Probate and Administration Guidance

    Probate and Guidance Kagan Moss
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    Probate and Administration

    This note contains an explanation of many points that may arise during a Probate or Administration.  We hope you will find it helpful and informative.

    Introduction – the terms used in this Guidance Note

    Probate is the formal document issued by the Probate Registry (a section of the High Court) as evidence that the Will of the deceased has been shown to be valid. It gives the power to administer the Estate, (the total gross value of the deceased’s assets left after death) to the Executors .

    Letters of Administration is the court appointment document issued to give power to the named Administrators to deal with the Estate when there is no Will or a Will is not held to be valid.  In order to obtain either Probate or Letters of Administration, it is necessary to establish an accurate ‘snapshot’ of the deceased’s financial position at the date of death.  Once all the figures are collated, (which can take some time), the documentation is prepared, and signed by the Executors or Administrators.

    Detailed HM Revenue & Customs forms have to be carefully completed where higher value or complex assets of more than £325,000 are involved as this requires Inheritance Tax has to be considered, calculated, and paid.

    Testator – the person who has made a Will and/or Codicil (Testatrix is the female version)

    Executor – the person(s) named in the Will and appointed to obtain Probate and administer the estate. (Executrix is the female version).

    Personal Representative – this term may be applied to either an Executor or Administrator appointed under Letters of Administration

    Beneficiary – a person or organisation which receives something under a Will or Codicil

    Chattels – personal and household possessions

    Legacy – a specific amount or article left in a Will/Codicil

    Estate – the total of the testator’s assets at the date of his/her death

    Residue – what is left in an Estate after specific legacies and all the testator’s debts and funeral expenses have been met

    Probate Fees – the Probate Registry charges these to process the application.  Fees are charged on a scale, which is set out below.

    Net Estate not exceeding Fee
    £ £
    5,000 No Fee
    All estates exceeding 5,000 155
    Sealed copies of the Grant are always required – the Registry cost is 50p for each copy.

     

    A sign of things to come? Government proposed increases (awaiting parliamentary approval prior to prorogation)

    Net Estate not exceeding Fee
    £ £
    50,000 No Fee
    Estate from 50,001 to £300,000

    Estate from £300,001 to £500,000

    Estate from £500,001 to £1,000,000

    Estate from £1,000,000 to £1,600,000

    Estate from £1,600,001 to £2,000,000

    Estate exceeds £2,000,001

    250

    750

    2,500

    4,000

    5,000

    6,000

    Sealed copies of the Grant are always required – the Registry cost is 50p for each copy.

    Unless there are other monies available, the Executors will be asked to provide the Probate fees.  This is refundable to the Executors from the estate.  In some cases, it may be possible to obtain the funds from the deceased’s Bank or Building Society.  We do not fund fees, but if, in exceptional circumstances this is agreed, the cost of the loan and the underlying administration charges will be reflected by an additional amount in our professional fee.

    In all cases where the net estate exceeds £180,000, and in some cases where it is less, the Probate Registry and HM Revenue & Customs require a full and complete analysis of the deceased’s asset and debt position at death, including a detailed description of all land and property; stocks and shares, jewellery, collections, antiques and any other assets.  Many valuers charge on a percentage of the item(s) valued, and property valuation is often charged on a fixed fee basis typically within the range £300 – £500 plus VAT.

    The Deceased – We will require copies of the Birth, Marriage and Death certificates of the deceased.  If the deceased was divorced, a copy of the Decree Absolute is required.  If the deceased was a naturalised British citizen, we will require a copy of the naturalisation papers.  If the deceased was domiciled abroad, this may affect the taxation position.  We will make bankruptcy searches against the name of the deceased before we accept instructions. 

    Money Laundering  This is an issue all over the world and we are under a legal obligation to report any suspicious activity we see or where this is suspected on an account or dealing or where it is possible that an asset in a deceased’s estate is derived from criminal activity.

    Executors and Personal Representatives

    • Regulations requires us to establish the identity of all our clients on every occasion we act for them.  We, therefore, write to our clients at the beginning of a matter explaining this obligation and how it can be satisfied.
    • Executors and personal representatives often incur expenses in carrying out their obligations and duties. Provided such expenses are reasonable and appropriate in the circumstances, and all the Executors agree, they will be reimbursed from funds in the estate.  Unless specifically authorised by the Will or a professional person employed by the estate e.g. solicitor/accountant/stockbroker, an executor is not entitled to charge for their time.

