Frequently Asked Questions

We posed some of your questions to the industry experts. The responses have been provided and verified by the following legal professionals: Gary Barber, Susan Taylor, David Catchpole - Mills & Reeve; Nick Sladden, Jenny Strudwick - Baker Tilly; Gaynor Jackson - Speechly Bircham; Katharine Riley, Jane Robinson – Penningtons Manches LLP and Robert Foster - Henmans LLP

What is the difference between gross estate and net estate as shown on the grant of probate?

The gross value of the estate is the total value of all assets covered by the grant of representation that fall under the control of the personal representatives. The net value is the remaining sum of the gross value after all debts and liabilities of the deceased due at the date of death have been subtracted. In particular, this would include funeral expenses, and tax and loan repayments due up to the date of death.

The gross estate does not, however, include property that does not pass under the grant. For example, jointly owned property passing by survivorship, settled property, death benefits arising from pension funds or lifetime gifts made by the deceased, all of which may be liable to inheritance tax by reference to the deceased’s estate but which do not fall to be administered by the personal representatives. In certain circumstances, the gross estate may merely be sworn as being below the inheritance tax threshold and may not therefore reflect an accurate figure.

What is the role of an extracting solicitor?

The role of the extracting solicitor is to obtain a grant of probate or letters of administration on behalf of the personal representatives. He will, in order to do so, need to assess what assets are in the estate and the value of them (obtaining valuations of property etc). The solicitor will then complete the application for the grant and appropriate IHT form, depending on whether the estate is taxable or not. The IHT form is sent to HMRC and the tax (if any) paid on behalf of the personal representatives, at which point the probate registry will issue the grant. The extracting solicitor will prepare estate accounts setting out the assets and liabilities of the estate, and settle unpaid liabilities. He will gather in the assets of the estate ready for distribution to the beneficiaries. Depending on the terms of the Will it may be necessary for the solicitor to arrange for the sale of any property or other assets if these are not the subject of specific legacies, and to arrange for the distributions to the beneficiaries.

Who appoints the extracting solicitors?

The extracting solicitors are appointed by the personal representatives of the estate. The solicitors are merely the agents appointed to deal with all or part of the administration of the estate according to the instructions of the personal representatives. In the same way, a personal representative may need to instruct other specialists to help deal with the administration of an estate; for example, estate agents to sell property, accountants to deal with accounting or taxation issues and valuers for chattels in the estate.

Do wills always have to be probated?

There is no obligation for a personal representative to prove a will where the value of the estate is below £5,000 – see Administration of Estates (Small Payments) Act 1925. However, anyone holding assets on behalf of the deceased can nonetheless insist on production of a grant of representation before handing over the funds or assets concerned. Many of the banks and building societies require a statutory declaration to be sworn in the absence of a grant of representation and frequently even where small estates are involved. It is simpler to swear one executor’s oath in order to obtain a grant of representation, rather than swearing separate statutory declarations for each institution that may hold funds for the deceased.

Why have I received monies from an estate where probate has yet to be granted?

There are a number of circumstances where a charity may receive funds following the death of an individual and where the grant has not yet issued. The more likely circumstances are that the personal representative has been able to obtain the funds without the grant because the funds had already been settled in some form by the deceased before his death. The funds may derive from a policy of insurance written in trust for the benefit of the charity or under the terms of the deceased’s will ,which contains gifts to the charity and where the funds have been released immediately to the trustees on production of a death certificate. The estate may be very small and the funds have been released by the institution concerned without the usual probate formalities. The trustees should be encouraged to enquire about the terms of the gift in these circumstances.

Why are some estates 'right figures' and others 'not exceeding' figures?

On an application for a Grant of Representation, the personal representatives of an estate must provide the value of the gross and net estate of the deceased person as at their date of death. The gross estate figure comprises the open market value of the deceased’s assets as at the date they died (the ‘probate value’), with the net figure being the value of the estate once any debts due at the date of death, including the funeral expenses, have been deducted. These figures are required to establish the value of the estate for Inheritance Tax (“IHT”) purposes, and must be provided in the form of an Inland Revenue Account IHT400. This document must be sent to HMRC prior to a Grant being issued, who will then assess the amount of any tax due.

