Overview
In this episode, Austin explains the whole process of winding up an estate with a step by step guide - from Confirmation through to the distribution of the assets in the estate.He explains the difference between Confirmation and Probate, and the documentation required by banks and institutions before releasing any money due - as well as the need to consider potential exposure to Inheritance Tax.
He outlines the role of an executor and why the executor must settle any debts first or risk becoming personally liable. If there is no will, then those with a legal right to the estate will need to apply to become executor, making the process longer.
The valuation of possessions such as jewellery and contents is discussed and what is meant by Ingathering the estate.
Austin also busts some common myths and mistakes, such as the belief that the eldest child automatically deals with everything, and the myth that executors can divide the estate as soon as the funeral is over.
Meet the contributors
Austin Lafferty
Consultant Solicitor
Austin is married and has two adult children – one of whom is a solicitor in London. He has run many road races including several marathons, the most recent being London 2015, and has raised tens of thousands of pounds for various charities. His main sport is karate – he is now a fourth Dan black belt. Austin has also worked for many years as a professional artist, specialising in drawn and painted portraits – both human and animal!
Angela Roberts
Producer & Host
Before becoming a freelance producer, Angela has had a long and varied career at the BBC – first as a radio producer on live topical phone in shows on BBC Radio Scotland and Radio 5 Live where she met and worked with Austin, before producing radio features for BBC Radio Scotland and Radio 4. She then moved to Digital Learning at BBC Scotland working on campaigns such as A History of the World in 100 Objects, Commonwealth Class and BBC News School Report. She led Authors Live, a partnership project with Scottish Book Trust, producing live TV events on iplayer featuring children’s authors. Angela recently spent 6 months as senior content producer on daytime programmes on BBC Radio Scotland, working on the morning's phone-in programmes and entertainment in the afternoons with presenters including Stephen Jardine and Michelle McManus.
Transcript
Angela: Welcome back to It's The Law. Today we're talking about executries, which is something that many families have to deal with often at a really difficult time. Winding up an estate in Scotland can sound formal and a bit daunting with terms like confirmation and ingathering the estate.
So to help us break it down, I've got with me again, Austin Lafferty.
Austin: Hi, Angela. Executry, yeah, it's a fancy word for what happens when somebody dies, and their bank accounts, house, even pension, insurances, their physical assets like their car or the contents of their property, like furniture, jewellery, etc. All of that forms the estate, and that has to be moved on to either the next generation or whoever is liable in law to get it.
It is a sad time, and sometimes it can be very distressing, particularly if somebody has died suddenly. That will generate this executry or what everybody else calls probate work in Scotland. We don't call it that.
I'm sure we'll get on to this.
Angela: I've heard that term. Is that an English term?
Austin: It's an English and I think international term. We kind of still use it. The reason I'm hesitating is that in Scotland, it is used, but informally, because that's what people understand.
And our version of Probate is called Confirmation, Confirmation with a capital C. It is a process very similar to probate, whereby the executor of the estate, whether it's the will or under law, goes to court and gets an order, putting them in charge of everything to do with this administration or winding up of the estate. So anytime we say Confirmation, we mean the same kind of thing as Probate, but under Scottish law and Scottish rules.
Angela: Okay, let's just start at the beginning then and look at what does winding up an estate mean? Because to me, an estate feels like a country house or something, you know? So if someone is winding up an estate in Scotland, what does that actually involve?
Austin: it just means, I mean, administration is a, is probably a better word. When anybody dies, and the old phrase, we're all worth more dead than alive. If you've got insurance, if you've even got a business that's worth something, if you've got a house that you've lived in, but never had valued for many, many years, you bought it at a certain price and the property market has moved on.
If you put money into investments or a bank account or a trust, somebody has to collect all of that value and then pass it on. And by passing on, I mean, either what the now deceased person has put in their will, I wish my estate to be divided five ways amongst my children, or I wish the following charities to get the certain amount of money. So if there's a will, the probate/confirmation is part of making that happen.
If there is no will, and at this point, as always, let's remind people, make a will.
Angela: Yeah, when we have a whole podcast on that.
Austin: Absolutely, you can, once you've heard these wise words that we have on winding up estates, go and listen to the will one, because you absolutely should. But if there is no will, then the law of Scotland provides a formula whereby the estate goes to blood relatives with a certain proportion going to a spouse or civil partner. But if there is a will, here's a crucial thing.
The will should include an executor named as the person who is this administrator, who applies for the Confirmation, and who actually does the winding up/administration. The executor is kind of an agent of the estate. They're named, and it can be a spouse, a partner, a member of the family, a child of the family as long as they're grown up.
It can be a friend, it can be a professional person. If you've got no family friends, I mean, I, as well as other solicitors, have been professional executors on many, many estates over the years. It can be anybody that is legally competent.
It can also be somebody who's mentioned in the will as a beneficiary. But if there is no will, then the law provides a pecking order for those who can apply to be executor. There's more, there's more legal paperwork to do if there's no will.
But the people that can be executor are basically those who are entitled to a share of the estate. And that can be the surviving spouse, surviving civil partner. It can be the children, indeed grandchildren, of the deceased, somebody with a connection to the estate.
But fundamentally, it is the executor who drives, either on their own or with a solicitor acting for them, drives the administration and then what we call the distribution of the estate. And we'll no doubt get to that later on in this podcast because it's a latter stage. But distribution is everyone getting what they're due, either under the will or under the law.
