DIY Estate administration
There is a saying in the legal profession that lawyers make more money sorting out home made wills than they do drawing up wills for their clients. On the whole this is very true and any private client lawyer can tells stories of horrific examples he or she has dealt with. Assuming though that your deceased relative left a correctly drawn and executed will what have you got to lose by doing the estate administration yourself? The answer could be ‘thousands of pounds’
In the current economic climate we get more and more requests from executors to send them the will so they can carry out probate themselves. There seems to be a common misunderstanding that it is merely a matter of filling in a few forms. So what could possibly go wrong? Here are a few examples of DIY disasters
Taxation and Inland Revenue penalties
HMRC now have a very strict penalty regime. It is essential to have accurate valuations of all the assets in the estate and to make sure everything is declared. This includes the five thousand pounds auntie gave you to treat yourself last summer and which falls within the seven year rule. The penalty for non disclosure is as much as 100% of the tax due, depending on the circumstances. This could result in a hefty bill.
The rules governing taxation of income and capital gains in estates can be complicated. If the deceased was a tax payer in life then there may be outstanding tax issues from the last tax year of his life. Disposal of assets may result in an avoidable capital gains tax bill if handled incorrectly. Charities will be especially hot on tax issues where they are beneficiaries as they have special tax privileges. They will not expect to lose out if you incur an avoidable tax charge.
Are you really a hundred per cent sure you know your relative’s finances inside out? Many executors have discovered to their costs that the deceased had some spendthrift habits. The writer handled one case where an elderly lady living in a granny annexe managed to run up thousands of pounds in credit card bills without her family’s knowledge. Remember that today many financial institutions encourage the use of online statements only so the absence of paperwork is not something to rely on. An executor who distributes an estate without notice to potential creditors becomes personally liable for any debts which subsequently come to life. Do you think that the beneficiaries will give you back the funds when this situation arises? Is the credit card provider going to understand when you explain there is no money left because the beneficiaries were pressing for payment?
Misunderstanding the will
Do you really understand what the will says? Are you aware of the various duties and obligations on trustees where there are minors involved? To give an example of another case the writer dealt with:-
Fred was executor of his mother’s estate. She left some money to her friends’ children who were very young at the time of her death. Fred didn’t see the need to hold the money in trust until they attained 18 and could give him a receipt and discharge him from his duties. Who needs the hassle? He handed over the money to the parents. Years passed and the children reached 18 They came to him and asked for their money. He explained he had handed it to their parents. Fred sought legal advice. A perusal of the will revealed no power to pay to a parent or guardian had been included so that Fred had acted beyond his powers. The parents had long since spent the money but the estate still owed it to them and Fred was liable.
In home made wills the use of incorrect terminology can often increase the risk to executors. ‘Money’ for instance has a statutory definition and, although frequently used by writers of home made wills does not mean what the man in the street generally thinks it does.
Incorrect allocation of assets
A will speaks from death. Consider the following scenario:-
Maud makes a will in 2002 leaving ‘my house 8 Any Street’ to her nephew. She does not envisage ever moving house and declines to insert a substitutional gift of any future house. The residue of her estate goes to a local charity. In 2007 Maud is dismayed to hear of plans to develop fields adjoining her house and moves to another locality. She dies in 2014 and her executor decides to save money by doing the probate himself. There is a small amount of money and the new house. He immediately arranges a transfer of the house to the nephew and sends a cheque to the charity. The charity’s legacy officer requests a copy of the will and immediately asks questions. The nephew considers that his aunt clearly intended him to have her home and refuses to transfer the house to the charity. Expensive litigation ensues.
Similar issues arise with smaller items or with sums of cash where there is insufficient money to pay them all. There is a strict order of payment which has to be observed.
If the deceased received means tested benefits in life the DWP will be notified that probate has been issued. They will often write for a breakdown of the assets. The purpose is to check that the assets declared during the deceased’s lifetime were correct. Often the estate at death will be greater due to the inclusion of assets which are ignored for means testing but sometimes the deceased will have under declared his assets. An investigation can drag on for months and the estate cannot be distributed until it has finished. The problem is that often the DWP will take some time to write the first letter of enquiry so that the DIY executor has already distributed funds.
Missing or unknown beneficiaries
Relationships in families tend to be ever more complicated these days. Numerous permutations of natural children, stepchildren, half brothers and sisters, adopted children and children who are treated as adopted but are not officially so can occur within one family. Intestacy rules ignore step relationships and wills need to make their status clear. Do you know for sure that your auntie did not have a child before her marriage who may be able to claim provision from the estate? The writer has seen many instances of confusion between the terms ‘stepsister’ and ‘ half-sister’ which can lead to errors in distribution. In short the term ‘my children’ may include unknown beneficiaries and exclude some you might think qualify.
So, in summary,what are the risks of DIY administration? In a nutshell – the risk of incurring personal liability for debts or incorrectly allocated assets is very high. Financial institutions and beneficiaries both have rights against the erring executor and the tax man is very unforgiving of errors. If you are concerned about costs please discuss the position with us. We can tailor our level of service to your requirements. For example, in a straightforward estate we can extract probate for you and leave you to distribute the money and produce accounts. Our private client team have many years training and experience in this area of work and do regular training to keep up with developments in the law. People often think it will be dealt with more quickly by doing things themselves but distributing the estate too early is a very common mistake in DIY probate. We will always progress matters as swiftly as possible but with attention to the time limits for creditors and potentially unknown beneficiaries to come forward. The last thing any executor ever wants to do is to have to ask a beneficiary to pay money back.
NB the case where you may be most inclined to do it yourself is the one where you should definitely not – the situation where the estate is insolvent. There are strict rules governing insolvent estates and the order of payment of creditors. Please seek our advice and make sure it is done correctly.