We are now at the start of our fifth week of the coronavirus lockdown and many will be wondering how the pandemic might affect a person’s duties as an executor or trustee.
However, despite the uncertainty over how long social distancing will last and the rise in virtual legal services, the onerous obligations placed upon those acting as executors or trustees of estates remain constant.
In light of the current situation, our team at Watermans have put together a quick list of reminders for trustees and executors so they can remain alert to their responsibilities, and seek to protect themselves from any allegations of a failure to meet the standards required of them. Here’s the answer to some of your questions below.
The process of winding up an estate
Watermans can advise on the legal steps that need to be taken after death. Winding up the estate of a deceased means following a formal process to then allow distribution of financial and property assets.
The initial stages are for relatives to register the death and organise a funeral. The role of a solicitor is to assess the asset and liability position, a key point being completion of the confirmation and tax forms. Thereafter, the estate can be ingathered and distributed to the beneficiaries.
Did the person have a Will and what other key documents are required?
A Will is often held at the law firm who had been acting for the deceased. A Will contains important information, such as who will be appointed as Executor and naming the beneficiaries.
The solicitor who is winding up the estate will need the death certificate, title deeds of property, bank statements, life policies and any other evidence of assets and debts. The aim is to prepare a summary of the estate value at the date of death.
What happens if there is no Will?
This is referred to as the individual dying “intestate”. This means that the deceased’s estate will be distributed according to the law of intestate succession in Scotland. There are also further administrative steps that need to be taken where there is no Will and your solicitor can guide you through these steps. This will include applying to court for appointment of an executor and taking out insurance cover (a Bond of Caution).
What is an Executor and what do they do?
An Executor is the person who is responsible for administering the deceased’s estate. The executor will appoint a solicitor to act.
Winding up a deceased’s estate includes: ingathering information regarding the deceased’s estate such as bank balances, house valuation, insurance policy valuation, shareholding valuation, completion of the confirmation form & IHT400 (where applicable), obtaining certificates of confirmation, ingathering funds and selling property, repaying any debts and paying inheritance tax and also signing important documents. Lastly, the executor’s most important task is to distribute the estate to the beneficiaries.
What is Confirmation?
The Confirmation Form is a legal document that is submitted to the Commissary Office at the local Sheriff Court. This document contains an inventory of the deceased’s estate and also sets out if any inheritance tax is payable. Confirmation is needed before the executor can uplift funds and sell a property.
How long does it take to wind up an estate?
At least six months. There is a process to follow, as described above. Each stage takes time, for example, after submitting the confirmation form there is a turnaround time of at least six weeks. A property can be marketed in advance of securing confirmation, but the sale cannot proceed until the certificate of confirmation is issued to the executor.
Will the estate need to pay Inheritance Tax?
Inheritance Tax (IHT) is sometimes payable on a deceased’s estate. This will depend on the value of the estate as at the date of death. Depending on the circumstances, some lifetime gifts may also need to be included in an IHT calculation (the 7 year rule applies).
Currently, those who live and work in the UK for tax purposed have a “Nil Rate Band” allowance of £325,000. On the basis that an individual had not given away gifts during a certain period prior to their death, as long as their estate was under £325,000 there would be no tax payable.
Where parties are married or in a civil partnership, they may be able to make use of the “Transferable Nil Rate Band”. Transferable Nil Rate Band arises where one spouse or civil partner dies and their estate does not use up all of their Nil Rate Band allowance.
Lastly, a tax exemption relating to residential property known as the “Residence Nil Rate Band” increased from £150,000 to £175,000 on 6 April 2020.
The above exemptions can amount, in certain circumstances, to the first £1M of an estate to be free of inheritance tax.
Watermans can advise you further on the various aspects of IHT relating to an estate.