Angela: So that's this kind of first step. You're going to check who has the authority to start gathering all the information.
Austin: But going back to the kind of prior to the first step, because that's the first legal step, you're right, but there are practical steps. If somebody dies, then if it's in hospital or at home and it's expected and they've been ill or they're old, then that's a sad thing. But it's not difficult to organize the confirmation process from that point, because by and large people will have either a desk at home or a briefcase with all their paperwork.
Angela: A bureau in the old days.
Austin: A bureau, yes. Or what solicitors very often get is the plastic bag of stuff being brought in. And I mention that specifically because people have enough to deal with when a loved one is dying, particularly if it's a more sudden thing than I've just described, if it's an accident or a sudden stroke, or they've gone downhill so quickly that people haven't had time to get used to it.
What they really don't want is then to have to become an accountant or a, you know, a bookkeeper or a detective to find where everything is, if it's not in that briefcase or bureau in the house, if it's all in bits of paper lying everywhere. But the kind of quick thing to do is gather together everything that you think is relevant, find a solicitor and go and see them to get things started. Now, you are not suddenly committing yourself to a huge legal bill or to all sorts of difficult questions or procedures.
Take it step by step. Most solicitors and certainly our firm will offer a first interview, a first consultation without charge, without commitment, but just tohelp the family understand what's going to happen because each estate is different, but there are patterns, there are certain usual things that happen. And I think it's important that the reassurance is given to, and it may be that the executor is an elderly person or it's a spouse, or it may be members of the family that have never seen a lawyer before, never had any legal things to deal with and are perhaps terrified on top of all the grief and the worry and arranging the funeral, etc.
So the family have to do a number of things if somebody dies. They have to register the death. There are rules about that.
But nowadays, it can mainly be done online or over the phone and so forth. Arrange a funeral and the funeral undertakers are fantastic. They know this world inside out, and they will take up the heavy lifting with the family or whoever the immediate loved ones are making decisions about, you know, flowers and what type of coffin and the service and so forth.
So between the registrar of births, deaths and marriages, the funeral undertaker and either the celebrant or priest or minister or whoever is going to be helping with the actual ceremony, that all needs to be done before you need to worry about the legals. So don't immediately think, oh, right, need to get a lawyer tomorrow. You don't.
Take your time and arrange an appointment for initial consultation, initial advice at your convenience.
Angela: So I guess for some of the costs for that process, though, you'll have to take into account when you're then going to look at the estate and beneficiaries and whatnot.
Austin: Yes. And there's something, a particular rule that's absolutely worth saying at the moment. By and large, banks and financial institutions, if you've got substantial amounts of money with them, they will not just release that money if they get a sight of the death certificate or even the will.
They will require this Confirmation process. And that is almost the main purpose of Confirmation, is to give authority to the executor, to go to these banks, to uplift money, or administer, Ingather, the estate, you used that word earlier on. But to start with, initially, if somebody's got a bank account, then the one exception to all this rule about the banks, etcetera, holding the money back until Confirmation is the funeral.
There is a specific legal provision whereby banks will release money for funeral costs immediately. As long as you show identification to show that you are the right person to be asking, they will either release money to you as the executor, or to your lawyers, if you've already instructed lawyers as solicitors to the executor, or they will pay direct to the funeral undertakers if that's a package that's preferred all round. So don't worry about paying for the funeral.
You don't have to pay for it out of your own pocket. There are provisions to allow, assuming there's enough in the estate for the estate to pay. One other thing to say just about registration of the death.
There is a provision called Tell Us Once, which is a kind of partner to the registration of the death with the local authority. The Tell Us Once form, if that is completed and included when you register, immediately informs the DWP, the Council Tax Authority, HMRC, and anybody else that kind of is relevant within public service, that is relevant to this estate. And it actually just saves a bit of time, because otherwise you or your lawyer would need to go around all of these organisations and government agencies and tell them the same thing again and again and again.
What they will get will be a copy of the death certificate and information about the deceased. And they will then write to the person who is either executor or has registered the death to start the ball rolling. And that should be reported to the solicitor when you get to that stage.
Angela: So just before we get into what documents, what if there isn't an executor? What you have to apply somewhere to get…?
Austin: if there's not an executor, that assumes there's not a will, because a properly drawn up will, will include appointment of an executor. But if there is no executor, then whoever has a claim on the estate can apply to the court to be executor. Now, more likely what happens is if there's no will, then a member of the family will apply to be executor.
And there is a pecking order. It can be the surviving spouse of the deceased, or it can be one of the children, because the children have what we call a legal right to a share of the estate. But on the basis that a child, and it can be a natural or adopted child of the deceased has a share in the estate, they can petition the court to be appointed executor, and they're then appointed executor over the whole estate.
And they have the same powers that an executor appointed in the will is given. But if you appoint an executor in the will, then it saves a lot of legal costs. It saves a thing called a bond of Caution, which costs hundreds and hundreds of pounds for an executor to show to the court to say that they are insured for winding up the estate.
And it also saves time, because if there is no will, you have to go through the petition to the court, and that takes weeks and weeks and weeks before you start the confirmation process.
Angela: OK, so shall we look at what Confirmation actually is then? What does it mean and what sort of documents do you need to bring to? And does a solicitor organise it then?
Austin: Well, probably about 99.8% of estates have solicitors running the procedures. Strictly speaking, you can do it yourself. And if the gross estate is under 36,000 pounds, it's what's called a small estate, capital S, capital E in Scots law.
