Private Client expert, Louise Wilson explains some of the terminology used when discussing the Estate of a person who has died, which a family member may not be familiar with, and considers why it is so important to have a valid Will.
Grant of Probate
When a person dies leaving a valid Will, we advise on the need to obtain a Grant of Probate, but what does this mean?
When a person leaves a valid Will, it appoints who will be the Executors of the Estate. The Executors have a duty to determine the value of all Estate assets and liabilities. This is required so that the Executors know what assets and liabilities are in existence and whether there is any inheritance tax due. This is commonly known as the information gathering stage. When the value and nature of the Estate is known, the Executors then apply to the Probate Registrar for a Grant of Probate. This is a legal document which proves the Will (as being valid) and confirms that the Executors have the authority to deal with the assets of the Estate.
Letters of Administration
If a person does not leave a valid Will or if there is a Will but the Executors named do not want to act or are unable to act as Executors, the people who undertake the information gathering stage and then deal with the Estate are known as the Personal Representatives or Administrators. In this situation, the distribution of the Estate will be determined by the provisions of the Intestacy Rules, which outline how an Estate is divided up where there is no Will. When the information gathering stage has been completed, the Personal Representatives apply for Letters of Administration. This appoints the Personal Representatives and gives them the power to deal with the assets of the Estate.
For clarification, a Grant of Probate confirms the powers of the Executors whereas the Letters of Administration appoints and gives the powers to the Personal Representative.
When the Grant of Probate or Letters of Administration has been issued, the Executors or Personal Representatives, move on to deal with the administration of the Estate. This is commonly referred to as the period of administration, which is the period from the day after the date of death, until the Estate has been distributed, either in accordance with the last Will of the deceased or under the Intestacy Rules.
During the administration of the Estate, the Executors or Personal Representatives will liquidate assets, close accounts, collect in the cash from the accounts, sell properties, shares and investments. They also have a duty to report to HM Revenue and Customs to let them know if there is any outstanding income tax liability for two distinct periods:
- firstly, from the start of the tax year in which the deceased died and up to the date of death
- secondly, for the period from the date of death and up to the completion of the administration of the Estate.
This will often mean reporting interest, income paid on accounts, dividends paid on shareholdings or investments and paying the identified income tax. Equally, they must also consider if there is any other tax liability in regard to inheritance tax and capital gains tax. To do this, the Executors or Personal Representatives will need to know the income the deceased was receiving up to the date of death including state pensions, private pensions, annuities, income generating investments and shareholdings.
When the tax affairs of the deceased have been settled with HM Revenue and Customs, the Estate can then be distributed either in accordance with the Will or under the Intestacy Rules to the beneficiaries.
If there isn’t a Will, family members need to understand who has standing to act as a Personal Representative. This can often cause conflict within families or just a lack of understanding as to what they need to do.
However, if there is a Will, the Executors are the people nominated by the deceased and as such, often have an understanding of their duties in advance.
Expert Legal Guidance
Unfortunately, in both situations when a loved one has died, the last thing family members really want to do is start to deal with the above issues. As such, many do come to see a Solicitor and instruct them to deal with the above matters for them. The Solicitor undertakes the information gathering, prepares the required application for the Grant of Probate or Letters of Administration, settles the tax affairs of the deceased and then can also distribute the Estate to the beneficiaries in line with the Will or under the intestacy rules. The Executors or Personal Representatives approve everything the Solicitor does on their behalf and in particular will be asked to approve an Estate Account which the Solicitor will prepare. The Estate Account will provide a breakdown of how all Estate assets and liabilities were dealt with and then how the Estate was distributed. This approved Estate Account is then given to the beneficiaries so that they can see that they have received their full entitlement. When the whole of the Estate has been dealt with and distributed, this then concludes the period of administration.
The importance of a valid Will
There really is so much to consider when a person dies; it can be overwhelming to those left to deal with it. When there is a Will, there tends to be a better understanding of what happens and who has the duty to do it. However, if there isn’t a Will it does complicate matters for the family and it can also lead to an inheritance tax liability which could perhaps have been avoided otherwise.
As such, it is better to have a Will in place, to discuss with your nominated Executors what they will be expected to do and let family members know you have made a Will.
Equally, if you are an Executor or Personal Representative, it can be beneficial to seek expert legal advice on what your duties are and how best to discharge them.
Our team of Wills, Tax & Estate Administration experts can guide you through the Probate and Estate Administration process. If you have not already drafted your Will they can also help you do this. Contact the team for further details. Girlings has offices Ashford, Canterbury and Herne Bay.