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James Smith ACII FPFS IMC Key Account Development Manager

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1 James Smith ACII FPFS IMC Key Account Development Manager
As financial advisers we spend a lot of time creating and protecting wealth but not a lot of time talking about death. Are any of you the executor to an estate (named in the will) or have dealt with an estate? Have any of you had a client that has died? This time last year my father passed away and as the sole executor I worked through the probate process and so many of the tips/recommendations that are flagged up are from first hand experience.

2 Learning Objectives Aim
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 Not all about process but key financial planning aspects as well. Process and requirements for dealing with an estate following death Impact of IHT and forms Associated financial planning issues BUT Main aim is to enhance your position as a trusted and valued adviser to the family whilst ensuring that you are talking the same language when working with professional connections!

3 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. This is part of a 2.5hr master class case study session. At the end of the presentation you will get the opportunity to request participation in a future event. The forms illustrated throughout this presentation are in relation to the case study used.

4 Money Advice Service (MAS)
How much do probate services cost? Hourly rate Flat fee - % of estate value VAT Probate fees on top Options are for the executors to do it themselves or appoint a probate specialist. Money Advice Services outlined costing for professional probate services. Hourly rate Flat fee % of estate value (between 1-5%) VAT on top Probate fees etc are on top.

5 When should a probate specialist be used?
Lots of helpful info on the Sesame & Bankhall websites under Legal Services When should a probate specialist be used? Lots of helpful information on the Sesame/bankhall websites under Legal Services. A useful guide through the probate process and provides examples of when a probate specialist should be used.

6 Dealing with an estate following death
As the adviser to the family your help and guidance at this traumatic time will be invaluable.

7 What documentation do they need to provide to HMRC?
Overview - initial thoughts What are their key responsibilities and what is the process that needs to be followed? Who actually deals with the estate? What documentation do they need to provide to HMRC?

8 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 Personal Representatives are responsible for settling the financial affairs. England, Wales & NI – Will = Executors No Will = Administrators Scotland Will = Executor Nominate No Will = Executor Dative if appointed by the Sheriff Court

9 Executors Executors are named under the will. Power reserved form
An executor may sign a power reserved form. This is the expression used by the Probate Registry, when an Executor appointed in a Will, decides to 'reserve their powers to act' until the future, if indeed they ever need to act. It will mean that another Executor is to act solely or with other Executors instead. This process is often used where a particular Executor resides abroad or lives some way from the home of the deceased and is unable to act as Executor due to work or other commitments. Power Reserved will normally take the form of a letter and is noted on the PA1 form as above.

10 Pay any debts – e.g. unpaid utilities bills.
Grant of representation – the process Most cases follow the same basic process; If there’s a will - this normally states who sorts out the estate; if there’s no will the next of kin can apply. Application to get a ‘grant of representation’* - this gives the legal right to access assets such as the person’s bank account. Pay Inheritance Tax - this is only paid if the taxable estate is worth over £325,000 and is part of applying for a grant of representation - once any tax due has been paid, the assets can be collected. Collect the assets – e.g. money from the sale of the person’s property. Pay any debts – e.g. unpaid utilities bills. Distribute the estate - this means giving any property, money or possessions to the people entitled to it (‘beneficiaries’). Grant of Representation – the process Most cases follow the same basic process. Is there a will? If yes then it will state who sorts out the estate and if no, the next of kin can apply. Application for a Grant of Representation = legal right to access assets Pay any IHT due – part of applying for a Grant of Representation. Collect the assets Pay the debts Distribute the estate to those entitled = beneficiares * If an executor under a will - “grant of probate”. If an administrator – “grant of letters of administration”

11 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. There are circumstances where a grant of probate will not be required i.e. where all assets are held on a joint tenancy basis and exclude land, property and shares. Probably unlikely if there are ISA’s etc Executors should contact the various organisations holding the money. Proof of death must be provided and some will have de-minimis/small estates limits. From my experience, it is worthwhile contacting the various organisations at an early stage as most have probate department and can send you their required documentation etc. It also avoids any fraud as a hold can be placed on the various accounts.

12 Grant of Probate Application
The probate application form PA1 (Form C1 in Scotland) Probate appointment form ARF1 in NI The Inheritance Tax form 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) Application process – what is required? The probate application IHT form 205 (if an excepted estate) *We will cover shortly Official copy of the death certificate Original will and 3 copies Application fee of £105 Addition monies if you require addition copies of the grant = not an excessive amount 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

13 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

14 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 estates Where a full Inheritance Tax account is not required – Return of Estate Information Person died after 1st September 2006 – permanent resident of England, Wales or NI Sent with the Probate application C5 in Scotland where the estate is small (under £36k or exempt)

15 One of the following must apply if death is after 1/9/2006:
Excepted Estates One 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: Simply put – On first death where the estate is under £1m and left to spouse or under £325k On second death and under 2 x IHT threshold (£650k) and 100% of late spouses unused IHT threshold has been transferred

16 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. There may be a long delay via the local probate office. The Office of a commissioner for oaths (solicitor) is often quicker – flat fee of £5 per document + £2 for any attaching exhibits or schedules (including vat). Part of the interview process in Scotland and Northern Ireland where proof of identity and full details of the deceased’s estate are required.

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

18 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” An IHT400 plus relevant schedules. 16 pages as opposed to 4 on the Return of estate Information form IHT205 Sent to HMRC and not the Probate Registry.