And you can go along to the sheriff court, and the sheriff clerk, the administrators there, can help you or must help you with the paperwork. But most estates, to be honest, I mean, that's an old-fashioned figure, and most estates are much...
Angela: It sounds so small.
Austin: It really does, doesn't it? I was going to say, your maiden aunt might have that in premium bonds, but actually, your maiden aunt probably has a huge fortune. I've seen that a few times because she doesn't have any children or the spouse to waste all the money, and she's saved over all these years.
But the point is that if you have any kind of substantial estate at all, the forms, and in Scotland, our main form is called a C1. It's an HMRC and court form. They're very exacting.
They're very detailed. And if you get them wrong, the sheriff court will bounce them. They will send them back and say, no, do this again.
And indeed, Glasgow Sheriff Court now have a pro forma questionnaire which has to be filled in before you can even lodge the form. And the questionnaire is about 10 pages long of detailed questions about the estate. And the reason for this is that winding up an estate is not just winding up an estate.
If the estate is liable to inheritance tax, then there are preliminary forms that need to be filled up with HMRC, IHT 400 and all the other ones. And within the C1 form, there are provisions that force the executor to kind of disclose whether there is an IHT liability or exposure or not. There's all sorts of details and rules about how you lay out the estate, because within the C1 form, there is an inventory.
And the inventory does what it says in the tin. It's a list of items in the estate, so bank accounts, a property if you own all or part of the property, insurance policies that are going to pay out on death, other investments, ISAs, also jewellery or physical items. So the estate has to be listed in a particular order.
And also items in Scotland have to be separated out from items in England. And although the person lives in Scotland, the items may be English because it's an English investment company that runs them and that's where they're based. All these have to be listed and listed in a particular way.
One example, if you've got a bank account with the Royal Bank of Scotland, say other banks are available, then you can't just say Royal Bank of Scotland account 16,000 pounds. You've got to say Royal Bank of Scotland branch, West End, Edinburgh, and you should put in sort code and account number. And if it's a joint account with the surviving spouse, you've got to say joint account, one half thereof.
And you know, if it's 32,000, then 16,000 applies to the estate, if that's the correct formula. So there's a huge amount of detail and rules and obstacles. So anybody that wants to do it themselves without a solicitor is taking a gigantic, not so much risk, because you can't kind of lose that way, but it may take you much, much longer and you make lots of mistakes innocently.
Whereas a solicitor, once you hire them, they know exactly what needs to be done and can do it all from A to Z.
Angela: And what about things like debt, if there's credit card bills and is that listed in that?
Angela: Yes, it's listed in a slightly separate way, but debts are listed. And almost more importantly, whoever you owe money to, whether credit card or the bank overdraft or something like that or mortgage, the executor should contact them immediately or as quickly as possible to say that the person has died and either interest will be frozen or the lender will know not to send chasing letters or put a debt collector in place because they've been told there has been a death. They'll see a copy of the death certificate as proof.
And they will then hold off for a period of time whilst the administration of the estate takes place. And the thing about debts, if the executor does not repay the debts because they have paid out the assets in the estate to the beneficiaries, then the executor could become personally liable to repay the debts. Now, if there are debts and there's no estate, no assets to pay those, then the estate is insolvent just like a person would be.
And there are procedures for that, the executor simply administers that, corresponds to they are not personally liable. But if the executor does not pay the debts first before dividing out the estate, there may be a situation where they are personally liable.
Angela: So don't pay out anything until you're absolutely sure.
Austin: That's right. And that kind of plays into the question of timing. People always ask us when they come in to see us, how long will this take?
They ask, how much will it cost? We'll get back to that in a minute. How long will it take?
What do you need from me? And you ask for all the documentation, etcetera. So how long will it take?
Is, to some extent, a piece of string. The more complicated the estate, the longer it will take, fairly simply. But what executors do, and they're supported in the law in this, is they undertake not to settle the estate before six months.
Angela: Right.
Austin: Because if there are unknown debts, then six months is the kind of initial period of inquiry …
Angela: and you would expect anyone to have been in touch or any bills to land or that kind of thing.
Austin: That's right. Now, that's not to say that after six months, you can do what you like.
But in terms of the initial work, the worst thing to do is to say, all right, there's a couple of bank accounts, let's get them closed down and get the money away to beneficiaries or ourselves, if the beneficiaries are also the executors. So don't do that. And the solicitor will advise you, look, we'll need to report this to the bank, and we'll need to check about any debts that there are, etc, etc.
And that will take some time to do. Coming back to a point about banks and release of money, some banks will release funds up to a certain point if the account is smaller than their sort of internal threshold. And by internal threshold, I mean strictly by law, no bank or financial institution needs to release money without Confirmation, this certificate of Confirmation from the court.
Angela: How long does that take to come through?
Austin: Well, that’s at least two or three months, really and truly. But we work on six months because it ties into this period of checking out for debts. But if somebody dies with even with a kind of relatively small estate, and they've got a bank account of say 7,000 pounds, just use that figure for the moment, then if there's no other estate and there's maybe a will, appointing executor, appointing a beneficiary within the family, the bank might see the death certificate, see the will and say because of the low level of money that's held here, we are prepared to release this if the executor will sign a form, kind of release a declaration form helped by this lister.
And that process can be quite quick. That process could be a matter of weeks. And the bank are not interested if there are other debts, you know, that money is going to be used for or whether it's going to go straight to beneficiaries.
