Unfortunately, it is a sad reality that a vast majority of us will be required to deal with our parents’ assets after they have both passed away.
The administration of an estate has two main steps: reporting the value of the estate to HM Revenue & Customs, followed by a Court application for Probate (when there is a will) or Letters of Administration (when there is no valid will), writes Michael Romain a Solicitor in our Private Client team.
In this case study, your father has predeceased your mother. Mother has recently passed away, leaving a will, and you are named as an executor. What are the steps to be followed?
The initial step is that you, and any other executors of your mother’s Will, need to work out the value of the estate for Inheritance Tax purposes. This valuation comprises of all her assets, less any jointly owned assets that are passing to surviving co-owner(s). This also includes any assets in a trust to which your mother was entitled, or assets held overseas. Next, deduct any debts such as liabilities, mortgages or loans owed solely by her at the date of death, and the cost of her funeral.
The rules for reporting the value of an estate for people who have died after 1 January 2022 have been updated, and for this reason I would always recommend seeking professional advice from one of the Probate experts in our Private Client team.
The Inheritance Tax Account will need to be sent to HM Revenue & Customs. Where Inheritance Tax is due, you will be required to pay at least some of it before you will be granted Probate by the Court. If no tax is owing, you can apply directly for Probate, and the reporting process is much shorter.
If everything was left to your mother on your father’s death and the family home is now being left to you, possibly up to £1 million of your mother’s estate will be charged at 0% for Inheritance Tax by applying the various Nil Rate Band allowances, if the estate is worth £2m or less.
If your father did not leave everything to your mother and has no transferrable allowances, your mother’s estate has an Inheritance Tax NIL Rate Band allowance of £325,000, which rises to £500,000 for her share of the family home if it is being left to a direct lineal descendent, again charged at 0% for Inheritance Tax purposes. If your father’s estate provides for some transferrable allowances, your mother’s executors can also use any unused portion of his allowances, depending on how his estate was distributed.
The value of the estate over the above thresholds will be charged at 40%, although exemptions and reliefs may remove or reduce the amount payable to HMRC. The value of gifts made within 7 years of death will be added to the estate value, and the available Inheritance Tax allowance will be reduced by the value of those gifts, net of any annual exemptions (£3,000). Some gifts made within seven years will attract a lower rate of tax, as the rate applicable to gifts exceeding the Nil Rate Band of £325,000 tapers after 3 years have elapsed.
Once HM Revenue & Customs has received your Inheritance Tax calculation and tax has been paid, an application can be made to the Court for Probate, which costs £273 for estates worth more than £5,000.
The Probate Registry is currently working through a backlog of cases caused by delays incurred following the pandemic and introduction of an online system, and it is taking at least eight weeks for them to process applications.
Once you have received the Grant of Probate you are able to liquidate, transfer and distribute the estate’s assets in accordance with the terms of the Will, any Deed of Variation of the Will, or the applicable intestacy provisions. This is a summary of the steps which can, depending on complexity, take at least 6 to 12 months to complete. Where Inheritance Tax is payable, or there are trust or overseas assets, expert advice is particularly needed.
If you are affected by similar issues or would like to have a related discussion in confidence, please call Michael Romain a Solicitor in our Private Client team quoting reference CB282 on 020 7631 4141 or email firstname.lastname@example.org
The above is accurate as of 18 February 2022. The information above may be subject to change during these ever-changing times.
The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.