When a loved one dies, there are many practical issues that need to be considered in order to deal with the assets (the deceased’s property, money and possessions etc) that make up their estate. An Executor has a key role to play in dealing with the distribution of a deceased person’s estate and is a position of significant responsibility that should be taken seriously. We have provided a brief outline of an Executor’s role and responsibilities and what you should do if you have been appointed.
What is an Executor?
An Executor is the title given to the person who is responsible for dealing with the administration of the deceased’s estate. The Executor is responsible for ensuring that the estate is distributed in accordance with the terms of the deceased’s Will and the law of Scotland. It is common for close relatives, friends or a solicitor to be nominated as Executor under the terms of a Will. However, if the deceased did not appoint an Executor in their Will or died without a Will, an Executor can be appointed by the Sheriff Court. The Succession (Scotland) Act 1964 determines who is entitled to be appointed in such cases. An Executor is entitled to instruct a solicitor to act as Agent to assist with the administration of the estate and the Will usually provide for all fees and expenses to be met from the estate.
What does an Executor do?
- Funeral Arrangements
An Executor has various responsibilities. The first steps an Executor will have to take following a death is to register the death and make funeral arrangements. The deceased may have given an indication of their wishes in their Will, or may have a prepaid funeral plan in place. In the absence of any wishes in the Will, the Executor is entitled to make reasonable arrangements. If there is no estate to cover the costs of the funeral, it is possible to apply for a funeral support payment to help towards these costs.
- Investigate the extent of the Estate
The Executor is required to check the terms of the Will, identify the beneficiaries and determine what assets belonged to the deceased at the date of their death. The Executor must also ascertain the value or balance of the assets (including property, bank accounts, shares etc) at the date of death.
Depending on the type of assets a person has or in some cases the value of particular assets, the Executor may be required to obtain what is known as Confirmation (the Scottish equivalent of probate) before they are able to deal with that asset. Each organisation will have different requirements and will need to be contacted and advised of the death, asked to provide the value/ balance of the asset as at date of death and asked to advise what their requirements are and if Confirmation will be required. It is often the case that some assets can be ingathered without Confirmation but it may still be required for others.
As well as the assets position, the Executor should also determine any debts and liabilities of the deceased so that these can be settled before the estate is distributed to the beneficiaries. The Executor should be satisfied that there are sufficient assets to cover all liabilities before settling anything other than funeral related expenses (which are always settled ahead of anything else).
- Pay Inheritance Tax (“IHT”) if due
Once the estate has been valued, the Executor must work out if the estate is liable to pay IHT. An estate is generally liable to IHT if the value of the assets at the date of death, together with the value of any chargeable gifts made in the 7 years prior to death exceeds the Nil Rate Band (currently £325,000). Other allowances may be available depending on the circumstances. If the estate is liable to IHT, the Executor must send the necessary paperwork to HMRC. It is advisable to pay any IHT due as soon as practicable to avoid having to pay interest. Tax is payable 6 months after the deceased’s death, with interest applied thereafter.
- Apply for Confirmation
- When there is a Will
If Confirmation is required to deal with the deceased’s assets, this involves the Executor lodging an Application to the Sheriff Court. Part of the Application is an Inventory of all the assets the deceased owned at the date of death, together with each asset’s value or balance at that date. Confirmation, once granted can then be exhibited to each organisation (banks, building societies etc.) together with the Executors instructions for dealing with that asset. This shows the organisation that the Executor is the appropriate person entitled to deal with the estate and that they are therefore paying funds out to the correct person who is entitled to receive it on behalf of the estate. In limited cases, Confirmation may not be required at all.
- When there is no Will
When there is no Will, the Executor (once appointed by the Court) will need to obtain an insurance bond known as a Bond of Caution, before the Court will grant Confirmation. The Bond is designed to protect the beneficiaries and creditors of an estate against improper distribution by the Executor. A one-off premium is payable based on the value of the estate.
- Ingather the Estate
Once Confirmation is granted, if required, the Executor has the Court’s legal authority to deal with the assets in the estate and can then instruct the sale/ transfer or property, close bank accounts and cash in or transfer investments etc. At this stage, any outstanding debts and expenses due by the estate are settled. The Executor is also responsible for keeping accurate accounts of all their dealings with the funds of the estate and reporting to the residuary beneficiaries.
- Tax
As well as ingathering the estate and settling liabilities, the Executor is also required to finalise the deceased’s tax affairs. There are 3 taxes which need to be considered:
- Income Tax
Depending on how complex the deceased’s affairs are, the Executor may need to complete an Income Tax return for the tax year to date of death. In most straightforward cases, this will not be necessary, but HMRC will ultimately advise. An Executor will also have to report to HMRC for any untaxed income received during the period of administration, such as bank interest, dividends, rental income etc. These are all paid Gross and so Income Tax will need to be paid before the estate is distributed.
- Inheritance Tax (IHT)
As noted above, if Inheritance Tax is due, this requires to be reported to HMRC and any tax due, paid before Confirmation can be granted.
- Capital Gains Tax
If any assets are sold during the period of administration (e.g. the sale of the property, shares, investments) at a gain from the date of death value and the overall gain/ loss position results in a gain, Capital Gains Tax may be payable. An estate benefits from the same allowance as an individual (£12,300) for the tax year in which the death occurred and the following 2 tax years. Therefore, provided the overall position does not result in a gain in excess of this amount, no tax liability will arise. Otherwise, residential property gains are taxed at 28% and 20% for all other assets. Losses can be offset to reduce the value of the gains.
It is also possible for assets incurring a gain to be appointed to beneficiaries before sale, so that their individual allowances (provided these are not already used up for that year) can be used to offset gains to reduce or avoid an estate liability.
- Distribute the Estate
The Executor must then distribute the estate in accordance with the terms of the Will and the Law of Scotland which make provision for things such as Legal Rights (the rights of surviving spouse and children) which apply regardless of the terms of the Will. It is advisable to allow 6 months to pass before distributing the estate. This is the time that creditors have to lodge a claim on the estate. This is important to note as the Executor will be personally liable for these debts if they finalise the estate within 6 months of the date of death.
Contact our Private Client Team
Dealing with a loved one’s estate can sometimes be an overwhelming experience. If you have been appointed as an Executor and would like further advice from one of our experienced and approachable Private Client Solicitors, please call 01383 620222 or email us at info@morganlaw.co.uk
