James Smith  ACII FPFS IMCKey Account Development Manager

Learning Objectives

• Understand the process and requirements for dealing with an estate following death

• Understand the impact of Inheritance Tax on an estate and what forms need to be completed

• Understand associated financial planning issues following death

Aim

• Trusted & valued adviser to the family & respected by professional connections

Ground Rules

• We don’t cover Intestacy / Laws of Succession in any detail• For Scotland read “Confirmation” for Grant of Probate• For Scottish Estates get familiar with Prior Rights, Legal Rights,

Moveable Estate, Heritable Estate & Bonds of Caution

• There is more! This is just a part of a 2.5hrs session. You will be asked at the end if the full workshop session would be of interest.

Money Advice Service (MAS)How much do probate services cost?

•Hourly rate

•Flat fee - % of estate value

•VAT

•Probate fees on top

https://www.moneyadviceservice.org.uk/en/articles/when-should-you-use-a-probate-specialist

•Lots of helpful info on the Sesame & Bankhall websites under Legal Services

•When should a probate specialist be used?

https://www.moneyadviceservice.org.uk/en/articles/when-should-you-use-a-probate-specialist

Dealing with an estate following death

Overview - initial thoughts

Who actually deals with the estate?

What are their key responsibilities and what is the process

that needs to be followed?

What documentation do they need to

provide to HMRC?

Who deals with the estate?• PERSONAL REPRESENTATIVES

• The Personal representatives (PRs) are responsible for settling the financial affairs of the deceased.

• England NI & Wales:

• If there is a valid will the Personal Representatives are referred to as the Executors

• If there is no valid will they are referred to as the administrators

• Scotland:

• Referred to as Executor Nominate if there is a will or an Executor Dative if Sheriff Court appoints them

Executors• Executors are named under the will.

• Power reserved form

Grant of representation – the processMost cases follow the same basic process;

https://www.gov.uk/wills-probate-inheritance

* If an executor under a will - “grant of probate”. If an administrator – “grant of letters of administration”

Grant of Probate • A grant is not normally required if the estate either:

- passes to the surviving spouse/civil partner because it was held in joint names – e.g. a savings account

- does not include land, property or shares

• The executors should contact the organisation holding the money – e.g. the bank or building society.

• They may ask for proof of death – e.g. the death certificate after the death has been registered

• Each financial institution has its own rules – it may still be necessary to apply for a grant for funds to be released – most organisations will have a de-minimis/small estates limit.

• http://www.shareview.co.uk/4/Info/Portfolio/Default/en/Home/Shareholders/Pages/ManageEstate.aspx

Grant of Probate Application

•

The probate application form PA1 (Form C1 in

Scotland)

Probate appointment form ARF1 in NI

The Inheritance Tax form 205 - if an excepted estate*

(C5 in Scotland)

An official copy of the death certificate

The original will and 3 copies - and any codicils

(additions or amendments to it)

The application fee of £105 - a cheque made payable to

HM Courts & Tribunals Service (there’s no fee if the

estate is under £5,000)

Variable fees up to £250 in NI & Scotland

Extra copies of the grant can be obtained (£1 -£10

each) - this means they can be sent to different

organisations at the same time

Tips & Recommendations

• Ensure you obtain multiple copies of the death certificate and grant of probate – most organisations will require an original certified copy!

• Retain a copy of the will as the original will not be returned by the probate office

Inheritance Tax Forms • “Excepted estates”

• Where a full Inheritance Tax account is not required then IHT205 (2006) – Return of Estate Information is completed

• Permanent resident of England, Wales or Northern Ireland

• This form is sent to the Probate office with PA1

• C5 (2006) is completed where the person’s permanent home was in Scotland

•

Excepted EstatesOne of the following must apply if

death is after 1/9/2006: Additionally, for deaths on or after

6/4/2010 if both the following apply:

Grant of Probate - Process • The probate office will send the executors/personal representatives an oath. They will need to swear the oath at either:

• the office of a commissioner for oaths (usually a solicitor) • a local probate office – England & NI• The local Sheriffs Court in Scotland

• The oath is a promise that the information given is true to the best of their knowledge.

• The grant should come through the post within 10 working days of swearing the oath.

•

What IHT documentation does HMRC require if it is a non excepted estate?