However, where the net value of an estate is less than the threshold for IHT (currently £325,000), or the estate is less than £1m in value due to a spouse exemption or gifts to charities applying, the estate will not be subject to IHT. The estate is then referred to as being an ‘excepted estate’, as defined by the Inheritance Tax (Delivery of Accounts) (Excepted Estates) (Amendment) No.2) Regulations 2011. These regulations set out the circumstances in which a personal representative of an estate does not need to deliver an IHT400 to HMRC, and they also set out the information required to be produced to the ‘relevant court or office’ (ie the probate registry) in those circumstances where an IHT400 is not required to be delivered.

Under these circumstances a much simpler ‘excepted estate’ return (an IHT205), setting out details of the assets and liabilities of the estate, must instead be provided as evidence that no IHT is due. The oath (and the resulting Grant) will therefore only need to state that the gross value of the estate is below the threshold for Inheritance Tax (currently £325,000), but must still provide the value of the net estate (rounded up to the nearest £1,000) in order to confirm the amount of funds passing under the Will. Where, on the foot of a Grant, the phrase ‘not exceeding’ appears, this indicates that the estate is ‘excepted’ (i.e. it is not subject to IHT).

How long after probate can I reasonably expect to wait before I receive my residuary request or before I have an indication of the likely amount of the bequest? What paperwork am I legally entitled to (for example, report and accounts)?

A responsible and competent personal representative (or the agent acting on his behalf) should advise the charity as soon as possible with details of the terms of the gift and, wherever possible, an indication of the amount likely to be involved. All estates are different and certain assets more difficult to deal with than others, but, as a rule of thumb, you could reasonably expect the grant of representation to be obtained within six months of the date of death. The Inland Revenue Account will have been completed at that point and therefore it would easily be possible to give some indication of the extent of the gift at that stage. It could quite reasonably take a further six to 12 months before payments on account or final figures are available. Indeed, there is no obligation on an executor to distribute any part of the estate within six months of the date of the grant of representation. The executors should provide a copy of the will if requested, although a copy could be obtained directly from the probate registry once the grant of representation has been issued. A residuary legatee is entitled to a full and detailed report and accounts of the administration of the estate. Indeed, an executor swears on oath when making the application for the grant of representation that he will account to the court for the administration of the estate when called on to do so and a residuary legatee can instigate a probate action to call for an executor to account. The charity should obtain specialist advice if difficulties are encountered. In the case of simple estates, one could reasonably expect these time frames to be much shorter.

We have received a legacy in the sum of £400,000 and this will take our annual income to approximately £600,000. Previously our income has never been above £200,000. What are the implications for the external scrutiny of our annual accounts?

The Charities Act 2006 was responsible for the raising of audit thresholds and allowing many more charities to opt for an independent examination, subject at that time to any contrary requirement in their constitution. The long standing anomaly between the accounting and scrutiny requirements for incorporated and unincorporated charities has also finally been regularised by Statutory Instrument 2008 No.527. An important element of the order being the confirmation that the independent examination option was available regardless of the charity’s constitution, thus simplifying matters considerably. The thresholds for the audit requirement for English and Welsh charitable companies and non-company charities are gross income of over £500,000; or gross assets over £3.26m and gross income is over £250,000 . Gross income of more than £250,000 is also the threshold at which non-company charities take on the obligation of all charitable companies to prepare accounts on the accruals basis.

With income below £250,000 you will have had a choice (unless your governing document made any explicit requirement) to submit the accounts to an independent examiner rather than an auditor. Now the accounts must be audited. If you have in the past used an independent examiner you may find the scrutiny brought about by an audit is significantly more rigorous. If the charity has subsidiaries, it will also have crossed the £500,000 threshold and triggered a requirement to produce group accounts. As such, you would be well advised to speak to your accountants as soon as possible to enable them to advise you on exactly what will be required for the audit process.

I am a trustee of a registered charitable trust. How long can a trust exist and how long can trustees accumulate income?

