You've been appointed as an Executor. What happens next?
A friend or a family member has recently passed away and you have been named as an executor in their Will. It's quite flattering, because they've chosen you ahead of their own kids and other close relatives, which must mean they considered you far more sensible and responsible than any of them.
And It all sounds fairly straightforward. As far as you are aware, they owned a house and probably had a bank account with a bit of money in it. The Will, which you've seen, leaves a couple of financial gifts to personal friends, and then the rest of their estate is to be divided equally between their children, both of whom are in their twenties.
But before you get started, beware that the responsibilities of an executor are extensive and carry personal liability so make sure you know exactly what needs to be done or seek specialist advice from a solicitor. There is a lot that can potentially go wrong as you try to satisfy the demands of differing interests.
As an executor, you will be responsible for ensuring that the death is registered and that funeral arrangements are made. You will need to make sure that pension payments are stopped and that all direct debit payments out of the deceased's accounts are frozen. You will be required to value the estate and account to the Inland Revenue for any Inheritance Tax. You will need to apply for Probate and distribute the estate promptly. If the deceased owned their own home, you may need to arrange for a house clearance in readiness for the property being put on the market, but will also need to ensure that you maintain the building insurance until the sale takes place. You will need to manage any disputes between beneficiaries and keep them informed of your progress at all times. There is a lot to be done, particularly for someone in full time employment or with other responsibilities.
One area where serious mistakes can be made is in the valuation of the estate, which you have to do to ascertain whether any Inheritance Tax is payable and, if so, how much. Valuing the estate means valuing everything owned by the deceased, including their house and it’s contents, bank accounts, premium bonds, shares, life policies, as well as the old banger parked in the drive. You will also need to find out what, if any, liabilities the deceased had, so look for credit card bills, finance agreements or mortgage statements. Some people are highly organised and may have left a folder of all their assets specifically for this moment but, if this is not the case, you may need to to rummage through the deceased’s private papers to find old bank statements or share certificates. Then you will have to write to each institution to request a value at the time of death.
Of course, nowadays people have many of their bank or credit card statements made available to them online only, so finding this information may not be as easy as you first thought. They may also have started investing online in things like Bitcoin or Foreign Exchange markets, or have an online betting account, without telling anyone.
So what happens if you miss something? If you undervalue the estate or miss an asset altogether, then you may end up paying insufficient Inheritance Tax and the beneficiaries may not receive their full share of the estate, because an account has not been cashed in. Honest mistakes can be forgiven, although rectifying them can be time consuming and frustrating, but an error made through carelessness or even negligence could have personal consequences for you, not to mention that it would leave the beneficiaries with a perception that you are out of your depth.
And what happens if you’ve failed to pick up on a debt that the deceased owed and, by the time you discover it, you’ve already paid out all of the estate to the beneficiaries? You could be personally liable to make good on that debt, especially if the beneficiaries refuse to return their share of the estate. Sometimes a debt can be obvious, such as a mortgage or credit card debt, but other times a debt won't come to light for several weeks or months after the death. For instance, if the deceased was in receipt of any means-tested benefits, the Department of Work and Pensions is entitled to make enquiries about the value of the estate in case they have been overpaying those benefits over the years. If they have, they may be able to claim back thousands from the estate. But it may take them months to reach that conclusion, by which time there's nothing left in the pot.
The deceased's home can also be a great source of difficulty for executors. The property will need to be valued for Inheritance Tax purposes at the beginning of the process. However, that valuation can be challenged by the Inland Revenue if it thinks it is too low, which could lead to more IHT being payable. The problem is that the Revenue won't necessarily do this immediately, and the executors may have already distributed the estate when the Revenue come calling.
One of the reasons why lay executors are more likely to encounter problems of this nature is because they feel under pressure to rush things and to distribute the estate quickly to beneficiaries. This may be actual pressure from a specific beneficiary that calls every couple of days because they need their share of the estate to buy a car, put down a deposit on a house, or pay off their own debts, or it could be perceived pressure that the executor is putting on themselves.
There are plenty of other problems an executor can encounter. What does an executor do, for instance, if the Will leaves the property to 2 or more people, usually the children, and one of them wants to sell it and take their share, while the others want to hold onto it for sentimental reasons? Executors need to tread carefully when dealing with family relationships of this nature. And if the executor happens to be one of those family members then the situation may be worse. And what does the executor do if one of the beneficiaries has gone missing, or has died and there is no clear provision in the Will for this eventuality?
Not all executors will encounter these problems and many will be able to fulfil their duties without the need for outside help. In many cases, though, executors will plough on without seeking help from a Solicitor, because of their belief that Solicitors costs are going to be way too high. They will have heard horror stories of legal fees running into tens of thousands of pounds for simple probate matters. However an executor can instruct a Solicitor just to deal with those parts of the process they are uncertain of - for instance, the preparation of the Inheritance Tax forms or the drafting of the application to the Probate Registry - and quite often a fixed fee can be agreed at the outset. And even if they do hand over the entire process to a firm of Solicitors, they will do so in the knowledge that any costs incurred are payable from the estate.