When someone dies, they leave behind an ‘estate’. Their estate is formed from all their money, assets, property, possessions, debts, and liabilities.
As you might imagine, bringing together and valuing all these different items can be a difficult and lengthy process. It must be done though. The task is the responsibility of the deceased’s personal representatives.
There are two kinds of personal representative in estate administration:
- Executors – personal representatives who have been appointed under the deceased’s will.
- Administrators – personal representatives who have undertaken to administer the estate where there was no valid will or where no valid executors were appointed in the will.
Acting as someone’s personal representative is very much a position of trust. Estate administration is not easy. As a personal representative, you will also be personally liable for making sure the estate is administered correctly.
Do I need a solicitor?
Strictly speaking, you do not need to engage a solicitor to help with your duties as a personal representative. However, there are a number of very good reasons why solicitors offer estate administration services.
As an Executor/Administrator, you must be aware of the duties placed upon you, as well as the rights of the beneficiaries of the estate. It is your duty to provide information on the estate for inheritance tax purposes, to collect in, administer and provide an inventory/account of all the assets and liabilities in the estate. Failure to do so could render you personally liable for any loss to the estate and severe consequences may apply.
Personal representative must pay IHT on an estate he has already distributed
A recent case, Harris v HMRC, highlighted how crucial it is to have help from the professionals.
The case concerned inheritance tax, which was payable on the estate of Helena McDonald, who had left no will. Her personal representative, Glyne Harris, was appointed to be the administrator of her estate by letters of administration.
How much inheritance tax must be paid and by whom?
Ms McDonald’s estate was valued at just under £1.18 million. Although Mr Harris filed inheritance tax forms, HMRC opened an investigation into the matter. They concluded that the amount of inheritance tax due for payment by the estate was just over £340,000.
Mr Harris argued that he did not have the funds to pay the inheritance tax as he had already distributed the estate to the only beneficiary – Whitfield Harewood (Ms McDonald’s brother). Mr Harewood had verbally agreed to pay any inheritance tax which the estate owed from the money he received. However, Mr Harewood travelled to Barbados (where he lives) and Mr Harris was unable to make contact with him, meaning that none of the inheritance tax bill had been paid.
The personal representative is personally responsible
Regardless of the alleged undertaking, Mr Harris was, as the personal representative of the estate, personally responsible for the payment of the inheritance tax. The court ruled it was no defence that:
- someone else had allegedly undertaken to pay the tax instead; and
- Mr Harris had been unaware of his inheritance tax obligations.
The Court denied Mr Harris the opportunity to appeal.
Personal liability for personal representatives
If you are a personal representative, you are personally responsible for paying the inheritance tax liability by virtue of s. 200 of the Inheritance Tax Act 1984.
Wills & Tax Partner, Lee Young says “It is crucial for a personal representative to get confirmation from HMRC about how much inheritance tax is due and once paid, to obtain a ‘certificate of clearance’ before distributing the estate. As this case shows, retrieving assets after they have been distributed can be impossible. It is wise to seek legal advice about your obligations as a personal representative – we have a detailed knowledge of the law and we are also distanced from the grief associated with a death. We would certainly have advised Mr Harris not to distribute the estate until these matters were fully completed, and he would not have had to pay the £340,000 tax bill himself.”
Our Wills & Tax Team are happy to discuss any issues that this raises for you and we offer a free initial meeting or chat on the phone.
If you have any questions, you only have to ask us at Frettens. Please call 01202 499255 or 01425 610100 and Alia or a member of the team, will be happy to chat about your situation and your particular requirements.