19 IHT 421 Question 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? How does the probate registry know that an IHT submission has been made and paid? A simplified IHT421 form will also be required to accompany the IHT400 form. As these forms are sent directly to HMRC and not the probate office, HMRC will send a copy of IHT 421 once satisfied and any IHT has been paid to the probate registry so that probate can be processed. Question/answer = Once HMRC are satisfied and any IHT has been paid, they will send the IHT 421 form to the probate registry. The Probate Registry can now proceed with the probate process.

20 Tips & Recommendations
Get clients to maintain an accurate list of assets held – amounts, who with etc.. 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)! Utilise IHT 403 as a pro-forma to record gifts made Assist with recording normal expenditure out of income and annual exemptions. Very hard otherwise for the executor to reconcile/report. GREAT OPPORTUNITY FOR YOU TO GET A FULL UNDERSTANDING OF YOUR CLIENTS ASSETS! PART OF YOUR SERVICE REVIEW?

21 IHT 403 A couple of extracts from the IHT403 schedule that have been completed with the case study details. Left = gifts made Right = Gifts out of normal expenditure

22 Pension fund schedule – IHT409
The pension fund needs to be paid at the discretion of the trustees for it to be free of IHT. Another important schedule is in respect of pension funds. Those distributed at the discretion of the trustees are free from IHT but need to be recorded.

23 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? A great opportunity to discuss the advantages of various pension trust arrangements i.e. spousal by pass trust for any lump sums but also to review existing arrangements. Action - Pensions are generally contract based or under a Master Trust. It is critical that you check old S226 and S32 contracts to ensure they have been placed under an individual trust – most are contract based.

24 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?

25 Be aware of page 2 of IHT409! Remember that any transfers or changes to benefits made two years prior to death where the client was in serious ill health are likely to get challenged! 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!

26 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 So we have now looked at the probate application process and the relevant IHT forms but who will actually pay any IHT due? Personal Representatives on any assets not held in trust. The money generally comes from the deceased persons estate but as any IHT has to be paid before the grant of probate can be issued, the executor may need to borrow the money from the bank or pay out of their own funds. They can be reimbursed from the estate before it is distributed. The beneficiaries under the will might assist as they stand to benefit.

27 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? Other ways to fund any IHT due Specific assets that can be accessed. Ensuring assets are held subject to a trust. Even a probate trust that does not have any IHT savings but will help to speed up the distribution. Have a conversation with HMRC as there are incidences where they have deferred payment – where eligible property (land & buildings) is an asset of the estate = specific example.

28 Once the Grant has been issued – next steps
Contact organisations/obtain assets Pay any debts or outstanding payments As per the will Or if a will had not existed under the laws of intestacy Accounts should be prepared, approved and signed by the executors and main beneficiaries This could include outstanding bills and any tax owed The executors have a legal responsibility to pay off any debts or outstanding payments before distributing the estate The executors should send a copy of the grant to the relevant organisations (e.g. bank/ISA provider/share registrar) They should then release the assets so they can be transferred into the executorship account Distribute the estate Grant has now been issued. Contact the organisations and obtain the assets – 2nd time as should have made contact prior to get values and put a note on their records. Pay into the Executorship account established with a bank. Pay any debts/outstanding payments – cover shortly Distribute the estate – ENSURE ACCOUNTS ARE MAINTAINED AND IDEALLY, SIGNED OFF BY ALL INTERESTED PARTIES.

29 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………………….. IHT will have been paid before the grant of probate has been issued. After gathering in the assets, some may need to be sold to pay off the outstanding liabilities. If debts owed exceed assets = ‘insolvent estate’. Priority order exists.

30 Dealing with debts on death
Secured debts such as mortgage and secured personal loans. Reasonable funeral costs and the costs of administering the estate. 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. Secured debts Reasonable funeral expenses and costs of administering the estate Unsecured debts – other taxes does not include IHT. If there are not enough assets to cover the debts it would be wise to seek the advice of a probate specialist on which debts should take priority. Important to inform the creditors that the estate is insolvent.

31 Tips & Recommendations
Place an advertisement in the local paper asking for creditors to come forward Avoids creditors coming forward at a later date and after you have distributed the balance of the estate.

32 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 In summary At this traumatic time for the family, ensure your are the trusted and valued adviser but offering help and guidance. Recording of assets and gifts – better understanding of their circumstances and part of your review process. One for each of your clients? Professional connections – build credibility but talking the same language.

33 Question one Would you be interested in attending the full case study master class? Yes No

34 Question two Which particular financial planning aspects of dealing with an estate are of interest? Packaged IHT solutions Pensions & trust planning Holistic platform solutions All of the above

35 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. AXA Wealth, Winterthur Way, Basingstoke RG21 6SZ. Telephone number: As part of our commitment to quality service and security, telephone calls may be recorded. AXA Wealth includes the following companies: Architas Multi-Manager Limited (No ), AXA Portfolio Services Limited (No ), AXA Wealth Services Limited (No ) and AXA Wealth Limited (No ). All of these companies are registered in England and limited by shares. Their registered office is 5 Old Broad Street, London EC2N 1AD. Architas Multi-Manager Limited, AXA Portfolio Services Limited and AXA Wealth Services Limited are authorised and regulated by the Financial Conduct Authority. AXA Wealth Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. Each company promotes and distributes its own products. AXA Wealth Services Limited also promotes and distributes the products of AXA Isle of Man Limited and certain AXA Life Europe Limited products in the United Kingdom. Details of the companies offering specific products are shown in the product literature AXA Wealth is a marketing brand used by AXA Portfolio Services Limited.

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