In this episode, Fiona Taylor, Senior Associate with Warners Solicitors, discusses probate.
Fiona explains what probate is and the different approaches taken depending on whether the deceased has left a Will or if they have died intestate. She describes the various stages that are involved, from applying for probate to the distribution of the assets.
She discusses why some people choose to administer the estate themselves and why some people instruct solicitors either for the whole process or for a part of it.
Fiona also talks about Inheritance Tax. She describes who is responsible for paying it and by when and the fines that can be issued if the deadlines are not met.
Transcript
Paul
I’m Paul Harvey and welcome to the Warners Solicitors series of podcasts. I’m delighted to introduce Fiona Taylor for this podcast, and we will be discussing probate. Now, before we embark on the topic, Fiona, would you please tell us what you do with Warners?
Fiona
I’m a solicitor at Warners, I’m a Senior Associate. I’ve been here for over 20 years. The bulk of my day is spent administering estates, but I also deal with clients Wills, Powers of Attorney and trust administration.
Paul
Thanks, Fiona, so let’s start with the question what is probate?
Fiona
It’s the administration of someone’s estate after they’ve died, so you’re only really going to be dealing with this type of work if someone has sadly died, either they’ve left a Will, or they haven’t left a Will, in which case intestacy rules come into play. They are the rules that state who gets to administer the estate and who gets the money. If you’ve got a Will, then they will say who the executors are, the people that administer the estate, and it will also say hopefully who the beneficiaries are as well. There’s a lot of talk about grants of probate, grants of representation, but the main thing to remember is that probate is where you have a Will, and intestacy is where you don’t have a Will.
Paul
Would you like to give us an idea of the various stages in administering somebody’s estate?
Fiona
The whole reason why you get a grant of probate is that it’s evidence that the executors are the people who are entitled to administer the estate and receive the assets. The whole idea is that the bank would then give the money, for example, to the executors, and the bank doesn’t need to concern themselves about whether the executors are giving it to the right people because the executors are duty-bound to do that.
I mean, there’s plenty of stages in administering an estate, but the first stage is really registration of the death, funeral arrangements, locating the Will, securing a property. A lot of clients do that themselves, and then they come to see us. The next stage is to work out what is in the estate, what are the assets, are there any liabilities, who do we need to notify, because it’s important to notify the asset holders and the creditors so that you can obtain values at the date of death. This does mean that the assets are frozen, but that’s a security benefit to ensure that no one has access until the right people, the executors, can have access. Then you can apply for probate, and I’m sure we’ll talk a bit more about what that actually means later on, but once you’ve got your probate, you can then collect in the assets and then distribute everything in accordance with the Will or the intestacy. That’s very much an overview, but it gives you some idea of the various stages.
Paul
Who’s in charge of the estate administration?
Fiona
Well, if you’ve got a Will, it’s the executors. Their authority comes from the Will. If you die intestate, then the law gives you a list of who is entitled to administer the estate, which normally follows who is going to get the money, so it’s normally family members so spouse or children, and it’s their responsibility to ensure that the estate is administered in accordance with the Will and the law. The important thing to notice is that the administrators actually aren’t authorised to act until they’ve got the grant, so that’s another reason why dying intestate isn’t perhaps a good idea.
Paul
Can executors administer the estate themselves, or must they use a solicitor?
Fiona
That’s a good question. The answer is no, they don’t have to administer it themselves, and they don’t have to use a solicitor. If you’re named as an executor in a Will, then you are the person who decides you may have a co-executor with you. If so, it’s a joint decision how you deal with things. The only time you have to use a solicitor is if the executors named in the Will are a firm of solicitors, but other than that, the executors can decide if they want to deal with things themselves or do they want to ask solicitors to assist.
We deal with a lot of lay executors, and we discuss with them how much involvement they want us to have, so I’m very used to obtaining just the grant of probate for a family or sometimes, indeed a lot of the time, I’m dealing with an entire estate. The decision isn’t just one on costs. Initially, a lot of clients approach it on that basis, but I’m always conscious that the executors are often very recently bereaved. They’ve got to manage all those emotions together with a job and probably a family. It’s a lot of work to take on an executorship. So, whilst a lot of clients might initially say, “what is the cost?” I always say to them balance that with how much time do you have? How business-minded are you? Is it going to be easier to get the beneficiaries off your back if you simply say I’m going to hand this over to the solicitors who can deal with it for me?
The only other thing I’d say about who to use is think about the complexity of the estate. If there’s a lot of Inheritance Tax calculations or family tensions, then again, using a solicitor really helps as we’ve got the Inheritance Tax expertise. We’re very used to dealing with families where there’s perhaps a little bit of tension. It can help if we’re an independent person in the middle to deal with those matters.
Paul
So, you’re a specialist with IHT (Inheritance Tax) calculations?
Fiona
Yes, and that’s quite a bit of the work, actually, so we talk about applying for probate but applying for probate, a lot of the time is spent calculating the tax and getting that form accurate for HMRC.
