The pitfalls of DIY probate and why you should use a professional
With the huge increase in internet use and the wealth of information that can be found on it, more and more people are being tempted to deal with the administration of an estate themselves. This blog sets the factors you should consider.
Probate, the process of dealing with someone’s estate (property, possessions, cash, savings) when they pass away, can be applied for without seeing a lawyer, but it’s not without risks. Official statistics indicate that the number of claims against executors for breach of fiduciary duty (in other words “getting it wrong”) has more than tripled in recent years. There is speculation that this increase is linked to the rise in DIY probate.
There are various factors to consider before deciding whether or not to handle the process yourself. These factors can include:
1 – Understand your responsibilities
Acting as an executor does not come without responsibilities. An executor is responsible for dealing with large sums of money, discharging debts and liabilities, some of which you might not know about and preserving the estate for the beneficiaries.
2 – The Will itself can be complicated
If it has been prepared by a lawyer then it may include legal language which is based on law developed other hundreds of years. What you think the Will says may be different to what it actually says. Many professionally drafted Wills contain trusts; to save inheritance tax, to avoid those who inherit paying care fees and to reduce the likelihood of potential disputes. These types of trust can be complicated to administer and to understand all of the tax implications when deciding how to deal with them.
3 – Understand your personal liability
An executor is often personally liable for compensating a beneficiary who has suffered a loss. This may be due to the Will being misunderstood, a decision that has been made having a negative tax impact or assets in the estate losing value due to delay. These are a few of the many things that can go wrong when dealing with an estate.
4 – Amending entitlements
Beneficiaries can look to amend their entitlement under a deceased’s Will after the death, under the current inheritance tax rules. This might not always be known or obvious to the lay executor or beneficiaries. There can potentially be negative inheritance tax consequences which can be addressed by such a variation and spotting this in time is crucial.
5 – Completing an Inheritance Tax return
In many cases an inheritance tax return will be required and the executors will need to account to HM Revenue & Customs for this. These accounts can be complicated even in what might appear to be the simplest estates. The penalties for an incorrect return can also be severe. When was the last time you volunteered to complete a tax return?
6 – It can be time consuming
Dealing with a person’s estate can be a time consuming business. An experienced lawyer will know the process well and can get on with the administration of an estate efficiently.
7 – Value independence
A lawyer is also independent and allows an executor to keep beneficiaries at ‘arms length’ and can assist an executor in managing beneficiaries’ demands and any conflicts that may arise.
8 – Understand all the tax implications
Inheritance tax should not be the only tax you consider when administering a person’s estate. At various stages of the administration there may also be capital gains tax and income tax matters to take into account. In particular there are often significant Capital Gains Tax savings to be made before selling a person’s home. An experienced lawyer should identify these and help the executor and beneficiaries take advantage of these tax planning opportunities.
9 – Use a reputable lawyer
Finally, by using a reputable lawyer, an executor and the beneficiaries are afforded additional protection. A lawyer should retain any monies on behalf of the estate in a client account. Solicitors are required to hold professional indemnity insurance are regulated by the Solicitors Regulation Authority.
As elderly client specialists, we are also able to add value for example by identifying cases where money is owed to the estate for care funding which should have been met by the NHS and we can assist in making a claim on behalf of the family.
In all but the most straightforward cases, it is important to seek timely specialist advice to save money and worry. Executors carry a certain amount of personal liability in their role and they can open themselves up to substantial legal claims if they are unaware of the law and their obligations.
For more advice or information please contact:
Susan Glenholme, Partner
T: 01727 735636