Presentation on theme: "James Smith ACII FPFS IMC Key Account Development Manager"— Presentation transcript:
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 deathUnderstand the impact of Inheritance Tax on an estate and what forms need to be completedUnderstand associated financial planning issues following deathAimTrusted & valued adviser to the family & respected by professional connectionsNot all about process but key financial planning aspects as well.Process and requirements for dealing with an estate following deathImpact of IHT and formsAssociated financial planning issues BUTMain 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 RulesWe don’t cover Intestacy / Laws of Succession in any detailFor Scotland read “Confirmation” for Grant of ProbateFor Scottish Estates get familiar with Prior Rights, Legal Rights, Moveable Estate, Heritable Estate & Bonds of CautionThere 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 rateFlat fee - % of estate valueVATProbate fees on topOptions are for the executors to do it themselves or appoint a probate specialist.Money Advice Services outlined costing for professional probate services.Hourly rateFlat fee % of estate value (between 1-5%)VAT on topProbate fees etc are on top.https://www.moneyadviceservice.org.uk/en/articles/when-should-you-use-a-probate-specialist
5 When should a probate specialist be used? Lots of helpful info on the Sesame & Bankhall websites under Legal ServicesWhen 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.https://www.moneyadviceservice.org.uk/en/articles/when-should-you-use-a-probate-specialist
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 thoughtsWhat 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 REPRESENTATIVESThe 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 ExecutorsIf there is no valid will they are referred to as the administratorsScotland:Referred to as Executor Nominate if there is a will or an Executor Dative if Sheriff Court appoints themPersonal Representatives are responsible for settling the financial affairs.England, Wales & NI –Will = ExecutorsNo Will = AdministratorsScotlandWill = Executor NominateNo 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 processMost 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 assetsPay any IHT due – part of applying for a Grant of Representation.Collect the assetsPay the debtsDistribute the estate to those entitled = beneficiares* If an executor under a will - “grant of probate”.If an administrator – “grant of letters of administration”https://www.gov.uk/wills-probate-inheritance
11 Grant of ProbateA 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 sharesThe 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 registeredEach 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 etcExecutors 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 NIThe Inheritance Tax form if an excepted estate* (C5 in Scotland)An official copy of the death certificateThe original will and 3 copies - and any codicils (additions or amendments to it)Application process – what is required?The probate applicationIHT form 205 (if an excepted estate) *We will cover shortlyOfficial copy of the death certificateOriginal will and 3 copiesApplication fee of £105Addition monies if you require addition copies of the grant = not an excessive amountThe 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 & ScotlandExtra 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 completedPermanent resident of England, Wales or Northern IrelandThis form is sent to the Probate office with PA1C5 (2006) is completed where the person’s permanent home was in ScotlandExcepted estatesWhere a full Inheritance Tax account is not required – Return of Estate InformationPerson died after 1st September 2006 – permanent resident of England, Wales or NISent with the Probate applicationC5 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 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:Simply put –On first death where the estate is under £1m and left to spouse or under £325kOn 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 & NIThe local Sheriffs Court in ScotlandThe 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 IHT205Sent 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.QuestionHow 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 madeAssist 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 403A couple of extracts from the IHT403 schedule that have been completed with the case study details.Left = gifts madeRight = 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 wishReview 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 fundSo 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 beneficiariesSo 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 dueSpecific 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 assetsPay any debts or outstanding paymentsAs per the willOr if a will had not existed under the laws of intestacyAccounts should be prepared, approved and signed by the executors and main beneficiariesThis could include outstanding bills and any tax owedThe executors have a legal responsibility to pay off any debts or outstanding payments before distributing the estateThe 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 accountDistribute the estateGrant 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 shortlyDistribute 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.https://www.moneyadviceservice.org.uk/en/articles/dealing-with-the-debts-of-someone-who-has-diedSecured debtsReasonable funeral expenses and costs of administering the estateUnsecured 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 forwardAvoids 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 languageIn summaryAt 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 oneWould you be interested in attending the full case study master class?YesNo
34 Question twoWhich particular financial planning aspects of dealing with an estate are of interest?Packaged IHT solutionsPensions & trust planningHolistic platform solutionsAll of the above
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