That's not their job, but the executor's job and legal duty, very onerous duty, is to be responsible for repayment of debts. So even if you're able to uplift that money in a shorter period than the six months, the best practice is not to pay out any of that, but to wait until the six months has gone past, and you then have a better view of the overall estate, and anything needs to be paid is paid first, and then the remaining money is paid out. But any substantial estate requires Confirmation before banks or other financial institutions will release it.
And you certainly need the Confirmation before a house, a property can be passed on to whoever it's going to.
Angela: And what if something like equity release has been organized on the house? What does the executor do then?
Austin: Well, equity release is in law equivalent to just an ordinary mortgage. I mean, there are different rules, and it may be that when the person dies, full repayment, perhaps they've not had any interest to pay since they took out the equity release, but that has built up, and there's a settlement figure which either builds that in or is something that was expected from when the equity release was taken out. It's a debt on the estate.
The executor has to pay that debt from the estate, and the executor can choose. If there are other assets, then they can be used to pay off the lending company, and the house is unaffected, although the security on it is discharged, so the title deed becomes free of that. The reality is, if it's a substantial equity loan, then the house will have to be sold to repay that.
And again, once Confirmation is granted, the executor has the authority, and only from that time, to sell the house, and then from the sale proceeds, and of course, the sale has to be done by lawyers, no matter what else is happening. Lawyers have to do the conveyancing, and the money from the sale proceeds is used to pay off the equity lender. And whatever net proceeds are left after that, they can be assets of the estate and go to be divided among beneficiaries.
Angela: What about, I can imagine a lot of people might worry that there are debts out standing, and there's no money left.
Austin: Yes.
Angela: is the family liable?”
Austin: No, I can absolutely reassure you of that. I would have to say on the rare occasions we get insolvent estates like that, that's almost the first thing that we're asked. And I say those estates are rare because nowadays, particularly people who own a property, even though they themselves may have scant savings and have to budget kind of carefully all the time, the fact that they've got a property and property goes up in value means there should be something left when that is sold.
But families should be reassured and executors should be reassured that the debts do not cling to live individuals. They are part of the estate, and if the estate on a net basis has not enough to pay the debts, then the estate in effect goes bankrupt, and creditors have to either take nothing or a share in whatever is left. I think sometimes that's rather inelegantly called a haircut on the debt.
Angela: Really?
Austin: Well, commercially, that's a phrase that I've heard used when a major public company or institution falls into a loss or being put out of business or completely bankrupt, then the creditors that there are have to take a haircut on their debt. So that may be they only take 40 pence in the pound or less than that. Very often it's less than that.
And for ordinary individuals who have lent money, maybe members of the family or a company that has given credit without security, they come down the pecking order at the very end and might get nothing or 5p in the pound. HMRC will come before that and local authority perhaps have a charging order in the house for unpaid council tax. So if an estate is in insolvency, it can be very problematic.
And in that situation, the executor has an awful lot of work to do for no reward.
Angela: And what about things like possessions within the house, like jewellery or TVs or that sort of thing? What happens to all of them? Is that listed as well?
Austin: Yes, strictly speaking, that should be listed. Now, it becomes a question of moderation, shall we say, or relevance. Jewellery may be worth a lot or a little, depending on what the person was interested in.
If they had these prized pieces of jewellery or jewellery handed down through the family, and if it's worth thousands of pounds, then that absolutely needs to be valued and proper valuation put into the inventory, and it forms part of the estate. Individual items of jewellery may have been left in the will, and that's fine. They can go to the person they're going to, but the value of them requires to be accounted for.
If there's any question about how much a jewellery is worth, because there are fluctuations over many years in the value of gold. I mean, gold just goes up and up and up. So strictly speaking, you should have a value or professional valuation of items, gold, jewellery, but everything else on the date of death, because that's the date that everything crystallizes for law, legal purposes.
If there is no question of inheritance tax, and if the jewellery is costume jewellery or just small things that are sentimental rather than anything else, then there's really not much need to put in values for this tiny thing and that tiny thing in the inventory or just clog it up. But it's for the executor to be realistic, particularly in speaking to the solicitor saying, well, he or she has got these things, these gold signet rings or this magnificent tiara. How many of us have a tiara?
You're wearing headphones, but not a tiara just now.
Angela: Sadly not.
Austin: So there's an exercise in being realistic and honest and fair about valuations. Furniture is a bit different. The thing about furniture is you may have bought a beautiful leather suite for £3,000.
I don't know what leather suites cost. My wife may be hurling abuse at the radio just now. But if you have paid a lot of money to fit out your house, the day after you bought it, it is worth nothing.
Angela: A bit like a car.
Austin: A bit like a car. But cars keep a kind of a value, but furniture in particular is worth nothing. And we see this also, I think we've discussed this when talking about divorce cases.
If you're dividing up a house between husband and wife, and one of them claims, I want 10,000 pounds from that one because she or she is getting all the fittings and the furniture. And the reality is, a) they're worth almost nothing after you bought them. But X years down the line, particularly if it's an older person or a person that's had these things in their house for years and has sat in the armchairs, they will literally be worth less than it costs to remove them and dump them.
So as long as again, you're being realistic and fair and relevant, if there's no value in the contents of the house, then you don't put anything in the inventory or else you put a notional figure in. And you can explain it by saying, furniture and contents in home, literally five pounds or a hundred pounds or whatever it happens to be. And as long as that is a decent realistic valuation, that's fine.