A full account is required

• An IHT400 (plus schedules) is required when there is Inheritance Tax to pay or the deceased’s estate does not qualify as an “excepted estate”

IHT 421• Two page summary for probate purposes.

• Outlines those assets in the deceased's estate that will become the property of the personal representatives to distribute among the beneficiaries.

• It is sent to HMRC Trusts and Estates Inheritance Tax together with the IHT 400 form.

Question • How does the probate registry know that an IHT submission has been

made and any tax paid?

Tips & Recommendations

1) Get clients to maintain an accurate list of assets held – amounts, who with etc..

2) Ensure a list of gifts is made – remember a PET failing within the last 7 years will require you to look back at CLTs in the prior 7 years (the 14 year rule)!

3) Utilise IHT 403 as a pro-forma to record gifts made

IHT 403

Pension fund schedule – IHT409

• The pension fund needs to be paid at the discretion of the trustees for it to be free of IHT.

Tips & Recommendations

• Discuss general advantages of a spousal by pass individual trust for any lump sum pension death benefits versus an expression of wish

• Review Section 32 & Retirement Annuity (S226) policies – are they under trust?

Pension fund

So as long as the pension benefits are paid at the discretion of the trustees they are never included in the estate for IHT purposes ….or

are they?

Be aware of page 2 of IHT409!

Caution when considering a transfer of and changes to pension benefits where the member is in serious ill health and IHT is an issue!

The value of pension benefits could be included in the estate for IHT purposes – even if the trustees are using their discretionary powers!

Who pays any Inheritance Tax due?

• Usually, the personal representative pays Inheritance Tax on any assets in the deceased’s estate that are not held in trust.

• The money generally comes from the deceased person’s estate. However, because the tax must be paid within six months of the death and before the grant of probate can be issued (or grant of confirmation in Scotland), sometimes the executor has to borrow the money or pay it from their own funds.

• In these cases, the executor or the people who have advanced the money can be reimbursed from the estate before it's distributed among the beneficiaries

•

Finding the money to pay any Inheritance Tax due?

• Ways to fund an Inheritance Tax payment before probate, include using the deceased’s bank account, Government Stock or National Savings.

• Assets under trust (Probate Trust?)

• Conversation with HMRC?

Once the Grant has been issued – next steps

Distribute the estateContact

organisations/obtain assets

Pay any debts or outstanding payments

Dealing with debts on death• Any Inheritance Tax due will have to be paid before probate or

confirmation is granted.

• Once received grant of probate/confirmation, need to use the money in the estate to pay off any outstanding debts.

• This needs to be done before the estate can be distributed to beneficiaries.

• If there isn’t enough liquid money, this can mean having to sell assets, including property.

• Value of the estate less than all the debts owed by the deceased = ‘insolvent estate'.

- priority order…………………..

Dealing with debts on death

1. Secured debts such as mortgage and secured personal loans.

2. Reasonable funeral costs and the costs of administering the estate.

3. Unsecured debts, such as credit cards, unsecured personal loans, gas, water and telephone bills, unpaid rent, Council Tax and other taxes, and repayment of overpaid benefits.

• If there isn’t enough money to pay everyone, the personal representative should take advice from a probate specialist on which debts should take priority, and they should inform the creditors that the estate is insolvent.

• https://www.moneyadviceservice.org.uk/en/articles/dealing-with-the-debts-of-someone-who-has-died

Tips & Recommendations

• Place an advertisement in the local paper asking for creditors to come forward

Summary

• Ensure you are the trusted and valued adviser to the family

• Assist clients recording of assets held and gifts made (IHT403) – reviews?

• Professional connections – talk the same language

Question one

• Would you be interested in attending the full case study master class?

1.Yes

2.No

Question two• Which particular financial planning aspects

of dealing with an estate are of interest?

1.Packaged IHT solutions

2.Pensions & trust planning

3.Holistic platform solutions

4.All of the above

Important information

Information about tax is based on AXA Wealth’s interpretation of current legislation and HM Revenue & Customs' practice. Tax treatment can change and depends on your client’s personal circumstances.

The information contained in this presentation does not constitute advice. It is designed for financial adviser use only and is not intended for use with individual investors. Any sample screen shots displayed are correct at date of issue but may be subject to change.

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