The executor of your will – Despite the promises made by David Cameron to raise the inheritance tax threshold to £1mn, it remains stuck at £325,000. The value of any estate over and above that is taxed heavily at 40%, although changes in the 2015 budget will be start to be implemented next year with a ‘family home allowance’ element, enabling people to pass more on to their children and grandchildren free of IHT.
A lower threshold means that increasing numbers of people are having to apply for a grant of probate. This can be a long and complex process and that’s one reason you should choose your executors wisely (more on that here). What comes as a surprise to many executors are the costs involved in winding up an estate.
In order to work out exactly how much IHT needs to be paid any item of worth in an estate needs to be valued which often means paying the person who carries out that job, stockbrokers may charge for portfolio valuations and then there are solicitors and accountants all wanting their pound of flesh. Once probate is granted, unpaid bills can be settled. If these are large it could mean selling off assets in order to do so – this could be a home, car, stocks or any other item of value.
A client recently told me of their experience in winding up the estate of a friend. With £300,000 of cash in the estate to play with and an IHT bill of £200,000, they figured they would easily have enough left over to cover everything and plenty leftover to distribute to the beneficiaries. This turned out not to be the case.
The complexity of the estate brought the solicitor’s fees alone in at over £30,000. As the
deceased owned properties in the UK and abroad, lawyers and valuers had to be appointed in both countries and there were travel costs for my client to travel to sort out affairs in the second home. Outstanding income tax and capital gains tax had to be paid and there was also the cost of the funeral to cover.
Often executors can be under pressure to get inheritance tax paid before late payment fees are charged at 3%. In this case, the cash part of the estate was sufficient to cover the IHT bill. Had it not been, my client could have opted for staged payments over 10 years but, frankly, who still wants to be dealing with a friend’s estate a decade after they have passed away?
All these potential complications are a heavy burden to place on your loved ones, who will be grieving for your loss at the same time. That’s a good reason to get your affairs in order even if you don’t plan on departing from this earth any time soon. Here are some ways you can make your executor’s job easier:
- Make sure your will is correctly drafted and up-to-date
- Make a comprehensive list of all your assets and give this to your executor – include bank accounts, property owned, stocks, life insurance policies. Download our handy checklist to make this task much easier.
- Ensure all relevant documents are easy for your executor to find and filed neatly
- Introduce your executor to your accountant and lawyer, or at least make sure your executor knows who they are
- Keep part of your estate as easily accessible cash to cover immediate costs
- Write down any particular wishes you have with regards to your funeral
- Consider how the executor will be compensated for the time they spend winding up your affairs
- Specify who should get items of sentimental value to avoid family squabbles over these
- Seek inheritance planning advice in order to limit the amount which is paid to the taxman
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