What to do with those things, if their value doesn't substantially affect the estate, then if charities will take them, give them to charities. If members of the family, grandchildren want in their first flat, wanting that, or there's an old dresser or something that has actually become a family heirloom, but it's only worth tuppence ha’penny, then give it away.
Angela: Okay, so we've applied for confirmation and that's come through. So the next part is ingathering the estate, is it called? I've never heard that word before.
Ingathering.
Austin: Yes, it's a fancy word, and it's payment of the estate, payment of the assets into the estate, and then payment of the shares due out of the estate. So the ingathering is the first part of that. So really, all the executive does or more likely the solicitor acting for them does is, you get the Confirmation certificate, which covers the whole estate, but you can get individual single sheet certificates for each item.
So I earlier on said in the inventory, and I ran through bank accounts and the insurance and so forth. The estate may have 12, 15, 20 items in it. So rather than getting 12 big booklets, which is the format for the Confirmation, you get individual certificates for the Royal Bank of Scotland account number 562, the Prudential Insurance Policy Proceeds number 656, the House Title number 12 Acacia Avenue.”
So having those, you then send them to the relevant party, such as Prudential Insurance or Royal Bank, to their bereavement office. They will check or approve or just see that the certificate's been granted. They will issue a closure form, which is really just for the executor to sign, saying, we now wish to liquidate or get the money from this account or this policy, and they sign it, the solicitor sends it.
And then the money is sent either to the executor, because it belongs to the executor for administrative purposes, or again, more likely to the solicitor's firm. Solicitors all run client accounts, which are where they hold all of the client money, whether it's for a house purchase or a divorce settlement, or in this case, an estate. They take it in and keep careful hold of it for the executor until everything is gathered in.
So all the different banks and institutions that are holding money, feed the money back into the solicitor. It's held in a central ledger. The solicitor will then draw up a cash statement showing all the money in and where it's due to go out again to these beneficiaries, whether it's family or charities or a mixture.
Once all the ingathering is done and the fund is held in a central place in our bank account as solicitors, the executor then gives authority for payments to be made out to beneficiaries. Now, the beneficiaries may be due £5,000 because there's a gift in the will, the bequest in the will, or they may be due 25 percent of the estate. So the solicitor has to do a statement showing how that is calculated from the money in, costs taken off, funeral, legal costs, state agency costs if you're selling the house.
Angela: What about inheritance tax?
Austin: Yeah. Inheritance tax is kind of a huge thing where it applies. It still is for most solicitors, other than those who are dealing with the real kind of wealthy top end people.
For most solicitors, and I include myself and our firm in this, unless the net estate is, and this is after a second death, you know, with husband and wife or his partners, unless the net estate in the second death is more than a million pounds, then it's not going to be a thing that needs to be paid. Now it may be that we have to report to HMRC with these IHT 400 forms, clearance letters saying, no, you're right, there's no tax due in this estate. And we have to get that before we get Confirmation.
But, and if there is inheritance tax actually due to be paid, that needs to be paid before Confirmation. And again, just like I said with the bank earlier on funeral costs, there is a scheme whereby banks can pay that inheritance tax direct to HMRC before Confirmation. But by the time we've got Confirmation being granted by the sheriff court, all of that is out of the way.
Angela: okay, so you're not risking...
Austin: We're not risking being caught out and not paying that as a debt. But in the cash statement, the cash statement goes from the date of death up to the date of everything being divided up. So what this list will show is all the money that has come in, but also all the money that has already been paid by way of inheritance tax or other debts.
So the cash statement is a comprehensive, detailed, and specific account of everything that has happened from first to last in the estate. And it is shown to some of the beneficiaries, it's shown to the percentage beneficiaries, because they're entitled to see why their 25 percent is 42,000 pounds instead of 44,000 pounds. It's because 2,000 pounds was spent on things that the estate was due to pay.
But the specific beneficiaries that get 10,000, they really don't have an entitlement to see the rest of the estate. They simply get their 10,000 pounds. And in the will, it's usually said without tax, without expenses and so forth, so they get a net exact amount.
Angela: Families often fight about these things, don't they? It's not as simple as it might sound.
Somebody said that death can bring out the best or the worst in families. And I have found that to be a very true statement. I have been in situations where there has been absolute blood and guts because somebody feels slighted by either not being mentioned in the will or only being given a certain amount of something, or the painting that was on the wall has gone to somebody else, or that it's just the point at which the culmination of years of infighting or bad feeling or, you know, just difficulties, resentments, bubble up into hatred or argument, or it supercharges the resentment so that what was in the background before becomes front and centre.
And it can be as bad as at the funeral reception afterwards. I had one where a client of mine had a late marriage and sadly died of cancer, unexpectedly and quite quickly. And there were two funeral receptions after the actual service.
Daggers drawn, nobody ever spoke to each other. And that took place, I'm going to say, 25 years ago, maybe 30 years ago. I am still in between the two parts of the family corresponding because the client had left provision for, they didn't have any children, but they had nieces and nephews and they left provision for them to get money when they were 21.
So, you know, over time, that developed into an ongoing thing. And although they thought they were doing a good thing, the reality was it kept a running sore over all these years. And every time, actually, I ended up in very good terms with the first family, because we just you know, I was corresponding with over years.
They knew I wasn't, you know...
Angela: You didn't have an agenda.
Austin: I didn't have an agenda. I was there just simply trying to hold the jerseys. I mean, you've quite right identified that there's a human part of this.