The rules you are referring to were introduced by the Perpetuities and Accumulations Act 2009; the provisions of the Act came into force on 6 April 2010. The rules apply to the interests specified in the Act; broadly speaking, they include trust interests and they exclude interests such as easements, restrictive covenants, options and preemption rights. All trusts excluding charitable trusts will have a perpetuity period of 125 years, which will begin on the date on which the trust is created. Pre-April 2010 provisions which restricted the period during which income can be accumulated have been abolished for all trusts, except charitable trusts. The exclusion of charitable trusts from the rule on the perpetuity period is appropriate because charitable trusts can continue in existence indefinitely.

In relation to the restriction on the accumulation of income, some background detail will explain the exception of charitable trusts from the 2010 rules. As a general principle, charity trustees ought to apply the income of the trust for the purposes of the charity within a reasonable period of receipt, so a power to accumulate should not be necessary. Accumulation of income should be distinguished from retention of income to meet future needs/commitments. The absence of a power to accumulate income will not prevent trustees of a charitable trust from formulating and putting in place an appropriate reserves policy. All well-run charities should have a comprehensive reserves policy which will enable them to manage their fundraising and spending effectively. If you have not already addressed this issue, it is something which should be considered at the next available opportunity.

I am a trustee of a charity that is merging. Both charities have been advised of legacies due, but have yet to, and may not, receive any funds prior to the merger. How should we account for these legacies?

In this situation, it is going to be very important to keep clear and precise records of relevant dates and copies of all correspondence. The SORP makes it clear that a charity should not regard a legacy as a receivable just because it has received notification. Three separate criteria must be taken into account when considering the recognition of income in the Statement of Financial Activities, as set out in paragraph 94 of the SORP:

  • (a) entitlement – this normally arises when there is control over the rights or other access to the resource, enabling the charity to determine its future application;
  • (b) certainty – when it is virtually certain that the incoming resource will be received; and
  • (c) measurement – when the monetary value of the incoming resource can be measured with sufficient reliability.

Entitlement is generally easy to establish – once probate has been granted and the beneficiaries notified, this criteria will generally be satisfied. Certainty and measurement may prove more problematic. In the case of pecuniary legacies, under normal circumstances, there will usually be sufficient certainty of receipt as soon as a charity receives a letter from the personal representatives of the estate advising that payment of the legacy will be made. It is also likely that the value of the resource will also be measurable from this time. If however the legacy is payable from the residue of the estate or comprises an asset which needs to be sold (such as a property), certainty and measurement may both prove harder and take longer to establish. The merger of charities means two or more separate charities coming together to form one organisation. In such cases, either a new charity is formed to carry on the work or take on the assets of the original charities, or one charity assumes control of another.

Trustees must act in accordance with the powers in their charity’s governing document or those given to them by law to make sure that any merger is legally sound. If these powers are insufficient, the trustees may wish to apply to the Charity Commission. The effective date of any merger will usually be decided by negotiation between the parties. From a practical point of view, the financial year-end will often be a suitable date (assuming the parties share the same year ends), but the merger cannot be effective until all legal procedures have been properly completed. In the scenario outlined above, the three recognition criteria for legacies will need to be judged in relation to the merger date – legacies which fulfil the criteria before the merger date (even if no funds have been received) will need to be accounted for in the old separate charities. If all three criteria have not been fulfilled prior to the merger date, then the income will need to be accounted for in the new merged charity.

If, prior to the merger, notification of a legacy has been received but the recognition criteria have not been fulfilled, a post balance sheet note to the pre-merger accounts is appropriate. It is likely that the potential merger will be disclosed in the accounts and details of the legacy could be included in that disclosure. Where a charity receives or expects significant legacy income, it should consider registering the merger with the Charity Commission so that legacies and gifts can be transferred to it. Charities should take legal advice before deciding to register as some legacies can be worded in a way that specifies another recipient for the legacy if the original charity ceases to exist. In these cases, the gift would not automatically transfer to the new charity but go to the person or organisation specified in the will.

I am a trustee of a small animal protection charity. One of my co-trustees has told me that he would like to leave a substantial legacy to the charity, but that he cannot do so because he is unable to change the terms of a will, which he made 15 years ago. I understood that you could change your will whenever you wanted to, but my co-trustee assures me that it is a law which prevents him making changes to his will, not simply moral pressure or sentiment; his late wife made a will at the same time in identical terms. Is there such a law and is there no way that my co-trustee could make the desired change to his will?

