Wills, executors and probate - part 2
May 2009
Preparing your Will - in the UK and abroad
Power of Attorney
Power of Attorney is a legal document giving another person the right to act on your behalf either generally or in specific matters. If you were going abroad on holiday or for work reasons you might grant a Power of Attorney to a family member or trusted friend so that they could sign paperwork and carry out other transactions on your behalf, should anything happen to you.
To get more information on choosing somebody you trust to make decisions on your behalf (about your finance, property, health and welfare) visit the Office of the Public Guardian website at www.publicguardian.gov.uk
The roles and responsibilities of Executors
If you have a Will an Executor is the person (though there could be more than one) you choose to deal with your estate. If you have no Will, an Administrator is appointed. Executors and Administrators are also called 'personal representatives'.
An Executor will take charge of your house and possessions, unless they pass automatically to your partner.
Some assets can't be given away in your Will, eg if you and your spouse or partner jointly own your home and hold it as joint tenants, then on the first death it will pass automatically to the other joint owner. However, most of your property can be dealt with by a Will. If you are unsure about the type of joint ownership you share with another, you should consider seeking legal advice.
What does an Executor or Administrator do?
They must carry out the requests, as specified in your Will, and find out whether they need to apply for probate. If there is (or could be) Inheritance Tax (IHT) to pay, the Executor must report the value of the Estate to the Capital Taxes Office.
Even if they are sure that there is no IHT to pay, they must complete a form giving details of your assets and any gifts you have made, above a certain level.
Executors sometimes have to deal with relatives and friends who wish to contest your Will if they feel that they have been dealt with unfairly. There are ways to change a Will after someone has died but this requires a legal agreement from all the beneficiaries of the Will.
A bit of a burden
Being an Executor is a very responsible and time consuming task, so it’s important when choosing one that you discuss the task with them first. And it’s conventional to pay them a modest reward for their troubles, which you must include in your Will.
An Executor who doesn’t want to do the job can stand down; equally you may decide they are no longer fit for the job. Even so, you may outlive them and need to appoint another Executor – all good reasons for regularly reviewing your Will.
Deeds of Variation
It is possible to change a Will or intestacy judgement after someone has died – through a Deed of Variation.
It can be applied when the beneficiaries want to revise the agreed terms for family reasons, such as a divorce or financial ones, for example Inheritance Tax.
The Deed must refer to the Will or intestacy being varied and must be signed by all of those who may have benefited from the original Will. It must be completed within two years of death.
However, when making a Will, you shouldn't rely upon being able to vary it after death. This is because, in order for you to obtain the Deed all the beneficiaries must be over 18 and of sound mind (sane) and they must all agree that the gift is varied. It will also cost money to instruct a solicitor to do this for you.
What is Probate?
When a person dies somebody has to deal with their estate (money, property and possessions left) by collecting in all the money, paying any debts and distributing what is left to those people entitled to it. Probate is the court’s authority given to a person or persons to administer a deceased person’s estate and the document issued by the Probate Service is called a Grant of Representation.
It is called a “Grant of Probate” if the deceased left a Will, and “Letters of Administration” if they died intestate (without making a will). This Grant is usually needed by organisations, for example insurance companies, before they can release any of the deceased's money to the Executors. Different rules may apply to pension schemes and life insurance policies.
The Executor/Administrator will need to contact the pension scheme the deceased belonged to and ask if death benefits are payable for a spouse, civil partner or children, and if any of the investment has become part of the deceased's estate under a self-employed pension scheme.
Remember that an ex-spouse or former civil partner may have rights to some of the pension, depending on the terms of the divorce or dissolution settlement.
Similarly, with life insurance policies it's advisable to contact the insurance company as soon as possible. They'll tell you what to do and what documents they need before they can pay out. It's also advisable to check any policies are still in force and also the amount that should be due, and to whom. Always get a receipt from the insurance company when cashing in a policy..
How to apply for Probate
You can apply in person for Probate or Letters of Administration but most people instruct a solicitor to apply on their behalf.
The application is either to the Principal Registry (in London) or in regional cities and large towns to the district probate registry. To find your nearest probate registry and for further information go to the probate section of Her Majesty’s Court Service (HMCS) website www.hmcourtsservice.gov.uk
When do you need Probate?
There is no need to apply for Probate when:
- the estate is valued as under £5,000
- everything a couple owns is held in joint names
Will I pay Inheritance Tax (IHT)?
Inheritance Tax (IHT) must be paid on any amount over the nil rate band allowance.
Until recently, this stood at £325,000, but now the Chancellor has changed the rules on IHT so that most couples and widow(ers) will avoid paying anything on the first £650,000 as long as they are legally married.
Married couples, including those in civil partnerships, will now be able to combine their individual £325,000 allowances.
Also remember, the deceased person may have held money with another person in a joint bank or building society account. Normally this means that the surviving joint owner automatically owns the money. However, a deceased's person's share in joint property is treated as part of their estate for IHT purposes and so will be relevant to the IHT calculation.
IHT must be paid on any amount over the nil rate band allowance which is set to increase to £350,000 (£700,000) by 2010. The IHT increase will be backdated for widows and widowers indefinitely.
In the future, the Government has pledged to keep a close eye on both house prices and inflation when setting inheritance tax thresholds. But note, the rules are different if your spouse or civil partner is not domiciled in the UK.
Remember too, that UK Charities and some other organisations are also exempt so you can leave them money without any IHT needing to be paid.
Paying the Inheritance Tax due on an Estate
If you are the deceased person’s executor or personal representative you need to value all of the assets they owned and then to work out whether any Inheritance Tax is due.
When doing this it is important to check whether there are any lost or forgotten bank or building society accounts. The website www.mylostaccount.org.uk is a free service which brings together the banks, building societies and NS&I and enables you to trace lost accounts by completing a single online application form.
The Unclaimed Assets Register has a database of unclaimed life policies, pensions, unit trust holdings, and share dividends drawn from many companies. Find more information at www.uar.co.uk
You will need to do this before applying for Probate because if Inheritance Tax is due on the estate, the probate or grant won't usually be issued until at least some of the tax has been paid.
You will need the following forms:
Probate application form PA1
Supplementary form D18 'Probate summary'
Inheritance Tax form IHT200
The IHT200 is the form in which you calculate the IHT that is due. You will then have to pay this amount, or a proportion of it, at the time you submit the form.
Some IHT that is due can be paid by instalments eg IHT on property. You can find out more about the system, which can be complicated, by visiting the probate section of Her Majesty’s Court Service (HMCS) website www.hmcourtsservice.gov.uk
To make a payment, recent changes to the system mean that you have to first have a reference number and payslip. To get this you will have to apply to HM Revenue & Customs using Form D21.
You can download this form from the HMRC website, or obtain a paper copy from the Forms Orderline on 0845 30 20 900 (option 1).
You can also apply online by accessing the “Do it Online” link on the side bar of the IHT home page at www.hmrc.gov.uk
It is best to apply for this at least three weeks before you intend to send in your IHT 200.
If you think IHT is likely to be due you should consider getting advice as the process can be difficult to those who are unfamiliar with the system. You might want to approach your local Citizens Advice Bureau or a solicitor. A list of solicitors is available from the Law Society on 0870 606 2555 or on their website at www.lawsociety.org.uk
There is also a professional body called STEP (Society of Trust and Estate Practitioners) whose members are professionals specialising in trusts and estates, executorship, administration and related taxes. They can be contacted on 020 7838 4890 or you can find a member in your area on their website at www.step.org
Useful websites and addresses
Rules of Intestacy - www.hmrc.gov.uk
