An executor, also known as a personal representative, is appointed by someone, often a relative, in their will to deal with and administer that person’s estate upon their passing. The role of an executor will include ensuring the deceased’s estate is administered in line with the law and in accordance with the wishes of the deceased as set out in their will, codicil/s and any letter of wishes.
Being an executor of a loved one’s estate is often a necessary role and one that many of us, who have lost a loved one, would agree to take on without question to ensure our relative’s wishes were met. Nonetheless, it is important for those acting as executors to understand the obligations they are taking on by agreeing to act and the potential liabilities they may face whilst acting in this role.
Liability for Inheritance Tax
Executors are in fact personally liable for inheritance tax due on the estate, which can potentially be a huge liability to take on, depending on the estate’s overall value for inheritance tax purposes.
If an estate is liable to pay inheritance tax, then some of this will need to be paid before the Grant of Probate, which provides executors with authority to administer the estate, can be issued. Fortunately, many banks and building societies are part of the ‘Direct Payment Scheme’ and will allow payments to HMRC directly from the deceased’s bank accounts to pay any tax due. However, if the deceased’s assets were tied up in real estate, for example, then the executor may have to look at obtaining an executor’s loan from a bank to pay the inheritance tax and then subsequently pay the loan back from the sale proceeds of the property transaction, which may go ahead once the Grant of Probate has been issued.
When it comes to distributing the assets of the estate to beneficiaries listed in the will, the case of Harris v HMRC [2018] UKFTT 0204 (TCC) provides a vital reminder to executors that they will ultimately be held liable and pursued by HMRC in the case of non-payment of tax, even if executors have distributed the estate funds to beneficiaries and those beneficiaries had assured the executors that they would pay the inheritance tax due on the estate, but failed to do so. It is, therefore, always important to ensure executors obtain clearance for inheritance tax from HMRC before fully distributing the estate assets, so that any inheritance tax due can be paid from the funds of the estate.
Within this liability for inheritance tax, executors should also bear in mind the possibility of being held liable for inheritance tax on transfers of assets the deceased made in the seven years leading up to their death, known as ‘Potentially Exempt Transfers’ or ‘PETs’ for short. A PET could for example take the form of a gift to a child, which could incur a liability for inheritance tax if the donor died within seven years of making the transfer, and to the extent that the gift exceeds any available nil rate band allowance. If this situation were to occur, HMRC would have to be notified and the executors would also be liable for any inheritance tax due on the transfer if the recipient of the gift failed to pay the inheritance tax due within 12 months of the deceased’s death.
Liability for mistakes
Executors may also be held liable for any loss caused through mistakes made by them in the administration process. For example, an executor who fails to keep clear and comprehensive records of the administration process through estate accounts, as they are obliged, is more likely to make a genuine mistake as to the distribution of estate funds, which could in turn cause loss to a beneficiary. Such a mistake, even if honest and genuine, leaves an Executor vulnerable to being pursued by a beneficiary, potentially even through legal proceedings.
Liability for debts of the estate
On the point of mistakes, it is often mistakenly thought that any debts of the deceased die with them. In fact, executors are responsible for dealing with the financial liabilities of the deceased, which includes recognising any debts of the estate and ensuring they are paid from the available funds. This will include any welfare benefit claims from the Department for Work and Pensions, any income tax and capital gains tax, any outstanding mortgages and bank loans, as well as any more informal debts the deceased had incurred.
This again emphasises the importance of being meticulous and cautious before authorising the distribution of assets to beneficiaries, as the executor can be held personally liable for non-payment of debts if they have allowed full distribution of funds to take place without paying off all creditors or without investigating the scope of debts of the deceased in enough thorough detail to recognise all payments due.
Liability to protect the assets of the estate
Not all executors are aware that until legal ownership passes to the beneficiary, it is the executor who is liable to protect the assets of the estate. This includes ensuring assets are protected via adequate insurance, even including unoccupied properties, and by also ensuring that institutions, in which the deceased held assets, are aware of the deceased’s death, so that they can take the necessary steps to protect the assets, such as through freezing the accounts.
Liability for claims against the estate
Finally, legal claims against the estate can be brought within the six months following the issuing of the Grant of Probate by relatives or financial dependents of the deceased who feel they have not been suitably provided for in the will. This is another stark reminder to executors only to fully distribute the estate once they are satisfied that sufficient time has passed, and they are safe from any potential claims which could arise within this time frame.
How can Moore Barlow help?
Dealing with the passing of a loved one is already difficult enough to deal with, notwithstanding the potential liabilities you take on acting as an executor of their estate. At Moore Barlow, we are experts in the administration of estates and will provide you with professional advice in order that you can fulfil your obligations and duties as an executor, whilst protecting you from potential liabilities in this capacity.
Our Moore Barlow Private Wealth partners are also highly experienced in acting as professional executors of estates and can be appointed as executors in your will to support and provide professional advice to your relative Executors, to help best protect them through the administration process.
If you would like to discuss any of the issues in the article, please contact Tim Adams, head of the Private Wealth Team, on email Tim.Adams@MooreBarlow.com or call 01483 543 265.
Disclaimer
This information is for guidance and should not be regarded as a substitute for taking full legal advice.