    The Will – It is essential to establish that what is thought to be the Testator’s last Will (with Codicils) is indeed the last testamentary disposition made.  Unless the facts are unequivocal and completely without doubt, we advise that a search be carried out with registers held by Certainty Ltd and the Probate Registry to see if the testator deposited a Will or notification of a Will with either.  In some cases, it will be necessary to write to a number of solicitors local to the deceased’s last address to ask them to check and see if a Will is held by them.  An advertisement may also be placed in the “Wills and Whereabouts” section of the Law Society Gazette which is a solicitors’ weekly professional magazine.

    Where no Will can be found after searching and enquiries and Letters of Administration are issued by the Probate Registry to Personal Representatives (PRs) appointed under the Rules of Intestacy we urge PRs to take out insurance cover against the risk of a subsequent Will being located.  Where there is no Will, and PR’s wish to take out insurance, it is probable that it will be an insurer’s condition that searches referred to above and the statutory advertisements referred below in this note have been actioned.

    Tax   – Inheritance Tax and Lifetime Gifts

    General Information – Unfortunately, many bereaved families may suffer invasive tax investigations and fines as part of a drive by HM Revenue & Customs to clamp down on evasion of Inheritance Tax (IHT).   Examination of financial information such as Bank statements and pension plans, may reveal gifts made during the 7 years before the donor’s death that have not been accurately reported.  Generally, but not always, gifts without reservation, made more than 7 years before the donor’s death are exempt from Inheritance tax.

    Death after 6 April 2009 – On a death occurring after 6 April 2009, Inheritance Tax is payable if the net estate is calculated at a figure above £325,000.  The Executors will be asked to confirm whether or not the deceased made any gifts during the seven-year period before the date of death.  Where partners of this firm are the Executors, we will ask members of the family/friends, or make our own enquiries.  Such gifts may have to be (notionally) added to the gross estate at the date of death.  This may affect whether IHT is payable, or where it is already payable, this may increase the amount payable.

    In some cases, it may be possible to successfully claim a further exemption from IHT in relation to:

    • Deceased spouse/civil partner. This can be up to the current amount of the nil-rate band.  There are strict qualifying rules, evidence and documents required before the HMRC will admit a claim.  If such a claim is made, the additional work required will be charged as a separate item in our account for the work leading to the grant of Probate or Letters of Administration.
    • Property that passes to a “direct descendent” of the deceased. Again there are strict qualifying rules and each case is assessed on its circumstances.  The further relief available may be reduced if the estate is valued at more than £2mn.  The additional work required in order to claim for this relief will attract an additional fee which will be a minimum of £350 plus VAT.

    In cases where IHT is payable, it has to be paid before Probate or Letters of Administration can be obtained.   In some cases, the deceased’s bank will lend the estate the required amount, subject to the payment of an arrangement fee and interest.  Even though the deceased may have funds in a Bank or Building Society sufficient to pay the IHT, these institutions will not normally allow payment from the deceased’s account, (as distinct from a separate loan arrangement) until after Probate or Letters have been issued!  Where necessary, we will contact the deceased’s Bank to make the necessary arrangements.  Otherwise, there are very few lenders who will make such a loan.

    In limited circumstances, there may be an option to pay the IHT in stages.  We will advise you about this if applicable.

    Charitable gifts are exempt from IHT.

    Interest on unpaid IHT– The Revenue is entitled to charge interest on unpaid IHT at the beginning of the seventh month after the month in which the death occurred.  Unless we are in a position to pay all Inheritance Tax within the 6 month period, interest will have to be paid.  At present the interest rate is 3%.  Please note we cannot guarantee to pay all the Inheritance tax within the 6-month period and it is likely that interest will be payable on all but the simplest estates.  If further assets are discovered after probate has been granted and any IHT paid, then interest will be payable on any further IHT payable.

    Capital Gains Tax (CGT) – A liability for this tax may arise where an asset is sold for more than its probate valuation.   From April 2010, the penalty regime for late payment of CGT comprises:

    • A fixed penalty
    • Then daily penalties
    • Then x% due on the tax return
    • Then y% or a penalty of 70% – 100% if there is evidence of deliberate failure to pay.

    Deeds of Variation

    As the law currently stands and subject to various conditions, it may be possible to vary the gifts in the deceased’s Will  and we can provide advice on this aspect where required.

