Before the administration of an estate can be completed, there are several important final steps to take. Wrapping up the estate administration involves finalising distributions, as well as dealing with final taxes and preparing the accounts. Taking care with all the last steps thoroughly will help to prevent any last-minute niggles.
Distributing remaining assets
At this point it is likely that you have distributed any legacies, whether specific items or monetary gifts, and that you are left with the residual pot of assets to allocate to one or more beneficiaries.
As an executor, you must be satisfied that any final distributions are:
- in accordance with the will or intestacy; and
- appropriate and in line with the estate assets available.
If there is a will, this sets out the shares each beneficiary is to receive. If there is no will, the intestacy rules must be followed. If you are unclear on the will’s interpretation or you are uncertain what the intestacy rules entail, you should seek advice before making any distributions to ensure you do so correctly.
Paying out too much from an estate could see you personally liable if you are left with insufficient funds to pay creditors or other beneficiaries. It is important to make sure that the figures add up by preparing draft estate accounts and ensuring these are updated throughout the administration, taking into account all of the known liabilities and estate expenses. Only once you are satisfied that all relevant liabilities and expenses can and have been paid should you make the final distributions.
Not paying the beneficiaries enough from estate funds can be equally tricky. In some instances, you will have no choice but to hold on to funds. For example, certain types of investments can take a long time to liquidise, or you may still be trying to establish contact with a beneficiary. If you find yourself holding onto funds that are no longer required for the estate administration, for example if you have retained too much for the payment of liabilities or tax, you will need to account to all the beneficiaries again for the small sums held. This is not only time-consuming but could also prove costly to the estate if you end up requiring legal advice at this late stage.
Paying tax liabilities
Where any estate assets generate income, such as a rental property or shareholdings, it will usually fall to you as executor to calculate and pay any income tax due.
You will also need to consider capital gains tax if assets have been sold for more than their probate value, for example property or shares.
If you fail to deal with the income or capital gains taxes before distributing the estate, it will be your responsibility to pay the tax due if you cannot reclaim it from beneficiaries. If the beneficiaries do not agree to paying funds back to the estate for this purpose, it could become necessary to issue court proceedings which can easily become a protracted and costly exercise.
There may be circumstances where it is more beneficial to appropriate assets to beneficiaries so that they become responsible for the income tax and capital gains tax arising on those assets. Appropriation is similar to transferring an asset however you, as the executor, remain as the legal owner and the beneficiary only receives the beneficial interest in the asset. Appropriation can be done at any point, and can be a useful tax-saving tool, but you should seek advice on this point early to ensure that you are dealing with the estate in the most tax-efficient way for everyone concerned as soon as possible during the estate administration.
If assets are appropriated, then it is important to make sure that everyone is clear about who is responsible for which taxes and that all beneficiaries are fully advised and aware of their responsibilities. If you fail to make a beneficiary aware of the implications of appropriation, you could find yourself personally liable for resulting tax payments.
Estate accounts
Finalising the estate accounts is a vital part of any estate administration. It forms part of your executor’s duties to prepare accounts to be presented to the court on demand. Estate accounts set out:
- the estate summary, which details the value of the assets and liabilities at the date of death;
- the capital accounts, which details administration costs, inheritance tax liabilities, and all other capital income and expenses during the administration period;
- the income account, which details all of the income received and tax due during the administration period; and
- the distribution accounts, which set out how the net value after expenses is distributed.
To calculate the net value after taxes, you will need to account for:
- any capital received since death, such as a refund of care fees or council tax;
- any income received since death, such as interest on bank account or dividends on shares; and
- executor expenses, such as any valuation fees or the probate application fee and professional costs – such as legal fees, accountants’ fees, conveyancing costs and searches.
As executor, it is for you to approve and sign off the draft estate accounts. Once signed, the final estate accounts should be sent to all the residual beneficiaries for their agreement before distributions are made. Beneficiaries are not required to approve the estate accounts, but it is courteous to seek their agreement to the final accounts.
Unallocated assets
In the event that there are any assets that you have been unable to deal with, or payments that you have been unable to finalise, you should discuss these with the beneficiaries. Ideally you will be able to plan together how best to resolve the situation, including any necessary contingencies for additional payments that might fall due or additional assets that might later be realised by the estate. For example, sometimes foreign shareholdings can prove difficult to access and to sell. If the shares only represent a very small portion of the overall estate, you and the beneficiaries may choose not to pursue the sums, instead agreeing that the shareholders should donate them to a local charity. If there is a beneficiary who cannot be located, you and the other beneficiaries will need to decide who holds on to their share. This could be you, the court, or the other beneficiaries on the proviso that they repay this should the missing beneficiary later appear.
Retaining paperwork
Once the estate accounts have been finalised and the estate can be wound up, it is important to ensure that a copy of the accounts is retained by you and any other executors in case these are required in the future, either by creditors, beneficiaries, or the court.
You should keep the accounts ready for presentation for as long as possible, but in any event for at least six years.
How we can help
Before finalising an estate and making final distribution payments to beneficiaries, it is important to ensure that all final matters are fully concluded, including payment of all tax liabilities, and the preparation of estate accounts.
Even if you have dealt with the estate administration yourself, it can be beneficial to instruct a solicitor for these important final steps, especially if there is any risk of a future dispute. You may still find yourself personally liable if you simply failed to seek appropriate advice.
Our solicitors can help you to ensure that your tax and accounting duties are adhered to properly and fully. For further information, please contact a member of the wills and probate team on 01905 721600 or email worcester@parkinsonwright.co.uk
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.