Applying for Probate? Advice on Preparing Estate Accounts
Following a death, you may need to apply to the Probate Registry to be given the legal right to deal with a person’s property, money and personal possessions (their Estate) when they die. If you are an executor named in a Will then this will mean applying for a Grant of Probate which is an official document issued by the Probate Registry (part of the HM Courts & Tribunal Service). The equivalent official document if the person did not leave a Will is a Grant of Letters of Administration to be an administrator of their estate.
The overarching term for an executor or administrator of an estate is ‘Personal Representative’. The Personal Representative has a legal duty, set out in the Administration of Estates Act 1925, to provide (when requested by the Court) a full inventory of everything in the Estate. As a result, there is a statutory duty to produce the some form of accounts.
Therefore, it is advisable for Personal Representatives to keep comprehensive and accurate accounts setting out the full Estate assets (as they were at the date of death), any details of Estate debts, administration expenses, and any increases or decreases in the value of Estate assets once they have been liquidated. The Estate accounts should demonstrate what money has come into and out of the deceased person’s Estate, and also specify how the Estate assets have been, or are to be, distributed between beneficiaries.
What should be included in the Estate Accounts?
There is no prescribed format to Estate Accounts, but typically they include the following:
- Summary – the first page typically sets out the name of the deceased, their date of death, the date of their Will (if they had one) or codicils, the names of the acting Personal Representatives and a summary of the terms of the Will/Rules of Intestacy.
- Balance Sheet- this is a very important tool to show you what still needs to be done in the estate administration.
- Assets and Liabilities– it is important to provide a full list of the assets (money, property and personal possessions) with the value of each asset at the date of death, and also a list of any liabilities at the date of death, such as a mortgage, credit card debt, or loan. These figures will be needed when applying for the Grant of Probate/Letters of Administration, the required net figure is the total value of assets minus the total value of liabilities as at the date of death.
- Inheritance Tax Account– this sets out whether or not the Estate is liable for any Inheritance Tax. If it is then the amount payable and relevant Inheritance Tax calculations should be recorded, with any applicable exemptions detailed.
- Administration expenses– this sets out any costs incurred after the date of death and during the estate administration. This may include the Probate Registry fees when applying for the Grant, funeral expenses, statutory adverts in the London Gazette and local newspapers, solicitor’s fees for administering the Estate, costs relating to the sale of property, and any disbursements incurred on behalf of the Estate.
- Capital Account, Income Account and Distribution Account– the Capital Account should detail any changes to the value of the Estate since the date of death (including any Capital Gains Tax liabilities). The Income Account should include any income received on any assets from the date of death up until when the asset is transferred or encashed. The distribution account should provide the final amount due to each beneficiary.
Estate Accounts – why they are so important?
There are many issues that may arise if the Estate accounts are not produced. You may miss certain assets which are then not gathered in, or the Income tax paid may be incorrect. If the Inheritance Tax is being paid by instalments then it may be forgotten and the Personal Representatives might distribute all of the remaining funds without retaining a sufficient reserve, or distributions might not be equalised between residuary beneficiaries (if payments go out at different times and in different amounts to different beneficiaries).
The only people entitled to receive a copy of the Estate Accounts are the residuary beneficiaries of the Estate. This is because the administration of the Estate will have a direct impact on the amount of inheritance they receive. Once the Estate has been finalised, a residuary beneficiary who does not, upon their request, receive a copy of the Estate Accounts can apply to the Probate Registry for an Inventory and Account Order.
You may find it time consuming and frustrating preparing Estate accounts and applying for the Grant, but it is important Personal Representatives keep accurate Estate accounts for the purpose of ensuring that all assets have been properly accounted for, and the correct information has been submitted to HMRC and the Probate Registry.
Our Private Client team can make the probate application process easier by advising on the valuations of estate assets and liabilities which are required, submitting inheritance tax forms to HMRC, preparing the Estate accounts, applying for the Grant and making sure that you submit the correct information to the Probate Registry, and accurately distribute the Estate.
It can be a demanding and complicated process administering an estate, particularly after losing a loved one. If you are unsure about whether you need to apply for a Grant, or if you seek assistance with the estate administration process and the preparation of Estate accounts, please contact a member of our highly experienced Private Client team.
Written by Anouschka Fenley – Paralegal