    Funeral Account

    Funds to pay the funeral account will generally be released to us by the deceased’s Bank or Building Society, before grant of Probate/Letters of Administration.  Most funeral directors reserve the right to charge interest on unpaid accounts, and many do so.  In some cases, non-professional executors or members of the family may prefer to pay the funeral account direct and claim reimbursement from the estate.

    Tax Returns

    The responsibility for filing the estate tax returns rests with the Executors.  The timetable is similar to that imposed on an individual under the self-assessment rules.  If the Revenue is to calculate the tax, the return must be filed by 30th September.  If the tax is to be calculated by the Executors, the return needs to be filed by 31st January following the end of the tax year.  We recommend that returns be filed by the earlier date, so that errors/omissions can be corrected before the later date.

    Payments are required in three instalments:

    (a)             31st January in the tax year

    (b)            31st July after the tax year

    (c)             the balance by 31st January following the tax year

    Interim payments are not required if more than 80% of the tax liability for the preceding year was covered by deduction at source and tax credits.  There are penalties, surcharges and interest payments if payments are late or payments on account are under-calculated.

    Income is taxed on a beneficiary in the year that it is received .  Where appropriate, we will supply relevant forms so that a beneficiary’s self-assessment tax return can be completed.

    The Executors may also be required to complete a tax return for the period(s) before the date of death for which the deceased did not make a return.

    Unless otherwise agreed, we will deal with the deceased’s tax affairs and arrange for the accountancy work required to complete the necessary returns and/or repayment claims.  Charges for this work will normally fall within the range of £500 – £850 plus VAT for each relevant period, which is payable from the estate in the same way as our fee, details below.  If the tax position is complicated or problematic, requiring more time and/or specialist advice, we will tell you and let you have an indication of the likely timescale and fees.   In some cases, the cost of obtaining a refund may be greater than amount of the likely refund and so uneconomic to pursue – we will tell you if this is the case.

     Charitable Gifts

    Charities have a legal and moral obligation to ensure that they receive their full entitlement and so they closely monitor bequests.  They usually wish to be consulted about the sale of assets, in case they would prefer to receive an asset in satisfaction of their bequest, rather than the money it might produce if sold.  Charities are entitled to claim repayment of UK income tax suffered on their share of the estate income.  This includes dividends, building society or bank interest and all other forms of taxed income.  Charities require copies of estate accounts, the Will and grants of Probate/Letters of Administration, and other documents they consider relevant to their entitlement.

    All beneficiaries, including Charities, are entitled to claim interest on legacies, which are paid more than one year after the date of death.

    Charities employ legacy managers to scrutinise draft estate accounts and where a charity is also a beneficiary, we are likely to agree our costs with them as well as the Executors.  We may also ask for their input on any issue affecting the estate and generally keep them informed with progress reports.

    Gifts and Legacies to Individuals

    The timescale for payment of gifts and legacies varies and may depend on whether the statutory advertisements referred to below are placed.  If they are placed, then it is not usual for payment of legacies and interim payments of residue to take place until 10 months have expired.  A claimant against the estate must bring proceedings within 6 months of the date of the Grant.  However, a claimant has a further 4 months to serve the proceedings.

    Before a gift or legacy can be paid, we will make a search in the Land Charges Bankruptcy registers against the name of the recipient.  If the search result is returned with entries against the name, we will ask the recipient to certify that the entry(ies) do not affect/relate to them.  If an entry does relate, then this will have to be further investigated and clarified before any monies can be released.

    Beneficiaries will be asked to prove their identity before a legacy or gift is paid.  This can be done at our offices by prior appointment or at the offices of a solicitor local to the beneficiary, whichever is more convenient.  Remote beneficiaries will be asked to obtain formal certification of their identity from the solicitor of their choice.

    Where a beneficiary is not a UK national or lives outside the UK, then additional steps and searches will be made/undertaken.  These may include asking the beneficiary to attend before a notary or lawyer in their country of residence to prove their identity and making enquiries about a beneficiary’s financial position to establish their solvency.

    No legacy or residuary bequest can be paid to a person who is bankrupt and their gift would usually be paid to their trustee in bankruptcy or non UK equivalent.