And we talked about resentments and people that actually get worse. They just can't stand other people within the family or within the kind of estate beneficiary community. But sometimes there are actually wonderful things that happen.
It gets people together or because the deceased has said in their will, I wish to recognize my neighbour such and such because for years they helped me and supported me and I was very down, but they looked after my feelings, my mental health or my dog. There are some really kind of nice things that happen when a client dies, then you can have very positive experiences dealing with members of the family. Maybe never met before, but you find out things and good works that the deceased did, that they didn't tell anybody about.
Sometimes it can be unexpected things that are a mixed blessing. I have a client who found out after a parent died. I'll be honest that they were adopted and they hadn't known, but they also through the process found another sibling that they knew nothing about, which was a kind of conflicting thing, but worked out okay.
So it's difficult to overstate the personal drama and journey that death and executory work through solicitors can bring about. It can be good, bad, and everything in between. In fact, I had an exchange with, I was asked by the Law Society to take over an estate where there had been court of session litigation between different, you know, beneficiaries and parts of the family.
Very bitter. And I was asked to take over as an independent executor. So over the time, we worked through everything and got it settled.
But at the very last, I had an email from one of the beneficiaries saying, I'm accepting this final payment and full and final settlement. But I just want it recorded that everything I did was to protect my relative and my relative's memory and the relationships within the family and everything I did, even though it cost money and was complicated and not everybody agreed.
I did it for the relative, for the deceased relative.
And I wrote back saying, that came through. I said, I can put my hand in my heart and say, I recognize that everything that was done was not done for money, but was done for personal relationships and feelings. And I think as solicitors, we help the process if we never forget that we're not just dealing with paperwork and tax and assets and debts.
We are dealing with people's feelings that can be very raw and very deep, and their grief and suffering that can be very long lasting. So the worst thing we can do is treat it just as a technical exercise. That's not to say we go along and have a cup of tea with them and put our arms around them or anything.
But you've just got to remember that unlike, I will say unlike accountants, lawyers deal with, sorry, all accountants. I love some of you. Lawyers deal with the personal as well as the professional and the technical.
Angela: Okay. Common myths and mistakes. Let's have a look at this.
I think I know the answers after what you've said. But number one”
If there's a will, the process is simple, true or false?
Austin: It's simpler. It's more straightforward. It's more organized and kind of uniform.
It's just easier for everybody, and that's for the executor, for the solicitor, for the court, and for the beneficiaries and any creditors. It is easier because the will sets out what the now deceased wants to happen and who they want to deal with it. So it is simpler.
Nothing is simple, but without a will, it can be vastly complex, take ages and be very unsettling for people as they find that the law doesn't say what they think it says.
Angela: Number two, the eldest child automatically deals with everything.
Austin: No is the answer to this. Some parents will appoint children in a kind of pecking order that reflects their own feelings and wishes. They may feel the eldest child should be given priority.
The law says nothing about that. And very often I've had clients coming in saying, my eldest is X, but they're either not responsible or they're not strong enough by way of, you know, making demands and making things happen. Whereas my middle child has the right skills.
Or else the middle child may be an accountant or a solicitor or something used to dealing with these things. Or the middle child might live in Scotland and the other ones are in Australia. But the law does not make any assumptions about the eldest child, even if there's no will.
Angela: Third myth, executors can divide the estate as soon as the funeral is over.
Austin: No, we've scorched that myth already in great style because debts come first. Actually, there's a legal pecking order, and it is debts come first, then specific bequests, i.e. jewellery and stuff, then monetary bequests, the £10,000 or £1,000, and then the residue of the estate divided up.
Legally, you have to work through that order of things.
Angela: And finally, if everyone in the family agrees, they don't need to follow the formal process.
Austin: That's a kind of loaded question by which I mean, so far as the court's concerned, the Confirmation is simply confirming the executor's appointment. Now, the executor's duties under the will or under the law are to divide out the property or assets or money according to the will or according to the law, because there's no will. But if everybody who's entitled to get something in the will or in the law agrees a different formula, then they are entitled to do that.
There's two ways of doing it. One is just to agree that. And lawyers are not good at informal agreements.
But the reason I say there is an informal possibility is that if somebody dies and their surviving spouse and grown up children are there, and the grown up children don't want to claim the estate, they want their mum or dad to stay in the house, to have the benefit of the money, to be looked after, then often enough, it's just done informally and the children don't claim their legal rights or don't claim the share they might be given in the will. They say, no mum, dad, you carry on. The other way of doing it is what's called a deed of variation, which is a perfectly good and effective legal document.
The deed of variation takes the will and rewrites it. And the beneficiaries and executor, if everybody accounted for in the will agrees to make a change, a deed of variation can be drawn up and signed and it replaces the will. And that can be for the reason I mentioned that the children want the surviving parent to get it.
Or there may be a tax reason. It reduces the estate going to the surviving spouse. And therefore, when the surviving spouse dies, they won't be exposed to inheritance tax.
I think we've got another podcast where we can drill into inheritance tax and only geeks will listen to it because it's a very complicated and finicky thing.
Angela: But everybody's worried about it.
Austin: Everybody's worried about it. So, A, yes, they can do that deed of variation. They can't so much do an informal alteration if there's an inheritance tax thing.
That's why I say there are some situations where you can work informally. If in doubt, do the proper thing. But going way back to before anybody dies, one of the triggers for making a will or speaking to a solicitor about making a will is, what about inheritance tax?
