Probate / Estate Administration

Quick read:

Probate is the name given to the process of ‘proving’ a Will is valid or if no Will is left, it is proving who is entitled to the assets left by the person who has died. Estate administration is given to the process of collecting in the assets and giving them to the beneficiaries (including probate).

In depth:

What is Probate?

Probate is the name given to the process of ‘proving’ a Will is valid or if no Will is left, it is proving who is entitled to the assets left by the person who has died. The process involves obtaining a ‘Grant’ and there are different types available but the three most common are listed below:

Grant of Probate: where there is a Will and the executors are applying for the Grant.

Grant of Letters of Administration (with the will annexed): where there is a Will but someone other than the executor is applying for the Grant.

Grant of Letters of Administration: where there isn’t a Will and a member of the family is applying.

Probate is often used to describe all three of the above Grants but the catch all term is ‘Grant of Representation’.

How will it help?

A Grant of Representation is required to release the assets left by the person who has died. For example, it will be required to sell their house. A Grant of Representation is normally required if the value of the assets left by the person who has died is more than £5,000. However, some banks will release funds without a Grant even if it exceeds this amount.

How long will it take?

It can take as little as four weeks to obtain a Grant of Representation. However, it can take between six and eight months to administer an estate depending on the complexity. Complex estates can take much longer to administer particularly if Inheritance Tax is due.

What should I consider:

Am I an Executor, Administrator or Personal Representative?

Executor is the name given to someone appointed under a Will and an Administrator is someone named in a Grant either when the appointed Executor isn’t acting or if there was no Will. A Personal Representative is the catch all term to describe both Executors and Administrators.

Tax return

An Inheritance Tax return is required even if no Inheritance Tax is due. It will either be a IHT205 or IHT400. The type of return required depends on the type of assets left, the individual circumstances and whether or not tax is due.

Inheritance Tax

It is important to consider that Inheritance Tax can be due on gifts made during lifetime as well as on a person’s entitlement to assets held in trust. In the case of someone with assets held abroad, UK tax may be due on everything no matter where it is located. Equally foreign tax may also be due.

Time limits

There are strict time limits for submitting a tax return and paying an tax due.

Protecting the Personal Representatives

Personal Representatives are responsible for carrying out the estate administration and distributing the assets to the beneficiaries. If they do not locate all of the debts, they can become personally liable to pay the debts. It is possible to protect the personal representatives by placing Statutory Notices to Creditors and this should be considered before making any payments from the estate.

Wills

Quick read:

A will is way of ensuring your wishes are met when you die. You can choose who carries out your instructions and give your financial assets and personal possessions to your chosen beneficiaries. A will can also be used to reduce the amount of Inheritance Tax paid when you die. If you do not have a will in place, the law will decide what happens to your financial assets and personal possessions.

In depth:

What is a will?

A will is a document you sign to state what happens to your financial assets and personal possessions when you die. You can also choose people to look after your children if they are under 18 when you die.

There are very strict requirements that must be met when you sign your will. If it is not singed in accordance with legal requirements it will not be valid.

How will it help?

By creating a will, you can choose who receives your assets and possessions. You can also include methods of protecting your beneficiaries by delaying the age they inherit or by putting their share into a trust to protect against events that may cause the inheritance to be lost.

It also gives you an opportunity to set up your estate to make it as tax efficient as possible by making the most of tax exemptions.

What happens if I do not have a will?

If you do not have a will, the law will decide what happens to your estate. This is known as the rules of Intestacy. A brief summary of the rules are below.

Surviving Relatives Who receives your estate
Spouse or civil partner only (unmarried partners are not included) Spouse or civil partner receives all of your estate

Spouse or civil partner and issue*

 

* Issue includes children. If one of the children dies, their share will be given to their children and so on.

Spouse or civil partner receives:

·       Personal possessions

·       £250,000

·       50% of the remaining estate

Issue receive:

·       50% of the remaining estate

Issue only*

* Issue includes children. If one of the children dies, their share will be given to their children and so on.

Issue receive all of the estate in equal shares.
Parents only Parents received all of the estate in equal shares

Siblings or if they have died, their issue*

* Issue includes children. If one of the children dies, their share will be given to their children and so on.

Siblings will receive all of the estate in equal shares. If they have died, their issue will receive all of the estate in equal shares

What should I consider:

The value of your estate:

Your estate consists of what is left of your financial assets and personal possessions once any debts have been paid.

For Inheritance Tax purposes, it can include gifts you have made and any trusts you have benefited from as well as your share of jointly owned assets.

Executors:

An executor is the person that carries out the instructions in your will. You need at least one executor and it is good practice to appoint no more than four people. You can also appoint a professional executor such as a solicitor. Executors cannot change your wishes and must follow the instructions in your will.

Beneficiaries:

A beneficiary is a person that will inherit from your estate. It is often assumed that a surviving spouse will inherit all of your estate if you do not leave a will but this is not always the case.

You can choose which age they inherit and whether or not you wish to protect their inheritance further through the use of trusts.

You should consider what happens if that person dies before you.

Children/guardians:

If your children are under the age of 18, you can appoint guardians to look after them until they reach the age of 18.

Protection:

It is often appropriate to protect an inheritance for a beneficiary to avoid it being lost. A straightforward way is by specifying an age at which the beneficiary should inherit. However, it can be protected further by using trusts. This is often the case when the inheritance needs to be protected against care home fees, divorcing beneficiaries or if a beneficiary is vulnerable.

Tax:

Everyone has an amount that is free of Inheritance Tax. Everything above this amount is subject to Inheritance Tax unless an exemption applies. This must be carefully considered when making a Will as tax can dramatically reduce the amount given to your beneficiaries.