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Probate

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Around 600,000 people die in the UK every year. A growing number of firms offer probate legal services. These will include taking instructions from the recently bereaved, sometimes within days of the passing of a loved one.

The six essential elements of probate are :-

1) Ascertaining “testacy” or “intestacy” (did the deceased leave a valid Will?)

2) Discovering the assets and liabilities of the deceased.

3) Accounting for any tax

4) Obtaining the grant of representation.

5) Collecting in the assets and paying liabilities.

6) Distributing specific and pecuniary gifts and the residue.

Ascertaining testacy or intestacy: did the deceased make a valid Will?

First you must find out whether the deceased left a Will at all and establish its validity. Next, you must be familiar with the requirements for valid gifts in Wills and common pitfalls. Against a background of increasing litigation, an unpredictable economy and an ageing population (with more and more dementia), questions of growing importance are (1) whether the deceased had testamentary capacity and (2) whether they knew and approved of the contents of their Will.

As you will know, to make a valid Will the testator must have the necessary capacity and intention. For more recent Wills, there is a presumption of capacity under the Mental Capacity Act 2005.

One tip is to obtain and read the leading case on capacity – the Court of Appeal case of Banks v Goodfellow [1872].

Be aware also that the Will must satisfy certain formalities – these are set out in the Wills Act 1837 (as amended), perhaps the oldest Act still to be applied regularly in the English and Welsh Courts.

When a person dies, they die “testate”, “intestate” or “partially intestate”. It is vital to establish which applies on each new set of instructions.

Get the Will

The testator’s last Will must first be obtained – easier said than done. Once you have it, check it carefully (several times) to ensure its admissibility to probate. In summary, you should check so far as possible, that :-

The testator had capacity (you may need medical evidence if dementia or similar is suspected – ask the family);

The testator had the necessary intention to make the Will (or were they bullied by greedy “gold-diggers”?);

The Will complies with the formalities required by the Wills Act 1837.

Watch out – in some cases you may need to draft an “affidavit of due execution” if the Will contained a defective attestation clause. If the Will is damaged, an “affidavit as to attempted revocation” and/or “plight and condition” may be necessary. Also check whether the testator married after the date of the Will (in which case is is prima facie revoked).

Another tip is – if the Will has been lost or accidentally destroyed, remember: probate may be granted of the original draft or a copy of the Will provided affidavits of “non-revocation” and/or “due execution” of the Will are sworn.

Intestacy

Where there is no valid Will there will be an intestacy. This is fairly common. Almost half of us die without making a valid Will. A person dies intestate if he did not leave a Will or if he left a Will which is invalid (maybe not properly witnessed) or which does not take effect for some other reason.

Of course, if a person dies intestate, all his assets, which could have passed by Will, are instead inherited according to a set of statutory rules – the “intestacy rules” Who gets what depends on the identity of any surviving relatives – for example, whether the deceased left a spouse or civil partner and any children or more remote next of kin. If the deceased had no family, their estate will pass to the Crown, “bona vacantia”.

These rules were, of course, amended from 1st February 2009.

Discovering the assets and liabilities of the deceased

You must take time to find out what the deceased owned at the date of their death: for example, any investments, overseas property, whether they were a beneficiary under a trust, and so on.

Five million of us own property overseas now – and such property may pass under the law of the particular country. You must also find out whether the deceased held property jointly, and, if so, as joint tenants or tenants in common.

Houses, cars, jewellery, antiques, boats and all other property will need to be valued at an open market value.

Accounting for any tax

Sorting out tax often forms a significant part of probate and administration.

No grant can issue until the solicitor has confirmed that there is no inheritance tax (“IHT”) owing, or paid any tax that is due.

Laypeople assume wrongly that IHT is a tax only on death. It is vital to remember that, subject to the deceased’s “nil-rate band”, IHT may apply both to lifetime transfers and transfers on death (especially where any transfer occurred within 7 years of death).

Not only must you keep on top of the annual rise in the nil-rate b and, but it is also vital to develp confidence in completing the current IHT Accounts (both the short and the longer forms).