Paul
Very important to get that right, of course. So what paperwork is needed to apply for a grant of probate?
Fiona
Well, there’s a probate application form which is actually normally quite straight forward and these Inheritance Tax forms that I mentioned. They’re the ones that can take a lot of time because they list out the assets, they list out the liabilities, they list out any IHT exemptions, they calculate the tax. Every estate has to complete an Inheritance Tax account to either confirm that there isn’t any Inheritance Tax to pay or to report the amount of Inheritance Tax that’s due. You’ve got to do that before you apply for probate, and the actual probate application form now for the majority of estates is now online both for someone who’s applying in person and also solicitors, so we all have our own online accounts now with the probate registry to process the actual application.
Paul
Is this a speedy process these days?
Fiona
So with an estate that’s paying Inheritance Tax, you submit your Inheritance Tax forms you pay your tax. It takes about a month to get a receipt from HMRC. They send it directly to the probate registry. By then, you will have sent in your probate application, and that’s matched up with the receipt from the revenue, and then, at the moment, it’s about two, maybe sometimes three months the probate registry are taking to process it. This is a direct result of the system going online, unfortunately. So at the moment, it is not particularly speedy. Which is why it’s really useful to get a start on the estate as soon as you feel able to do so because you’ve got to factor in these months that are spent waiting for paperwork at outside organisations.
Paul
Is there any difference if there is no Will?
Fiona
Well, the only difference is that it’s the intestacy law that confirmed who inherits and who’s entitled to administer the estate, and we would usually suggest that you seek legal advice because it can be complex, especially if you’ve got minor children, but the actual probate procedure with completing an application form for the probate registry and completing the Inheritance Tax forms is the same.
Paul
We talked about how long it takes to obtain a grant of probate but is there a deadline to apply for probate?
Fiona
Interestingly there is not a formal deadline for probate itself, although you could find that you get increasingly angry beneficiaries if you are not actually progressing the estate as it needs to be. The important deadlines really are all around the Inheritance Tax. Inheritance Tax interest starts running six months after the end of the month of someone’s death, and then an Inheritance Tax account is due one year after someone’s death. If you don’t submit that account, it’s a £100 fine, but the interest starts accruing roughly six months after someone’s died. So most people try and get their account in and some tax paid as soon as possible because whenever you pay over Inheritance Tax, that will stop the interest running on that bit of tax.
Paul
Just out of interest, was there any change on Inheritance Tax in this last budget?
Fiona
Not particularly, no, apart from the fact that they froze the allowance rates for the nil-rate band and residents nil-rate band, but they haven’t made any major changes recently.
Paul
Is it true that you have to pay some IHT to get the grant of probate, but you don’t have access to the assets?
Fiona
Yes, it’s this chicken and egg situation that you’ve frozen the bank accounts. If you’ve got shares or a portfolio of investments, they will be frozen, but then in order to get the grant of probate, you have got to pay some Inheritance Tax. It’s usually the Inheritance Tax on the cash assets that has to be paid at the six month period. Inheritance Tax on the property has to be paid in ten annual instalments. They start from that six-month deadline, so you have to pay the Inheritance Tax on the cash and potentially 1/10 of the Inheritance Tax on the property before you can obtain the grant. You don’t actually have access to the assets, but banks will allow access to the bank account for the payment of Inheritance Tax, and very often, investment companies, if you fill in their forms, will allow you to sell some investments but only the amount you need to raise for Inheritance Tax. Then usually, what happens is those organisations send the money direct to HMRC, and there’s a reference number that links everything up so that HMRC know that to the tax for that particular client. Then they can issue their receipt and send it on to the probate registry.
Paul
So, could you please describe how Warners can really help with ensuring IHT accounts are accurate, and allowances are available etc.?
Fiona
An Inheritance Tax form is a complex form. There is a main form and lots of schedules we are obviously used to dealing with these forms day in day out we’re very familiar with the backing notes that come with these forms so we know what exactly what has to be put into the form and what enclosures HMRC will need and if you do not complete the form accurately then you as an executor can be liable for inaccuracies obviously that’s quite a complex area with penalties so I wouldn’t propose to go into that in any more detail but it is important to say that HMRC could charge the estate and the executors in some circumstances penalties for not completing the form accurately not enclosing all the information about the assets so as solicitors we are able to advise clients who might come to us and say well this is a simple estate there’s just this this and this and then I say “oh but did they not have any furniture” and they’ll say “oh yes well they collected antiques all their life” and I’ll say “well then we need to value those” or someone might say “oh I don’t think I need to value mum’s jewellery” and will say “well yes you do”. So it’s picking up on these things
It’s also picking up on allowances that may be available so if we’re dealing with someone’s estate and it’s the death of a second spouse and first spouse died a while ago and we weren’t involved the family might not talk about that much but we will talk about that and we’d say what happened because you can transfer allowances between spouses so I’ve had that before where someone’s come to me and said all we’ve got lots of tax to pay and then when I’ve looked at it I’ve been able to say well you haven’t remembered this transferable allowance and don’t forget the gift to the Church of the gift to the school it can be charity exempt as well so we can really make sure that those accounts are accurate and the important thing with HMRC is getting accurate at the beginning what you don’t want them to do is open inquiry because then they will start looking at absolutely everything in the estate.