    Legacies are generally paid by direct bank transfer at the expense of the recipient.  Payments can be made to a foreign bank account – again the costs of changing the sterling payment into the required foreign currency and then sending the payment will be the beneficiary’s and are usually deducted from the payment by the sending bank.  A payment can be made by cheque if preferred and will be sent out by Royal Mail. 

    Insurance

    Any house or other property may have been insured by the deceased and this will need to be reviewed especially if a home is left empty. 

    Credit cards and Internet accounts

    Any personal accounts in the name of the deceased will need to be investigated and in the case of email accounts and websites, passwords may be needed in order to make arrangements for closure. 

    Statutory Advertisements

    In order to protect the position of the Executors from debts and creditors, we recommend that the statutory advertisements under the Trustee Act, 1925 are placed in the London Gazette and the paper local to the deceased’s last residential address.  The average cost of such advertisements is £300 plus VAT.  If the advertisements are not placed, and the estate has been fully distributed when a valid claim arises, it may fall to be paid personally by the Executors.  Where a member of Kagan Moss is an Executor, the statutory advertisements will be placed, unless otherwise agreed.

    PLEASE NOTE

    That irrespective of whether advertisements are placed or not, once Probate or Letters of Administration have been granted, the information is immediately available to the public and the documents are a matter of public record.  Anyone can obtain a copy of the Will, Probate or Letters on payment of a nominal fee to the Probate Registry, and the local newspapers regularly check the Registry for details of local residents’ wills including the amount in the estate, identity of beneficiaries and amount of bequests.  These are published on a weekly basis.  It makes no difference which Probate Registry issued the grant. 

    Lost/Forgotten Assets

    There are different ways to identify lost or forgotten assets such as life policies back accounts or occupational pension plans.  Executors have a duty to identify all financial assets that comprise the estate.  To assist in this process, we will undertake a Financial Asset Search the cost of which is currently under £200.  The search should identify whether there are lost or forgotten financial assets which could increase the value of the estate.  A wide range of financial institutions are contacted by the search company.   Where we are instructed on behalf of the Executors, we will undertake this search as a matter of course unless we are instructed in writing to the contrary.

     VALUATIONS

    Share Valuation

    Shares that form part of an estate will require valuation, regardless of the size of the estate.  However, the valuation and ultimate sale or transfer of a share portfolio not always as straightforward as it may seem.

    Government privatisations, ease of access to Internet share dealing and higher levels of disposable income are just a few reasons for the increase in private client share ownership.  As a result, dealing with the sale of shares in Probate has become more of a task for us.  On the surface, the valuation of a share portfolio may appear to be relatively straightforward, but name changes, mergers, demergers and corporate actions can complicate the process and it can end up as an extremely lengthy process to confirm valid holdings at the time of death, before completing the valuation for probate purposes.  The first step is to identify the Registrars for the shares, so if the deceased had say 30 different shares, contact will have to be made with several registrars to verify the holdings.  It will be necessary to use the Internet or the company’s website or the information can be obtained through a stockbroker.  Once the holding has been confirmed and the share certificate has been verified as valid, the Registrar is informed of the death.  Typically, a request is also made to place a hold on the issue of further dividends, to prevent dividend cheques being sent out to the deceased.

    This can be a convoluted process, especially where shares were acquired years ago, with missing share certificates and company changes to track.  Unless otherwise agreed, we instruct stockbrokers to perform this valuation service for publicly quoted shares and for the sale of shares – their fee is payable out of the estate.

    If the deceased held shares in a private company, those shares may require valuation where business property relief is not due throughout.  There are certain underlying principles to valuing such shares.   Briefly, market value is defined as the best price that the shares in question could reasonably be expected to fetch on a sale in the open market at the date of valuation (which is the date of death).  The use of hindsight is not allowed, although industry specific methods of valuation will be adopted.  Additionally, the articles of association of the company will require examination to determine the exact nature of any rights attaching to the shares.  It may be necessary to consider the impact of the size and status of the shareholding on its price, and the importance of the prospects for the industry and the general economic and political climate prevailing at the valuation date in order to agree a value with the HMRC Shares Valuation Division.

    There are different ways in which to achieve a return on private company shares on which we will advise if required.

    Land and Real (Freehold and Leasehold) Property (Residential and Commercial) – the Executors should obtain at least 2 professional valuations.  A low probate valuation may be self-defeating and challenged by HMRC, thus incurring additional costs.  In addition, if a value is assessed upward on a chargeable estate there will be interest to pay on the additional tax due from the expiry of the sixth month period until payment is made in full.

