Private Client Bulletin 5

Will you be my Executor?

You might think this is a question to which you do not actually have to give a lot of thought to, but consider who it is asking the question – how well do you know this person, do you have any inkling as to their wealth, their family, any family issues and many other questions.

If it is a spouse, parent or even a sibling you may well think this is fine – what can go wrong?  What if the question is asked by a friend or neighbour – you may well want to appear to be helpful and not want to cause offence by turning them down but do you realise executors have liability of their own and these can be extremely onerous.

Consider a recent case where an executor released a substantial amount of money to a beneficiary in the belief that the beneficiary would in turn pay the inheritance tax liability – the beneficiary subsequently returned to a certain island in the sunny Caribbean Sea leaving the executor liable for the IHT in the region of £340,000.

Executors have liability for the assets of an estate as soon as the death occurs under the powers they are given in the Will.  They are liable not only to the beneficiaries but to HMRC, the DWP and any debtors of the estate.

There are a number of rules you must follow and it is essential that you know the full extent of the deceased’s debts, liabilities and potential claims on the estate before you make any distributions.  If you don’t you could find yourself as an executor personally liable particularly if you were to distribute funds inadvertently or before it was appropriate to do so.

It is not just high value estates which you need to be wary of - there are also claims which can be made by the DWP if the deceased had previously under-declared their savings and/or income and had been in receipt of certain benefits such as pension credit.  If the DWP make a claim and the executor has already distributed the estate the executor becomes personally liable for the debt.

Protection can be taken out against debts by placing an advertisement to creditors under the Trustee Act 1927 in a local newspaper and the London Gazette – this gives any would-be creditors 2 months to claim against the estate and protects the executor thereafter.

An executor must not pay a bankrupt and therefore it is important for the executor to carry out bankruptcy searches – if they pay someone who is bankrupt the executor will fall foul of the Trustee in Bankruptcy and again would be personally liable for the amount distributed.

Inheritance Tax (if any) must be paid by the executor and a Grant of Probate obtained.  An executor has a duty to submit correct valuations of the assets in the estate, HMRC may not accept these valuations – it is an executors duty to deal with IHT issues correctly and ensure that they agreed and that HMRC has no enquiries or no further IHT is due before making any payments to any beneficiaries.

Income tax must be finalised and agreed with HMRC – again if it is not and HMRC come back to the estate at a later date and the estate has been distributed then the executor is liable.

Consider a left out beneficiary or a beneficiary that had been estranged from the deceased – if this is a close family member and/or falls within the categories of the Inheritance (Provision for Family and Dependants) act 1975 an executor must consider the possibility of this person or persons making a claim against the estate – bear in mind that claims can be made any time from six month of the issue of the Grant of Probate – if there is any possibility of a claim an executor must resist the pressure of the beneficiaries and should not distribute until ten months from the date of the grant to allow for service of the proceedings.

An executor does not get paid for carrying out his or her duty – they cannot claim time for acting and can only claim out of pocket expenses.  However, bear in mind that an out of pocket expense can be paying a firm of solicitors to act for them and assist them in carrying out their duties – taking into account any pitfalls which could come up along the way.

Do not be tempted to think an appointment as an executor is a simple administrative task – it is not – it is an extremely important legal duty which if not carried out correctly could leave you with a personal liability. 

At Parfitt Cresswell we have a very experienced Private Client Department which can assist you with your appointment as executor and help you through the journey and any problems that may come up along the way.

To arrange a complimentary initial video/telephone consultation with a member of our team call 0800 999 4437 or email enquiries@parfittcresswell.com today.