Wills, probate and inheritance
Terms you may hear
Here are some of the terms you may hear if you're dealing with someone's estate:
- Will: this is a legally-binding document which explains what the person who died wanted done with their assets and possessions. It should also mention who should sort out their affairs after death. These people are called the executors.
- Probate: the process of proving the Will is valid and sorting out the person’s estate according to their last wishes. This is usually done by a lawyer and or the executors (or administrators, if there’s no Will).
- Inheritance: When someone receives money, property or another personal possession from someone who has died. This can either happen when they’re mentioned in the Will (in this case it’s also called a legacy), or because the person who died didn’t make a Will and they’re the next closest relative.
- Deceased (the): This is how the person who has died will be described in most legal documents.
One of the first jobs following a death is to check whether there is a valid Will. This is important because the person who’s died may have left instructions about funeral arrangements.
If you know who’s expected to sort out the estate, that person may know where to find the Will. For example, it could be in the financial paperwork of the person who’s died, or it might be stored with a solicitor or bank.
The main purpose of the Will is to:
- appoint one or more people – called ‘executors’ – to carry out those instructions and the other tasks involved with estate administration
- set out instructions about passing on the estate of the person who’s died. An estate is everything a person owns in their own name, less everything they owe
As executor, you will often take a key role in arranging the funeral. If the person who died had a bank account, the bank will normally allow immediate payment of funeral expenses from the account. The account has to be in credit, and you’ll need to provide a copy of the death certificate and the original funeral invoice.
Dying without making or leaving a valid Will is called dying ‘intestate’. The estate will still need to be sorted out and the person who takes on this task is called the ‘administrator’. Usually this will be the next of kin.
The law decides how the deceased’s estate will be passed on. The law in Scotland and in Northern Ireland is different from the law in England and Wales. But in all four countries, it prioritises any husband, wife, civil partner and children (including adopted children).
The intestacy laws don’t pass anything on to an unmarried partner, stepchildren, friends, charities or other organisations.
However, if you were financially dependent on the person who died, you may be able to claim a share of the estate (possibly including the home). This could also apply if you were co-dependent with them – for example, you shared household bills. But you’ll need to get advice from a solicitor about this.
Find a solicitor
If a person leaves a Will but the instructions in it don’t cover the whole estate, or it appoints executors that have already died or don’t wish to act, the intestacy laws will apply to the bit that’s not covered. This situation is called ‘partial intestacy’.
You may be the sole executor or administrator, or there may be more of you. You don’t all have to take an active part in sorting out the estate, and can instead have ‘power reserved’ to you to act as executor or administrator at a later date.
There’s usually nothing complicated about being an executor but it can be time consuming. You can claim any reasonable out of pocket expenses you incur from the estate. You can’t charge for your time, unless the Will gives permission for this.
You can handle the whole job yourself or you may decide to pass some or all of it to a solicitor. The estate pays the solicitor’s fees.
Your role as executor or administrator is to:
- trace everything the person who died owned (called ‘assets’). This may include: bank accounts, savings and investments, property, cars, jewellery, other valuables, furniture, personal possessions, and debts owed to the person who died – for example, overpaid tax
- trace every debt the person who died had (‘liabilities’). This will include any mortgage, personal loans, credit card balances, unpaid household bills, tax outstanding on income received in the deceased’s lifetime, and so on
- draw up an account for the estate. This will list all the assets and then deduct all the liabilities and reasonable funeral expenses, to work out the total value of the estate
- complete an inheritance tax form and pay any inheritance tax due. The tax must be paid before probate can be granted. The tax due on property can be paid in instalments
- apply for ‘probate’ (called ‘confirmation’ in Scotland). This is a formal process to recognise the validity of the Will (if there is one) and to confirm your power to distribute the estate as directed by the Will or the intestacy laws
- take control of the assets (using the grant of probate or confirmation)
- pay the debts of the estate. These are normally paid from the estate
- trace all the people, charities and other organisations that are to inherit (called the beneficiaries) and distribute their inheritances to them
There may be tax to pay on the estate if it’s large enough. This is called inheritance tax. It’s only payable if the estate, including any assets and gifts made in the past seven years, is valued over £325,000. You don’t have to pay tax on any amount below this. This is often called the tax-free allowance or the nil rate band.
As executor or administrator, you will need to:
- check whether the person who died made any gifts in the seven years before their death
- work out whether or not inheritance tax is due on the estate
- complete an inheritance tax form and send it to HMRC (if appropriate)
Some gifts can be also be tax free, like, gifts made to a husband, wife or civil partner (in most cases) and anything left to charity.
If the person who died had a husband, wife or civil partner who died first, the executor or administrator should check whether the tax-free allowance was completely used up for that first death.
If not, then the unused amount can be used to increase the tax-free allowance and that can be set against the current estate.
For example, a husband died 10 years ago leaving everything to his wife. Since the gift to the wife was tax-free, none of the husband’s tax-free allowance was used. If the wife then dies in 2014-15, the tax-free allowance that can be set against her estate is increased by 100% from £325,000 to £650,000.
The increased tax-free allowance is not given automatically. As executor or administrator, it will be your job to claim it (using form IHT217). Further details are given on the HMRC website.
If the value of the estate is very small (usually no more than £5,000) and consists of just a bank account, the bank may agree to release these assets without a grant of probate. This means you won’t have to go through the probate process at all. Talk to the bank or any other savings provider concerned.
If there’s no inheritance tax to pay on the estate, it’s likely to count as an ‘excepted estate’. This means you’ll only need to fill in a shorter version of the inheritance tax return (form IHT205 or, in Scotland, form C5). The HMRC website has more information.
In Scotland, if the value of an estate is no more than £36,000, you can ask the Sheriff Clerk who is based at the Sheriff’s Court to help you with the confirmation process. Contact your local Sheriff’s Court .
You may have been left money, property, investments or other things by the person who died.
Normally, inheritance tax will have been sorted out by the executor or administrator and paid from the estate before you receive your inheritance.
Occasionally a Will states that an inheritance is to ‘bear its own tax’. This means that your inheritance will be reduced by the amount of tax due. That’s easy if you’re inheriting money but can be a problem otherwise. The item you inherit may need to be sold to raise the money to pay the tax or you’ll have to find the money from somewhere else.
Sometimes, when you’ve been left money, the executor or administrator may ask if you’d like to accept some assets instead. You don’t have to agree to this if you don’t want to. This could be a house, or some antiques, depending on what’s in the estate.
Capital gains tax
It usually takes several months to sort out an estate – longer in some cases. This means there’s a delay before you receive any inheritance. Despite this, you’re treated as if you inherited on the date of death.
If you inherit investments or items (such as antiques) rather than money, when you come to sell them, you’ll need to work out whether you’ve made a profit. You can do this by comparing the sale price against the value of the item on the date of the person’s death.
There may be capital gains tax to pay on any such profit. This is tax on the sale of an asset which has increased in value since you first got it. But you’re allowed to have some profits tax-free each year (up to £11,000 in 2014-15).
Making changes to your inheritance
You don’t have to accept an inheritance if you don’t want to. If you refuse it, the executor or administrator sorts out who gets it instead.
It’s possible to override a Will and change the way part or all of an estate is inherited. To do this, you need a ‘deed of variation’. This can be complex, so it’s best to get advice from a solicitor. The variation must be made within two years of the death.
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