Lifetime Gifts - Executor’s Responsibility
25 September 2018
If you are acting as the Executor or Administrator of an Estate, you are responsible for finding out whether any lifetime gifts were made by the deceased. This is because some gifts made during the deceased's lifetime will need to be reported to HM Revenue & Customs and included in the Estate's Inheritance Tax calculations.
If you fail to report details of lifetime gifts to HM Revenue & Customs, then as Executor or Administrator you could be held personally liable by the Court.
What is a Lifetime Gift?
When a person gives a gift of money or assets to someone during their lifetime, this is called a lifetime gift. This could be anything of monetary value, such as property, shares, expensive family heirlooms or actual cash.
Some gifts will need to be included in the value of the Estate and reported to HM Revenue & Customs, as Inheritance Tax may be payable on them.
The two main types of lifetime gift when this may apply are:
- Potentially Exempt Transfers – these are gifts that will be exempt from Inheritance Tax if the person giving the gift survives for a further 7 years. However this person cannot have continued to benefit from the gift in any way after gifting it, which leads us on to...
- Gifts with Reservation of Benefit – these are gifts which the donor has continued to benefit from after they were gifted (such as a property which they gifted then continued to live in or shares in a business that they then continued to control). The 7 year rule does not apply to these gifts.
It's important to note that the rules around the gifting of property are very complicated, regardless of whether or not the deceased continued to benefit from it.
If someone sells their property to a relative for less than the market value, then the difference will be classed as a lifetime gift. For example, if Sarah sells her house to her nephew Tom for £100,000 but the actual market value of the property is £250,000 then Tom has received a lifetime gift of £150,000.
So if a property changed hands before death you will need to fully investigate this, even if the property was technically sold by the deceased.
There is no inheritance tax to pay on gifts made between spouses and civil partners or gifts made to charity.
Certain other gifts are also exempt from Inheritance Tax such as gifts made out of income, gifts up to £3,000 in each tax year or gifts made to someone on their marriage or civil ceremony.
What Does the Executor Actually Need to Do?
As Executor or Administrator, aside from all of your other duties, you will also need to make sure that you take care of the issue of lifetime gifts. This means that you must make all necessary enquiries and do everything in your power to establish what gifts have been made, who received these and what their value was.
This could include speaking to close friends and relatives of the deceased to see if they know of any gifts, asking Beneficiaries directly if they have received a lifetime gift and checking the deceased's bank statements or asking the deceased's bank for details of any significant transactions. You should keep a comprehensive record of all of this correspondence.
If you fail to make all of the necessary enquiries and it's later discovered that a lifetime gift was made, you could be personally liable for covering any additional Inheritance Tax that's due. If you can demonstrate that you did take all reasonable steps to obtain this information, but you were misled by a Beneficiary or the recipient of the gift, for example, then they may be liable to pay the outstanding Inheritance Tax bill instead.
As you can see, establishing exactly what constitutes a lifetime gift can be tricky, but as the Executor or Administrator of an Estate it's solely your responsibility to ensure that all gifts are identified and reported to HM Revenue & Customs. If you fail to do so then you can be held personally financially liable, even if it was a genuine mistake.
If you're not completely clear on what your responsibilities are regarding lifetime gifts, then it's always best to seek professional advice from a Probate specialist. With our Probate Complete Service, we will carry out all of the necessary checks and enquiries on your behalf to ensure that all the bases are covered.