If you're not sure or if you think, well, actually, when I count everything up in my head, when I die, my house, the insurance policies will kick in. Even pensions are going to come into the inheritance tax regime in a different way soon. So, and if the solicitor says to you, actually, see, when you do count everything up on a sheet of paper that I've got in front of me, yeah, you could be paying 60, 70 grand in inheritance tax.
That's the point at which to consider making a will. If you don't do that, or you don't take inheritance tax into account when you're making a will, then you die, it potentially is too late, because it's not for everyone that a deed of variation will work. And if you've died and if your estate is beyond the inheritance tax threshold, then somebody, the executor, will have to pay it from your assets, and it will reduce the amount going to your family.
So whether when you see about making your own will, you think about gifts before you die, you think about putting things into trust, you think about transferring assets to the family, and I'm not recommending all those things, but they're there to be talked about. Those are the things you can do so that when you do die, your executor actually then has a simpler job because there's no tax liability, you've dealt with all of the difficult legal manoeuvres to get the estate reduced, and the Confirmation process that we talked about, the ingathering and distribution of the estate are much less complex than they would otherwise be.
Angela: And we actually didn't cover costs. What can you expect to pay?
Austin: In some estates, once the solicitor has talked to the executor about what needs to be done, there are some estates where it is simple enough and you can tell that it's going to take this and that time to do, and these are the limited number of assets in the estate, so you can offer a fixed fee. Now, that fixed fee would be for either the process of seeing through to Coonfirmation, giving the Confirmation certificates to the executor and the executor carrying on, speaking to banks and bringing in the money, and that would be one fee. If you want the solicitor to do all that, plus be responsible for getting in the money and paying out, doing the cash statement and all that, it'll be a higher fee.
But here's the crucial thing. Solicitors have to quote or estimate fees in advance, and they have to put that in writing before they can get started. And the final thing to say about fees is that the courts will charge, and this bond of Caution, if there is no will, the Caution company, insurance company, will charge.
So there are what we call outlays, and these are, and there may also be search fees if there's a title, you know, title needs and a property. There are add-ons which solicitors sort of buy in at cost. They don't charge more for them.
But at the court, depending on the size of the estate, it may be 300-odd pounds or 700-odd pounds or more than that, that the court will charge for their booking fee. And again, solicitors have to check and itemize this, so that before you get started with a solicitor, there is at least an understanding of what costs may be as you go along.
Angela: So this was a lot more involved than I can imagine, but I think you've been very thorough, so thanks very much for explaining the whole process.
Austin: It's my pleasure.
So to help us break it down, I've got with me again, Austin Lafferty.
Austin: Hi, Angela. Executry, yeah, it's a fancy word for what happens when somebody dies, and their bank accounts, house, even pension, insurances, their physical assets like their car or the contents of their property, like furniture, jewellery, etc. All of that forms the estate, and that has to be moved on to either the next generation or whoever is liable in law to get it.
It is a sad time, and sometimes it can be very distressing, particularly if somebody has died suddenly. That will generate this executry or what everybody else calls probate work in Scotland. We don't call it that.
I'm sure we'll get on to this.
Angela: I've heard that term. Is that an English term?
Austin: It's an English and I think international term. We kind of still use it. The reason I'm hesitating is that in Scotland, it is used, but informally, because that's what people understand.
And our version of Probate is called Confirmation, Confirmation with a capital C. It is a process very similar to probate, whereby the executor of the estate, whether it's the will or under law, goes to court and gets an order, putting them in charge of everything to do with this administration or winding up of the estate. So anytime we say Confirmation, we mean the same kind of thing as Probate, but under Scottish law and Scottish rules.
Angela: Okay, let's just start at the beginning then and look at what does winding up an estate mean? Because to me, an estate feels like a country house or something, you know? So if someone is winding up an estate in Scotland, what does that actually involve?
Austin: it just means, I mean, administration is a, is probably a better word. When anybody dies, and the old phrase, we're all worth more dead than alive. If you've got insurance, if you've even got a business that's worth something, if you've got a house that you've lived in, but never had valued for many, many years, you bought it at a certain price and the property market has moved on.
If you put money into investments or a bank account or a trust, somebody has to collect all of that value and then pass it on. And by passing on, I mean, either what the now deceased person has put in their will, I wish my estate to be divided five ways amongst my children, or I wish the following charities to get the certain amount of money. So if there's a will, the probate/confirmation is part of making that happen.
If there is no will, and at this point, as always, let's remind people, make a will.
Angela: Yeah, when we have a whole podcast on that.
Austin: Absolutely, you can, once you've heard these wise words that we have on winding up estates, go and listen to the will one, because you absolutely should. But if there is no will, then the law of Scotland provides a formula whereby the estate goes to blood relatives with a certain proportion going to a spouse or civil partner. But if there is a will, here's a crucial thing.
The will should include an executor named as the person who is this administrator, who applies for the Confirmation, and who actually does the winding up/administration. The executor is kind of an agent of the estate. They're named, and it can be a spouse, a partner, a member of the family, a child of the family as long as they're grown up.
It can be a friend, it can be a professional person. If you've got no family friends, I mean, I, as well as other solicitors, have been professional executors on many, many estates over the years. It can be anybody that is legally competent.
It can also be somebody who's mentioned in the will as a beneficiary. But if there is no will, then the law provides a pecking order for those who can apply to be executor. There's more, there's more legal paperwork to do if there's no will.
