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The pitfalls and risks when you are a personal representative
You may have been appointed as an Executor in someone’s Will or be acting as an Administrator (when there is no Will) and therefore need to deal with the administration of the deceased’s estate.
A Personal Representative (PR) is the collective name for an Executor or Administrator. Being a PR is not straightforward and there are many pitfalls and risks to avoid. Listed below are some of the areas which a PR should be aware of. This list is not intended to be exhaustive.
How do I know that I have taken account of all the deceased’s assets?
If you do not have a good knowledge of the deceased’s assets, it is important to make as many enquiries as possible amongst the deceased’s paperwork and with those who may have been close to the deceased, for example, an attorney appointed under a Lasting Power of Attorney during the deceased’s lifetime. If this is not possible, a search can be carried out to ascertain assets which the deceased may have owned, for example, unknown bank accounts.
It is very important that all assets are declared when submitting the probate application as HMRC can impose penalties and interest if they consider that the fullest enquiries have not been made to ascertain the assets of the deceased and therefore they may consider the PR has been negligent.
Do lifetime gifts have to be declared?
It is very important that any gifts over £3,000 made in the 7 years before the date of death are declared in the HMRC Inheritance Tax forms as these may result in inheritance being payable or if the estate is already liable to inheritance tax, additional inheritance tax being payable. HMRC have the power to request 7 years of bank statements and look through them and if gifts have either been deliberately or accidentally omitted from the forms, they may impose penalties and interest. Therefore, the fullest enquiries should be made by the PR to ascertain whether the deceased made any lifetime gifts which they need to declare to HMRC.
What happens if creditors make a claim against the estate after it has been distributed?
One of the key duties of a PR is to ensure that all liabilities have been settled prior to distribution of the estate. If the estate has been distributed and a creditor later comes forward, the PR will be personally liable to settle the debt. PRs can protect themselves from personal liability by advertising for creditors in a publication called the London Gazette and a local newspaper to where the deceased lived. Creditors must bring their claims before the expiry of 2 months of the publication of these notices, after which time they will no longer be able to have a claim against the PR.
What are the consequences if the estate has been distributed and the amount of inheritance tax paid was incorrect?
If a PR distributes the estate and it is later found that all the inheritance tax due has not been paid, the PR is responsible for getting the money back from the beneficiaries to settle the tax. This can prove very problematic, for example if the beneficiary has invested their inheritance on a property and has no liquid assets to pay the estate back. Interest starts to accrue six months after the date of death on any unpaid inheritance tax. This can amount to substantial sums and will be in addition to any inheritance tax owed. It is therefore imperative that a PR ascertains all the assets and liabilities of the deceased as at the date of death and ensures that they settle all the taxes due, not just inheritance tax but income tax and Capital Gains tax.
These are just some of the areas where PRs need to be mindful of when dealing with an estate administration. It is therefore extremely important that the estate administration is dealt with correctly as otherwise there could be serious consequences for the PR.
The experienced Private Client Team at Judge & Priestley can ensure you comply with your duties and responsibilities as a PR. For a free, no-obligation consultation, please do not hesitate to contact the Head of Department, David Chandra on 020 8290 7348 or by email at firstname.lastname@example.org