    Where a low valuation is given for probate and the property is sold for a greater value, then this may incur a liability to pay Capital Gains Tax.

    Joint Property – Any assets that are owned in more than one name will need to be examined.  In certain cases, property jointly owned may pass to the survivor and not form part of the estate. 

    Personal Effects – Antique or vintage items or collections, or an item of potentially financial significance should be professionally valued.  If appropriate, we will liaise with the larger Auction houses.

    Foreign assets – where the deceased held assets outside the UK, we will make contact with other professionals in the relevant county so as to assist in dealing with such assets. 

    Vacant Property – if the estate includes a property or land that is unoccupied or vacant it may become a target for fraudsters who attempt to sell or mortgage it in the name of the deceased.  We subscribe to the Land Registry monitoring service and will add the details to the monitoring list.  Where possible an appropriate restriction will also be placed on the title.  “Squatting” of a vacant property may also be an issue so it is essential that a probate property is secured and secure, inspected on a regular basis and a redirection of mail arranged with the Post Office.  Insurance for an empty property is not easy to obtain and may be subject to onerous terms and is significantly costlier than for an occupied property.

    Legal Fees

    We have already identified typical out of pocket expenses and payments.  Quite often, we may have to locate a missing beneficiary or missing assets, arrange for work to be carried out to an estate property to make it safe or insured.  We may have to search for missing title deeds or share certificates, make tax returns for previous years, deal with foreign property, make funeral arrangements, check the validity of creditors’ claims, dispose of unsaleable effects, negotiate with the District Valuer, and deal with disputes.

    This is not an exhaustive list, but it does show the type of problems that can arise after an initial estimate of fees has been given.  If such a matter arises, we will estimate the probable fee increase to reflect the time and cost necessary to deal with it.  Where it is not a matter that can be concluded within our additional time and fee estimate, we will report to you on a periodic basis.  Please be aware that if we are notified of a lost or forgotten asset after the administration of the estate has been completed and a final invoice raised, we will charge £250 plus VAT for the administration to look into the matter.  This would be our minimum figure and the invoice could be higher dependent on the amount of work required.

    We would like to give you the best information we can about the likely costs of dealing with obtaining Probate/Letters of Administration and the subsequent administration of the estate.  Our fee and time estimate is based on long experience of dealing with this sort of work and we take into account factors mentioned in the Law Society guidance detailed below.

    • Complexity
    • Skill and specialised knowledge involved
    • Number and importance of documents involved
    • Place and circumstances in which our job has to be done
    • Value of property or money involved
    • Whether any land involved is registered
    • Importance of the matter to you

    Our charges are usually made up of three parts:

    Our ‘expense’ rate which is an hourly figure worked out by looking at our overheads such as rent, lighting, heating, salaries – this is the cost to us of actually doing the work and is used to measure the cost of the time spent on the matter.  The current rates range between £150 and £350 per hour plus VAT depending upon complexity.

    ‘Care and conduct’ – this is an uplift based on the expense rate and represents factors other than time spent.  Commonly this is calculated at about 50% but it can be higher or lower, depending on circumstances, such as urgency.

    The ‘value’ element that reflects the responsibility for dealing with something of value that carries risk and importance. The value element of the charges divide into two parts:

    • The value of the deceased’s home
    • The value of the rest of the estate

    For small estates, or where executors prefer to obtain Probate personally, we offer a pre-application checking service that is charged on an hourly basis.

    Where the Solicitor is not appointed as Executor in the Will

    Home                                         0.5% of the interest of the deceased in the value of the home

    Rest of the Estate                1% of the value

    Where the Solicitor is Sole Executor/Joint Executor with Another

    Home                                         0.75% of the interest of the deceased in the value of the home

    Rest of the Estate                1.50% of the value

    Where we deal with an estate over £1 million net value we may reduce the value element so that the overall level of charge is fair and reasonable.

    Where there are available funds in the estate, our fees are deducted from the assets of the estate that we collect and are not normally payable by the Executors before the estate has the necessary funds available.  Where the estate is not in funds, we will render our account to the Executors.  We do not normally provide an itemised bill.  All our charges and some expenses are subject to VAT at the prevailing rate.

    Please note that the contents of this Guidance note should be read in conjunction with our Terms of Business.

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