What are Estate Accounts?
03 December 2018
By Trainee Solicitor, Abbie Tolman
At the end of the Probate process, the person responsible for carrying out Probate will produce a final Estate Account, illustrating what money has come in and out of the Estate. This includes assets, liabilities (debts), administration expenses and the final amount to be distributed to the Beneficiaries.
Duties of the Personal Representative
When someone dies, their affairs need to be wound up, debts settled and everything they owned distributed to their Beneficiaries. This process is called Probate. The person responsible for carrying out this work is called the Personal Representative.
The Personal Representative has certain legal duties, which are set out in the Administration of Estates Act 1925. This states that the Personal Representative has a duty to provide (when requested by the Court) a full inventory of everything in the Estate. This also states that they must provide an account of the Estate administration, which is what is being referred to when the Estate Accounts are mentioned.
The Personal Representative therefore has a statutory duty to produce the Estate accounts.
Who Can See the Estate Accounts?
Not everyone is entitled to see the Estate accounts. The Beneficiaries of the Estate may want to see these if they have concerns about the way in which the Estate is being administered, for example. However, only Residuary Beneficiaries are entitled to see the Estate accounts.
A Residuary Beneficiary is someone who is entitled to all or some of the remaining Estate after the expenses, debts, taxes and other gifts have been paid out. If the Personal Representative fails to provide a Residuary Beneficiary with a copy of the Estate Accounts upon their request, the Residuary Beneficiary can apply to the Probate Registry for what's called an Inventory and Account Order. This is a Court Order which obligates the Personal Representative to provide this information.
For more information, see Can a Beneficiary of a Will See the Estate Accounts?
With our Probate Complete Service we take full responsibility for getting Grant of Probate and dealing with the Legal, Tax (excluding VAT), Property and Estate Administration affairs.
What's Included in the Estate Accounts?
There is no prescribed format for the Estate Accounts, however these would usually include the following:
A summary page setting out the name of the deceased, the date of death, the date of the Will (if there was one), the name of the acting Personal Representative, the names of the Beneficiaries and what they are entitled to.
2. Assets and Liabilities
Each asset of the Estate should be detailed, such as money, property and personal possessions, with the value of that item as at the date of death. Every liability (debt) of the Estate should also be detailed along with its value. This might include a mortgage, credit card debt or loan, for example.
These values will be obtained at the start of the Probate process and the figures will be included on the application to the Probate Court for the Grant of Representation. The net figure detailed on the Grant of Representation will be the total value of assets minus the total value of liabilities as at the date of death.
This will therefore not be the final amount that is distributed to the Beneficiaries, as it is a reflection of the position as at the date of death so does not account for administration costs or anything that happens post death, during the Estate administration.
3. Inheritance Tax Account
This sets out whether or not the Estate is liable for any Inheritance Tax, and how much if so. Any applicable exemptions or reliefs should also be set out such as:
- Spousal exemption
- Charitable exemption
- Nil rate band
- Transferrable nil rate band
- Residential nil rate band
- Transferrable residential nil rate band
If you're not sure how to work out whether or not an Estate is liable for Inheritance Tax, see When Do You Have to Pay Inheritance Tax?
4. Capital Account
A capital account should detail any changes to the value of the Estate since the date of death. Therefore this can include undervalued and overvalued assets. For example, if a property was valued at the date of death as £300,000 but ultimately sold for £320,000, the additional £20,000 would need to be detailed in the Capital account.
The Capital account should also detail any Capital Gains Tax liabilities.
5. Income Account
Estate accounts should also include an income account, detailing any income received on any of the assets from the date of death up until when the asset is encashed or transferred. This includes interest received on bank accounts, dividends or rental income.
Interest received during the Estate administration will be subject to income tax at a rate of 20% for non-dividend income and 7.5% for dividend income. This is subject to a minimum threshold of £100. The income account will therefore highlight if there is an income tax liability.
6. Administration Expenses
The administration expenses should also be clearly detailed showing the expenses incurred during Probate. This would include any solicitor's fees to administer the Estate and any disbursements incurred on behalf of the Estate, which might include:
- Probate Court fees to obtain the Grant of Representation
- Bankruptcy searches on Beneficiaries
- Statutory adverts in the London Gazette and local newspaper to advertise the death for unknown creditors
- The cost of obtaining any relevant certificates to prove a Beneficiary's entitlement – particularly with Estates that are distributed according to the Rules of Intestacy
- Costs relating to the sale of a property, including estate agency fees, conveyancing fees and property insurance premiums
7. Distribution Account
Finally, the distribution account should show the entitlement of each Beneficiary and the final amount due to them. If a Beneficiary has received any assets directly, or paid any liabilities directly, this should also be detailed and accounted for in the distribution account.