I’m an Executor. Where Do I Start?
Being asked to act as an executor can feel like an honour.
It can also feel rather daunting when the time actually comes.
I’ve had many conversations with executors who arrive at our first meeting carrying a folder of paperwork and ask:
“Jonathan, I’m an executor. Where do I actually start?”
It’s a perfectly reasonable question.
For most people, administering an estate isn’t something they’ve done before. Suddenly there are banks to contact, assets to value, probate to consider, tax affairs to deal with and beneficiaries wanting to know what happens next.
My advice is usually the same.
Don’t try to do everything at once.
Start by understanding what you’re dealing with.
Do I need to contact HMRC?
This is often one of the first questions.
The answer depends on the circumstances.
There may be tax affairs outstanding up to the date of death and, depending on what happens afterwards, the estate itself may have further tax obligations during the administration period.
For example, the estate may receive bank interest, dividends or rental income after someone has died.
Assets may also be sold during the administration period, potentially bringing Capital Gains Tax into consideration.
Not every estate will require the same level of tax work, which is why establishing the position at the beginning is so important.
The lesson? - Don’t assume that someone’s tax affairs end on the day they die.
The solicitor is dealing with probate. Do I still need a tax adviser?
Quite possibly.
This sometimes causes confusion because probate, Inheritance Tax and the administration of an estate are closely connected.
A solicitor may be dealing with the legal administration and probate application, while a tax adviser deals with the deceased’s outstanding tax affairs and any tax arising during the administration period.
In many estates, we work alongside the solicitor rather than instead of them.
Everyone has a different role, and good communication between the advisers can make the process considerably easier for the executors.
The lesson? - You don’t necessarily have to choose between a solicitor and a tax adviser. Often, they are dealing with different parts of the same estate.
We’re going to sell the property. Is there anything we need to do?
This is one question I particularly like executors to ask before the property is sold.
The value of a property at the date of death can become important when it is subsequently sold.
If the eventual sale price differs from the value being used for the estate, the tax position may need to be considered.
There may also be reporting requirements and deadlines depending on the circumstances.
That doesn’t automatically mean there will be a tax bill.
It simply means it is worth understanding the position before the sale takes place rather than discovering an issue several months afterwards.
The lesson? - Keep a record of the property valuation and ask the tax question before selling significant estate assets.
Can we distribute the money now?
Understandably, beneficiaries often want to know when they will receive their inheritance.
Executors can also feel under pressure to make distributions once cash starts accumulating in the estate bank account.
But before distributing everything, executors need to be comfortable that the estate’s liabilities have been identified and that enough money has been retained to meet them.
That includes tax.
Once money has been distributed, recovering it from beneficiaries isn’t always straightforward.
Interim distributions may sometimes be appropriate, but they should be made with a clear understanding of what the estate may still have to pay.
The lesson? - Don’t be in too much of a hurry to empty the estate bank account.
Good records make life considerably easier
One piece of advice I give almost every executor is to keep good records from the beginning.
Keep details of:
assets and their values at death
income received during the administration period
property and investments sold
professional fees and other expenses
payments made by the estate
distributions made to beneficiaries
It doesn’t need to be complicated.
A simple, organised record can make preparing the estate accounts and dealing with the tax position considerably easier later.
Jonathan’s Tip
If you’re acting as an executor for the first time, don’t feel that you need to understand the entire process on day one.
Start by establishing what the estate owns, what it owes and which professional advisers are already involved.
Then work through the estate one stage at a time.
And if you’re about to sell an asset, distribute a substantial amount of money or make another important decision, that’s usually a good point to stop and ask: “Is there anything from a tax perspective that I need to consider before I do this?”
Further reading
For a more detailed look at the tax responsibilities that can arise when administering an estate:
How we can help
At Tax Matters, we regularly work with executors and their solicitors to deal with the tax side of estate administration.
That may involve dealing with the deceased’s outstanding tax affairs, preparing tax returns for the administration period, calculating Capital Gains Tax where estate assets are sold, or helping establish what needs to be reported to HMRC.
Sometimes an executor needs us to deal with the whole tax position.
Sometimes they simply need advice on one particular issue.
Both are perfectly normal.
The important thing is that the executor understands what needs to be done and, just as importantly, what doesn’t need to be done.
A final thought
Being an executor carries responsibility, but you aren’t expected to become a tax expert overnight.
The important thing is knowing when a question needs to be asked.
If you find yourself thinking:
“I’m not quite sure whether we can do this yet…”
that’s often a good indication that it’s worth checking.
Taking a little advice before making an important decision can be considerably easier than trying to unravel it afterwards.
If you’re acting as an executor and would like some help understanding the estate’s tax responsibilities, my team and I would be pleased to help.
