How to finish the administration of estate after probate

Carrying out the responsibilities of an executor is a huge responsibility. Your role involves fulfilling the wishes of someone after their passing, which can be more intricate and time-consuming than anticipated. While some individuals plan and prepare for their death, leaving behind well-organised affairs and explicit directives, others do not. This lack of preparation can lead to challenges.

Before finalising the administration of an estate, there are several crucial last steps that need to be addressed, including taking care of final distributions, handling taxes, and preparing the accounts.

Distributing any assets left 

By now, you have probably already distributed any legacies, such as specific items or monetary gifts, and now have the remaining assets to allocate to one or more beneficiaries.

As an executor, it is crucial to ensure that any final distributions meet the following criteria:

• That they align with the Will or intestacy laws
• That they are suitable and in line with the estate's available assets

If a Will exists, it specifies the distribution of shares for each beneficiary. In the absence of a Will, the intestacy provisions must be adhered to. If you are unsure about interpreting the Will or understanding the intestacy provisions, it is advisable to seek guidance before making any distributions to ensure accuracy. 

Paying out excessive amounts from an estate might lead to personal liability if there are insufficient funds left to settle debts or other beneficiaries. To avoid this, it is crucial to verify the numbers by creating preliminary estate accounts and regularly updating them during the process, considering all known debts and estate costs. Only after confirming that all obligations and expenses have been covered should you proceed with the final distributions.

Insufficiently compensating beneficiaries from estate funds can be a complex situation. At times, there might be no option but to retain funds. For instance, certain investments can be challenging to liquidate quickly, or communication with a beneficiary may still be in progress. If you find yourself holding onto excess funds not needed for estate management, such as an overage for liabilities or taxes, you must provide a detailed account to all beneficiaries for the remaining amounts. This process is not only time-consuming but could also become costly for the estate if legal advice is needed at a later stage.

Paying taxes 

When estate assets produce income, like rental properties or shares, it typically becomes the executor's responsibility to calculate and settle any income tax owed. Banks now also regularly pay income to estates without deducting income tax, and such that income must be reported at the end of the matter. 

It is also important to take into account capital gains tax when assets like property or shares have been sold for more than their probate value.

If income or capital gains taxes are not addressed before distributing the estate, you may be liable to cover the tax owed if beneficiaries cannot reimburse it. If beneficiaries refuse to return funds to the estate for this reason, legal action might be needed, leading to a potentially lengthy and expensive process.

In certain situations, it might be more advantageous to allocate assets to beneficiaries, making them accountable for the income tax and capital gains tax associated with those assets. Appropriation is similar to transferring an asset, where you, as the executor, retain legal ownership while the beneficiary gains a favourable interest in the asset. This process can be carried out at any stage and can serve as a valuable tax-saving strategy but in some cases does require consent of the beneficiary receiving the benefit. It is advisable to seek early advice to ensure that the estate is managed in the most tax-efficient manner for all parties involved during the estate administration.

If assets are allocated, it's crucial to clarify tax responsibilities for everyone involved and ensure that all beneficiaries are well-informed about their duties. Neglecting to inform a beneficiary about the tax implications of asset allocation could lead to personal liability for any resulting tax obligations.

Finalising the accounts

Finalising the estate accounts is a crucial aspect of estate administration. As part of the executor's responsibilities, preparing accounts to be submitted to the court when required is essential. 

Estate accounts detail:

• Estate Summary: This outlines the value of assets and liabilities as at the date of death.
• Capital Account: This section includes administration costs, inheritance tax liabilities, and all other capital receipts and expenses arising throughout the administration period.
• Income Account: Here, you will find details of all income received and the corresponding tax obligations during the administration period.
• Distribution Account: This section will specify how the remaining net value after expenses and legacies will be distributed to the ultimate beneficiaries of the residue of the estate.

To determine the net value post taxes, you should consider:

• Capital received post-death, such as utility refunds or council tax reimbursements.
• Income earned post-death, such as bank account interest or share dividends.
• Executor expenses, including valuation fees, probate application fees, and professional costs like legal fees, accounting fees, conveyancing expenses, and search costs.

As the executor, your responsibility is to review and authorise the draft estate accounts. Once approved, the final estate accounts should be shared with all residuary beneficiaries for their approval before any distributions are processed. While beneficiaries are not obligated to endorse the estate accounts, it is considerate to seek their agreement and can avoid issues arising later.

Dealing with any unallocated assets 

If there are any unresolved assets or pending payments, it is important to communicate with the beneficiaries and collaborate with them to plan the best course of action, including preparing for any additional payments or assets that may need attention in the future. 

Paperwork 

After finalising the estate accounts and winding up the estate, it's crucial to keep a copy of the accounts with you and any other executors in case they are needed in the future by creditors, beneficiaries, or the court.

Some organisations might require you to keep records for a significant time. For example, for cases involving the payment of Inheritance Tax, HMRC can request copies of records up to 20 years after the tax is paid. 

How can Hegarty help? 

Before completing an estate and issuing final payments to beneficiaries, it is crucial to wrap up all outstanding matters, such as settling tax obligations and preparing estate accounts.

Even if you have managed the estate administration independently, it can be advantageous to engage a solicitor for the crucial final stages, especially if there is a potential for future disputes. Failing to seek proper advice could leave you personally accountable.

Our solicitors can assist you in ensuring that you meet all your probate and financial obligations accurately and completely.