Paying IHT

The executors cannot obtain a grant until they have paid IHT (unless they are paying IHT by instalments, for example on ..... and have submitted the HMRC receipts ...the Probate Registry.

There are various ways of raising the money to pay IHT: loans from banks (or, less commonly, beneficiaries) or by using any government investments (for example National Savings Certificates) or money in a bank or building society account.

Don’t forget – settling the tax affairs of the deceased includes accounting for any income tax and capital gains tax arising before and after death.

Obtaining a Grant of Representation

A “grant” is simply a special type of court order. In essence it is a permission from the Probate Registry to deal with the deceased’s property.

There are several common types of grant. The deceased’s “personal representatives” (PRs) will need to apply. Remember: PRs are called “executors” if the deceased mae a Will, or “administrators” if they did not.

Procedure

To obtain a grant, you must send by post or deliver personally to the selected Registry :

The appropriate “Oath” (a special type of affidavit), sworn or affirmed by the PRs before an independent solicitor;

The HMRC form (if required). NB: any IHT must be paid and the receipt obtained before the papers are lodged;

The probate fee;

The original Will and Codicils (if any, duly marked) and two A4 copies of the Will;

Any affidavits e.g. of due execution (if required)

It is usually a good idea to request a number of “office copies” of the grant, to facilitate administration of the estate. These will be needed as evidence of tital except in the case of land where the purchaser will require production of the original grant.

Need for a grant

The grant is conclusive evidence of the executors’ title to estate assets.

As mentioned above, asset holders will usually accept production of an office copy grant which establishes the right to recover or receive any part of the deceased’s estate.

No grant need to be produced in order to realise certain assets (for example, the proceeds of a life policy written in trust).

Collecting in the assets and paying liabilities

Once you have the grant you can be in touch with all asset holders asking that any monies be paid to you ready for distribution to the ultimate beneficiaries. For shares and other investments you will need to contact company registrars or fund managers, where appropriate, using reputable stockbrokers.

All outstanding debts and liabilities will need to be paid.

This procedure can take quite a few weeks – again, be patient and methodical.

Distributing specific and pecuniary gifts and the residue

Once you have paid all debts, liabilities and tax (if any) and you are satisfied that estate assets are not required for the purposes of administration, you can give effect to the non-residuary gifts made by the testator (for example, specific and pecuniary gifts e.g. “£5,000 to each of my grandchildren”).

When paying such legacies the PRs are entitled to a discharge from liability – normally given by means of a receipt signed by the beneficiary. In the case of infants who, in the absence of an infant’s receipt clause, are normally unable to give a good receipt (nor can a parent, guardian or spouse do so on their behalf) you should consider holding the gifted property until the infant is 18, or alternatively using their statutory power to set up a simple trust.

Residue

Before residue can be ascertained and a final distribution made, you will need to adjust and finalise the IHT position – making any corrective assessment where variations in the valuation or extent of assets come to light; and, where appropriate, seek a Certificate of Discharge from HMRC for further liability.

Don’t forget that income tax and CGT returns must be made in respect of each tax year covering the administration period in respect of the income from the estate and gains or losses arising from transactions carried out during the course of administration.

Estate accounts

Estate accounts must be prepared and produced for the residuary beneficiaries showing the balance available for distribution to them. A distribution account should also be prepared showing the entitlement of each residuary beneficiary.

If the estate is very large you may need to use an accountant.

Except in the case of a small estate, it is usual to prepare separate income and Capital accounts.

These accounts should be presented to the residuary beneficiaries and a discharge obtained for the executors. This is normally achieved by the residuary beneficiary signing an appropriate endorsement which signifies the beneficiary’s approval of the accounts and releases the executors from any further liability in connection with the administration.

Make sure your accounts are clear and accurate, and that they look good.

Conclusion

All of these matters are infinitely variable.

The economy shows every sign of recovery. Hopefully, property prices will increase. The area of Wills and probate, including IHT, are near the top of the political agenda.









 


 
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