Typical Mistakes made when handling probate alone
Misunderstanding the will
A last will and testament should be a valuable asset to the executor as it expresses the wishes of the deceased and should provide them with instructions on how to handle the estate. Unfortunately in some cases rather than being a helpful guide, a will can cause confusion resulting in mistakes made by executors and disputes amongst family members or beneficiaries.
Wills are not always written in a way that is clear to understand and will use words that you would not hear in any other circumstances. The testator may have explained their wishes to the executor verbally when they were alive but those instructions can be thrown into confusion upon reading the will. If a will has been poor;y written or has many codicils attached it can make the wishes in the will seem rather ambiguous and open to interpretation and this is often where mistakes are made by executors.
If you are unsure of the contents of the will it is recommended to seek the advice of a legal professional in order to get some clarification and translate some of the legal jargon. This could save you from making a costly mistake that needs to be rectified later on.
Unclear estate accounts
Not keeping a clear set of accounts can have several ramifications on the estate and the executor who is responsible. Messy accounts can easily cause confusion and therefore mistakes made by executors when it comes to costing the estate, the value of assets, incomings, outgoings and inheritance tax calculations. Making a mistake in your inheritance tax calculations can result in costly penalties from HMRC.
An executor of an estate must be able to provide a set of estate accounts if asked. If a beneficiary were to contest the estate, a set of messy accounts would not work in the executor’s favour.
Not recording everything
Recording everything that is coming in and out of the estate will help you to keep a clear set of accounts. It is important that you keep a record of everything that was in the deceased’s estate, this includes bank accounts and property but also personal possessions and chattel.
It is easy for items to get lost during the clearing process of the house but one way to help prevent this is to record what was there and where it has gone so that possession can be passed to the correct beneficiaries. Missing personal possessions can be a point of great contention between executors and beneficiaries.
You should also keep a physical record of anything paid out of the estate so that it can be proven that the money was spent in order to benefit the estate. You should also keep a record of anything you have spent out of your own money in order to benefit the estate as this can be claimed back as an executor’s expense.
Not collecting all the assets
When a person has a lot of assets across several institutions it can be tempting to ignore assets of lesser value as it may seem like more work than it’s worth to collect them. However, it is the executor’s duty to ensure that the estate administration is completed correctly and this means in its entirety. If there are a set of shares worth only £10 they must still be collected and accounted for as part of the estate. The executor can be held responsible for failing to properly collect and distribute its assets. Loss to the estate, even if only minor, could result in an executor being held personally liable if a beneficiary were to question how the estate’s assets were being handled.
Not transferring house ownership
A surprise common error or mistake made during the estate administration is properties not being correctly transferred. This can cause serious complications later on when the other owner or inhabitant passes away.
It is important to understand the different ways in which a property can be owned. The most commonly confused type of ownership is joint tenancy and tenants in common, for a more in-depth explanation of the differences and how they affect probate you can read our blog post “Joint Tenancy VS Tenants in Common when it comes to Probate”.
Not correctly transferring property can result in not being able to sell the property and incurring additional legal costs in order to rectify the mistakes. If the error was discovered during the administration of the surviving owner’s estate, it may be necessary to obtain probate for the person whose estate was mishandled in order to correctly administer the second person’s estate. The executor of the first estate would be liable for the mishandling of the asset which can result in litigation if the beneficiaries wish to pursue them.
Not correctly assessing all of the estate liabilities and debts
It may not be obvious exactly what liabilities a person has but it is important you make every effort to obtain as much information as possible and pay off any debts they had outstanding or have them written off if they are unable to be paid.
If the executor was to fail to take the correct measures in identifying potential creditors and one were to come forward once the assets have been distributed the creditor may then pursue the beneficiaries for the outstanding amount. A beneficiary may be able to take legal action against an executor who failed to correctly ascertain creditors and outstanding liabilities that results in them having to return their inheritance. It is also possible for the creditor to take legal action against the executor who failed to pay what is owed.
Distributing money to the beneficiaries too early
A mistake made by executors often is being persuaded by beneficiaries to distribute available funds from the estate before all the assets have been collected. Liquid assets like cash in bank accounts can, in some cases, be released early than other assets, however, you should avoid distributing the estate in drips and drabs or before everything has been accounted for. It can be easy to lose track of who has received what and how this will affect the remaining amounts.
It can also cause complications if future costs were to arise leaving the executor having to pay out of their own pocket. It could also make it difficult to pay outstanding debts to any unexpected creditors that may come forward.
Incorrectly filling in the Probate and Inheritance tax Forms
Unfortunately, the most common mistake someone applying for probate can make is incorrectly filling in the probate and inheritance tax forms, this can result in costly penalties from HMRC in some cases. Although there is a lot of guidance and information available from the government website and other sources, completing the relevant forms can be the most difficult part of the probate process. The forms are not always easily comprehensible and it is easy to misinterpret what information you are being asked for resulting in the incorrect information being given.
On more complex estates where inheritance tax is payable, the forms can become rather complicated. It is important to ensure you have done your research and fully understand what is being asked of you if at any point you do not feel confident in your ability to complete the application it is recommended you seek professional advice.
Not applying for the correct exemptions
Another mistake we see often when completing the application forms is executors not applying for all the tax exemptions that the estate is eligible for. Without prior knowledge of probate, it is easy to miss out on potential tax exemptions you may be entitled to. Correctly applying for exemptions can save the estate thousands of pounds in inheritance tax.
When an estate is subject to inheritance tax it is recommended to seek the advice of a professional. A solicitor’s knowledge and experience could reduce the amount of inheritance tax paid by the estate by much more than their fees for completing the work.
Incorrect tax calculations
It is important to provide the correct probate valuations for the assets in the deceased’s estate and be able to justify how you came to that value. Not providing details of assets that HMRC have asked for can result in serious repercussions. HMRC do take into account mistakes made by accidents and mistakes they deem were made on purpose. However, it is better to be overly cautious when providing information and values of the deceased’s assets than it is to risk an uniformed estimation.
Taking too long and incurring interest
It is not always obvious or clearly explained to a novice applying for probate that if the estate is liable for inheritance tax, some or all of the tax must be paid within 6 months of the person passing away. Executors who are not aware of the time limit often end up leaving the probate application too late and end up incurring interest on the tax due.
Unfortunately it also often happens when an executor underestimates the complexity of completing the forms and time quickly runs out resulting in interest being incurred. The time limit can also cause the executor to rush the application which can lead to them making mistakes on the forms which will need to be corrected or in serious cases receiving a penalty from HMRC.