I suspect that the reason your co-trustee cannot amend the will that he made 15 years ago is that it was a mutual will. Mutual wills are wills made by two or more individuals who agree not to revoke the wills without the consent of the others. The agreement does not have to be recorded in the will, nor does it have to be in writing, but the agreement must be established by clear and satisfactory evidence. If the first individual dies without having changed his will, it is no longer possible for the other individuals to change their wills, so, the wills of the survivors will, in practice, become irrevocable. If a surviving party does amend his will, his personal representatives will hold his estate on constructive trust to distribute it in accordance with the terms of the mutual will. So, any amendments to the dispositive provisions (for example, the provisions dealing with the distribution of the estate) will be ineffective. Mutual wills must not be confused with mirror wills or reciprocal wills – for example, wills in which a married couple leave everything to each other and to their children on the death of the survivor. The fact that individuals have executed mirror wills does not imply any agreement that the wills are intended to be mutual wills. It is not common for individuals to execute mutual wills and one would usually expect to see documentary evidence of the parties’ intention that the wills were intended to be mutual wills, either in the wills themselves or separately. However, there was a case in August 2010, in which the court held that wills made by two sisters were mutual wills, despite absence of any documentary evidence of the sisters’ intentions (Charles and others v Fraser [2010] EWHC Civ 2154 (Ch). I suggest that your co-trustee should check that the will he executed 15 years ago is in fact a mutual will and not simply a mirror will; if it is the latter, he can go ahead and change his will. The solicitor who drew up the will or another solicitor should be able to advise him on this issue.

Is it necessary (and indeed a legal requirement) for a solicitor to provide us as a charity with a copy of the deceased’s will and grant of probate for trustee and audit purposes?

Most solicitors forward these as a matter of course; however, we have a company that claims these are not documents we have any right to see. Once the will has been proved, it will be a public document and you will be able to obtain a copy of the will itself and the grant of probate from the Probate Registry, on payment of a modest fee. It is standard practice to produce copies of the proved will and grant of probate, on request from a beneficiary – there can be no real justification for refusing such a request. Personal representatives have a duty to keep accounts of the administration of the estate, which must be made available for inspection by the beneficiaries on request. It is standard practice to provide copies of the accounts to all residuary beneficiaries. I suggest that you write to the executors repeating your request for sight of the grant of probate and the will, reminding them of their duties as personal representatives. You could also remind them that the grant of probate and the proved will are public documents. If that fails to produce a satisfactory response and if you have serious concerns as to the way in which the executors are administering the estate, you should take advice on whether there are grounds for an application to court for the removal of the executors or for an order for the court to take over the administration of the estate.

My charity is the residuary beneficiary of the UK estate of a widower. Our testator has left a ‘nil-rate band’ legacy to various friends. The executors say that the legacy amounts to twice the current nil-rate band because our testator inherited his wife’s estate. I’ve discovered that although they were living in the UK when his wife died, he had only been living here for a short while – does this affect the value of the pecuniary legacy?

Inheritance Tax (IHT) Spouse Exemption is usually total; however, if the transferor spouse is domiciled in the UK but the transferee spouse is domiciled abroad at the date of transfer, then spouse exemption is limited to a total of £55,000 in respect of all transfers made by the UK spouse to the other during life and on death. This limit does not apply where the transferor spouse was domiciled abroad, but the transferee was domiciled in the UK at the time of transfer. The extent of the amount of ‘transferable nil-rate band’ that may be available is calculated by reference to how much of the nil rate band had been used as a result of the first spouse’s death on the basis of a percentage. Where there is limited spouse exemption, the deceased spouse’s nil-rate band may be brought into the calculation with regard to the survivor’s inheritance. Therefore, if your testator’s wife was domiciled in the UK when she died, but her husband was domiciled abroad, then the transferable nil-rate band may be diminished, if not extinguished, by what he inherited from her. Consequently it is worth asking the executors to make further enquiries with regard to the value of the wife’s estate and the domicile status of your testator and his wife at the time of her death.