Paul
I think it’s fair to say that this is where your experience comes into play, Fiona as you said at the beginning, you know with over 20 years of experience, you are now very adept in making sure these IHT accounts are accurate you make the clients clearly aware of what’s available to them.
Fiona
Yes, absolutely, and you very often find that you’ll have one or maybe two family members acting as an executor with other family members as beneficiaries as well as the executors being beneficiaries. So, it can be really useful to employ an expert so that executors would say to the beneficiaries, “look, the solicitors are dealing with it, this form is going to be accurate, this is the information it’s all correct.” Rather than have the beneficiaries come to the executors and say, “oh, are you sure you’ve done that right? What about this? What about that? My friend spoke to their friend who said that it’s supposed to be this”. It can actually make it a lot easier for the executors a lot less stress if they’ve actually given that work over to someone who can deal with it as an expert.
Paul
That’s very clear. OK, so once you have the grant of probate, what happens then?
Fiona
I would very much see that as being the second half of the estate the halves aren’t necessarily at the same time length but you’ve got your grant of probate you then are given lots of copies of it with an official seal on each document and you can send those off to the bank accounts and you can sell the investments, close the bank accounts and then the executors will receive the money and if Warners are dealing with this aspect then we would use our client account the money would come into Warners we could then pay the liabilities, pay any legacies, look at paying off more of the Inheritance Tax to make sure that you’ve mitigated any Inheritance Tax interest.
The other important thing is that if you have a property in an estate which is very common you are then able to exchange contracts for the sale of the property so you can always put it on the market as soon as you want but you can never exchange contracts and complete on the property sale until you have this grant of probate so very often the estate will last as long as it takes to sell the house and then you can pay off all the Inheritance Tax because the executors want to make sure that their responsibility to pay that tax is ceased before they then give the money to the beneficiaries in the Will.
Paul
Fiona, would you like to just cover quickly the way Warners can deal with all these aspects and provide estate accounts?
Fiona
Yes, absolutely Warners obviously can apply for the grant probate for you and then when we get the grant of probate, we can arrange to close down the bank accounts and sell the investments. There often tax implications in selling investments. We can advise on that. Once the estate is in funds, we can pay the legacies and the liabilities and sort all that out for you. The other thing that’s important for executives is to be able to prove to the beneficiaries of the estate what they’re entitled to. They will have been given after the grant of probate if we’re acting, a statement that says these are the values at the date of death, but that very often is completely different from the value that they will receive. Shares may have gone up or down in value, or property may sell for a different price. So it’s really important to show them in estate accounts what you started with what you have to spend out on, for example, Inheritance Tax and administration expenses and legal fees and then what you’re left with to distribute to the beneficiaries and also don’t forget that income tax returns may well need to be to completed by the executors. We have a chartered tax adviser who works with us and is able to do that aspect of the estate as well.
Paul
And do the executors have to keep the beneficiaries informed of everything that they do?
Fiona
Well, not absolutely everything. It’s striking a balance, but if Warners is acting, then we keep the executors up to date. Then they usually, if it’s a family estate, will then filter down information to the beneficiaries, but they should keep them updated on general progress and at the beginning of an estate let them know what they are entitled to. It’s different if you’re entitled to a set sum of money, so someone might be left £1000 by great auntie Mabel, that’s different from being left the 5th of someone’s estate, for example. Someone who’s been left a share of the residue would have more rights and should be consulted before you deal with sales of major assets so properties or investments, for example. It’s important to remember that if you’ve got charities involved either as a residuary beneficiary or as a charity receiving a set amount of money, then additional rules can apply, and charities can be quite detailed in what information they want in order to satisfy their auditors and so we’re very used to dealing with the charities requests as well.
Paul
How long will it take to administer an estate?
Fiona
Well, that’s sort of how long is a piece of string, and it’s fascinating. It’s probably the question that I get asked most when I’m out and about is “oh, it can take forever” and “my friend’s estate took ages and ages”. The answer is that all estates are different. The key is to try to move things on as quickly as you can after the bereavement so that you maximise the chances of finishing sooner. Very often, an estate takes longer if you’ve got complicated assets; if you’ve got a house but very little cash so you’ve got to try and raise some Inheritance Tax, and that’s difficult because you don’t have cash in the estate. If you’ve got complexities, if you’ve got a business, if you got warring beneficiaries that can very often increase the amount of time it takes. A solicitor can really help here because it’s our dedicated job to move these estates forward that’s what we specialise in, so we can try to maximise the chances of moving things along, but there isn’t really any set time scale because all estates are different.
Paul
Thank you, Fiona Taylor, of Warners Solicitors. We’ve been talking about probate in this podcast.