society of Trust and Estate Practitioners, the leading professional body in this field. We offer a free initial consultation for new clients.
For advice on trusts, administration of estates, wills, powers of attorney and all private client issues, contact Shelley and the other members of the team on 0117 9621205, email firstname.lastname@example.org or call in at 100 Henleaze Road, Henleaze or 15 The Mall, Clifton.