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Probate summary

If the estate is very small and does not contain any property or large amounts of money, it may be possible to close small bank accounts without needing to obtain a grant of probate but in the majority of cases a grant is required. This is a legal document that is applied for from a probate registry and it proves that you are entitled to collect in the assets of the deceased, pay any debts and distribute the remainder according to the terms of the will. If there is no will, then the next of kin should follow a similar process to obtain a grant of representation and the estate distributed following the rules of intestacy.

If you are a named executor in the will, in order to apply for a grant, you need to know the correct value of the estate at the date of death to complete the required tax forms. This involves contacting all relevant banks and building societies, investment companies and utility companies, obtaining a value for any property as well as any debts and liabilities. You are also required to swear a probate oath to state that the information provided is true to the best of your knowledge.

Any inheritance tax due must be paid before you can obtain the grant, begin to collect in the estate’s assets and pay any debts, for example unpaid utility bills. Institutions will request sight of a sealed copy of the grant before they will release any money to the executor.

The residue of the estate can then be distributed according to the terms of the will. If the will contains trusts or there are beneficiaries under the age of 18, meaning that a trust is automatically created, this process becomes a lot more complicated and it is important to obtain professional advice to ensure that the will is followed correctly as executors are personally liable for any mistakes.

There are two ways that we can help you in dealing with a probate matter.

1. In the first case we can obtain the grant of probate for you and then you can deal with the rest of the matter yourself. We will need you to provide us with all of the personal and financial details necessary. We will then prepare the inheritance tax return (this is required even if the estate is not liable to inheritance tax) and draft the probate oath. Then we will supervise the swearing of the probate oath and submit the sworn oath to the probate registry for issue of the grant of probate.

2. For the full service probate we will need a list of all of the deceased’s assets. We will then write to the financial institutions to obtain the specific details of their assets and liabilities at the date of their death. This will also include dealing with their income tax, pension provision and arranging to settle any funeral bills. Armed with all of this information we will prepare the inheritance tax return (IHT205) or the account (IHT400) if there is inheritance tax due. At this point we prepare the probate oath for swearing and once any inheritance tax is settled we will obtain the grant. At that point we can begin to collect in the various assets and can proceed to settle any debts or legacies and bequests when we have the funds to do this and if the estate requires any trusts to be established then we can deal with these. Throughout the process we will keep an accurate record of the money due, collected and paid out so that at the end of the probate we have a full set of estate accounts to provide to the executors and residuary beneficiaries at the time of the final distribution.

Using trusts to protect family property

It is worth considering using trusts to protect family property. Two scenarios where this may be appropriate are in the case of a second marriage when you already have children, or to protect your share of your property from potential care fees for your spouse.

Quite often nowadays people re-marry but each have children from a previous relationship. The couple’s money is pooled to buy a new home with the intention that they will live in the property together. When the first of them dies the survivor will continue to live there, but ultimately the value of the property is to be shared between their own children after the death of the survivor.

In this situation, I would suggest you consider holding your new home as tenants in common. This means that you each own a separate share which you can leave under your will.

The next step is to include an “interest in possession trust” (or “life interest trust”) in your will. You leave your half share of your home to your executors, to hold it on trust for your spouse who can live there until he or she dies. Your spouse will have the responsibility for maintaining and insuring the property. You can also include provision to allow your trustees to sell your half of the existing property together with your spouse and to invest the proceeds in another property. If this is a smaller property then it results in the release of extra cash from the survivor’s share if it is needed. Any surplus funds from your own share of the property can be invested to provide an extra income for your spouse.

If your spouse has to go into care, then obviously they will need to fund their care from their own assets, but your half of the property will remain in the trust. Any income from your share will go to support your spouse, but the capital representing your half share of the property will be protected and will ultimately go to your children when he or she dies.

Nil-rate band discretionary trust wills

Prior to October of 2007, many couples made wills with nil-rate band discretionary trusts in order to avoid inheritance tax where their combined estate was worth more than the tax free nil-rate band. Now the government has changed the rules to allow the widow or widower to “inherit” the unused tax free nil-rate band of their husband or wife. This makes nil-rate band discretionary will trusts redundant from an inheritance tax aspect. However, there are still instances where they can be useful. Where the survivor is already in care (or is likely to go there soon) and where a beneficiary is having matrimonial or financial difficulties, then there is an advantage to keeping some assets safe in the trust, which can be used for the survivor or held back for the beneficiaries.

Add to this the fact that you can break up the trust within two years after the death. Then the trust is treated as never having been in existence and all of the assets can be passed to the surviving spouse, who also gets to benefit from the unused tax free nil-rate band.

If you have gone to the trouble and expense of making wills with nil-rate band discretionary trusts then you might as well keep them as they stand until you need to change your wills.

Inheritance tax and gifts to charity

Inheritance tax (IHT) is charged at a rate of 40% on the value of an estate that exceeds the nil-rate band (NRB). The NRB is currently £325,000 per individual. There is provision for a surviving spouse to ‘inherit’ the unused allowance of their late husband or wife, potentially giving them double the NRB in force at the date of their death. Furthermore, where the beneficiary of assets under a will is either the surviving spouse or a charity, then there is an exemption from IHT.

A gift to a charity can be an effective way of saving the estate from paying some or all IHT. Normally this is achieved by a legacy of a fixed sum to a charity while leaving the rest of the estate to family or friends. Some people are concerned that a fixed gift may represent a greater proportion of their estate than anticipated if care fees have eroded their wealth by the time of their death. They may opt to combine charities and human beneficiaries as recipients of the residue of their estate, allowing them to gift percentages to all parties. However, mixing taxable and exempt beneficiaries could cause IHT problems so it is always a good idea to seek professional advice in this regard.

Why you should make a will

The main benefit of a will is the certainty it gives. In the absence of a will the statutory rules of intestacy take effect and these lay down a strict order as to who will administer the estate and who will inherit it.

Your will appoints your executors. There may be good reasons why the statutory appointment, like a surviving spouse or all the children, should not carry out this role. It is also possible to indicate your first choice of guardians for your children.

Your will can contain funeral instructions which will limit the scope of disputes over how or where the funeral should be carried out.

Most importantly, your will lets you set out how you are going to leave your estate. If you wish to leave specific gifts to particular people, plan for inheritance tax and also make provision for the costs of care fees then you should consider taking advice on making a will. I would also advise that you consult an experienced professional to draw up your will. The only thing that causes more arguments than no will at all is a poorly drafted one.