Executors of a Will, or administrators of an intestate estate (collectively known as personal representatives or PRs), have a number of different duties to discharge when administering an estate. One of these duties is to distribute the deceased’s estate to those entitled to it.
It is essential that the full extent of all the deceased’s debts, liabilities and potential claims are identified before PRs make payments to the beneficiaries. PRs can be personally liable to the value of the assets in the estate if they distribute them without taking sufficient account of all such liabilities and claims that might arise.
So if you are acting as a PR, how can you protect yourself against the dangers of over-distribution, and what situations are most likely to lead to this occurring?
Welfare benefit claims
If a deceased person has claimed welfare benefits during their lifetime, then the Department for Work and Pensions (DWP) will ask for details of the assets in the estate if it appears to them that the deceased person may have (inadvertently or intentionally) under-declared their savings and/or income.
This happened recently in the estate of the late Mrs Hilda Trethaway. Mrs Trethaway died leaving savings of £16,000. Her daughter, Wendy, was sole executor of her mother’s Will and distributed the estate amongst her siblings and grandchildren. She then received a letter from the DWP informing her that her mother had under-declared pension income and that they were claiming £6,000 from the estate. As the estate had already been distributed, Wendy, as the executor, was solely liable to pay the sum demanded, although her sister agreed to share the bill with her.
You should ensure that you check the position with the DWP before making any distribution to beneficiaries.
You should agree the deceased person’s income tax affairs to the date of death with HMRC. Any unpaid income tax could be recovered from you, as PR, if you have distributed assets to beneficiaries which could otherwise have been used to pay any income tax due.
Inheritance tax (IHT)
Estates in excess of £325,000 may, dependent on the exemptions and reliefs available, be subject to IHT at 40%. You will submit an account to HMRC before obtaining a Grant, which details all the assets in an estate, but these values will not necessarily be accepted by HMRC. You should ensure that their value is negotiated and agreed by the Revenue by getting a closure letter of clearance certificate from HMRC confirming that there is no further IHT due, before you make any payments to beneficiaries.
You must ensure that all other debts have been paid. You can protect yourself against claims against unknown creditors by advertising in the way prescribed by section 27 of the Trustee Act 1925.
Claimants against the estate
Claims can arise under the Inheritance (Provision for Family and Dependants) Act 1975 when someone who is a close family member or financial dependent claims against the estate on the grounds that the Will or rules on intestacy have made insufficient provision for them. These claims can be brought at any time until six months from the date the grant of representation is issued. So if you are worried about this sort of claim being made you should not make any distribution from the estate until this time plus two months for service of the proceedings has expired.
Protection against over-distribution
If you take the actions outlined above then you should avoid falling foul of the most common reasons for over-distribution. As can be seen, however, acting as a PR can be an onerous task and one where you may like to consider obtaining professional advice and guidance to provide protection against the pitfalls.