But the people that can be executor are basically those who are entitled to a share of the estate. And that can be the surviving spouse, surviving civil partner. It can be the children, indeed grandchildren, of the deceased, somebody with a connection to the estate.
But fundamentally, it is the executor who drives, either on their own or with a solicitor acting for them, drives the administration and then what we call the distribution of the estate. And we'll no doubt get to that later on in this podcast because it's a latter stage. But distribution is everyone getting what they're due, either under the will or under the law.
Angela: So that's this kind of first step. You're going to check who has the authority to start gathering all the information.
Austin: But going back to the kind of prior to the first step, because that's the first legal step, you're right, but there are practical steps. If somebody dies, then if it's in hospital or at home and it's expected and they've been ill or they're old, then that's a sad thing. But it's not difficult to organize the confirmation process from that point, because by and large people will have either a desk at home or a briefcase with all their paperwork.
Angela: A bureau in the old days.
Austin: A bureau, yes. Or what solicitors very often get is the plastic bag of stuff being brought in. And I mention that specifically because people have enough to deal with when a loved one is dying, particularly if it's a more sudden thing than I've just described, if it's an accident or a sudden stroke, or they've gone downhill so quickly that people haven't had time to get used to it.
What they really don't want is then to have to become an accountant or a, you know, a bookkeeper or a detective to find where everything is, if it's not in that briefcase or bureau in the house, if it's all in bits of paper lying everywhere. But the kind of quick thing to do is gather together everything that you think is relevant, find a solicitor and go and see them to get things started. Now, you are not suddenly committing yourself to a huge legal bill or to all sorts of difficult questions or procedures.
Take it step by step. Most solicitors and certainly our firm will offer a first interview, a first consultation without charge, without commitment, but just tohelp the family understand what's going to happen because each estate is different, but there are patterns, there are certain usual things that happen. And I think it's important that the reassurance is given to, and it may be that the executor is an elderly person or it's a spouse, or it may be members of the family that have never seen a lawyer before, never had any legal things to deal with and are perhaps terrified on top of all the grief and the worry and arranging the funeral, etc.
So the family have to do a number of things if somebody dies. They have to register the death. There are rules about that.
But nowadays, it can mainly be done online or over the phone and so forth. Arrange a funeral and the funeral undertakers are fantastic. They know this world inside out, and they will take up the heavy lifting with the family or whoever the immediate loved ones are making decisions about, you know, flowers and what type of coffin and the service and so forth.
So between the registrar of births, deaths and marriages, the funeral undertaker and either the celebrant or priest or minister or whoever is going to be helping with the actual ceremony, that all needs to be done before you need to worry about the legals. So don't immediately think, oh, right, need to get a lawyer tomorrow. You don't.
Take your time and arrange an appointment for initial consultation, initial advice at your convenience.
Angela: So I guess for some of the costs for that process, though, you'll have to take into account when you're then going to look at the estate and beneficiaries and whatnot.
Austin: Yes. And there's something, a particular rule that's absolutely worth saying at the moment. By and large, banks and financial institutions, if you've got substantial amounts of money with them, they will not just release that money if they get a sight of the death certificate or even the will.
They will require this Confirmation process. And that is almost the main purpose of Confirmation, is to give authority to the executor, to go to these banks, to uplift money, or administer, Ingather, the estate, you used that word earlier on. But to start with, initially, if somebody's got a bank account, then the one exception to all this rule about the banks, etcetera, holding the money back until Confirmation is the funeral.
There is a specific legal provision whereby banks will release money for funeral costs immediately. As long as you show identification to show that you are the right person to be asking, they will either release money to you as the executor, or to your lawyers, if you've already instructed lawyers as solicitors to the executor, or they will pay direct to the funeral undertakers if that's a package that's preferred all round. So don't worry about paying for the funeral.
You don't have to pay for it out of your own pocket. There are provisions to allow, assuming there's enough in the estate for the estate to pay. One other thing to say just about registration of the death.
There is a provision called Tell Us Once, which is a kind of partner to the registration of the death with the local authority. The Tell Us Once form, if that is completed and included when you register, immediately informs the DWP, the Council Tax Authority, HMRC, and anybody else that kind of is relevant within public service, that is relevant to this estate. And it actually just saves a bit of time, because otherwise you or your lawyer would need to go around all of these organisations and government agencies and tell them the same thing again and again and again.
What they will get will be a copy of the death certificate and information about the deceased. And they will then write to the person who is either executor or has registered the death to start the ball rolling. And that should be reported to the solicitor when you get to that stage.
Angela: So just before we get into what documents, what if there isn't an executor? What you have to apply somewhere to get…?
Austin: if there's not an executor, that assumes there's not a will, because a properly drawn up will, will include appointment of an executor. But if there is no executor, then whoever has a claim on the estate can apply to the court to be executor. Now, more likely what happens is if there's no will, then a member of the family will apply to be executor.
And there is a pecking order. It can be the surviving spouse of the deceased, or it can be one of the children, because the children have what we call a legal right to a share of the estate. But on the basis that a child, and it can be a natural or adopted child of the deceased has a share in the estate, they can petition the court to be appointed executor, and they're then appointed executor over the whole estate.
And they have the same powers that an executor appointed in the will is given. But if you appoint an executor in the will, then it saves a lot of legal costs. It saves a thing called a bond of Caution, which costs hundreds and hundreds of pounds for an executor to show to the court to say that they are insured for winding up the estate.
And it also saves time, because if there is no will, you have to go through the petition to the court, and that takes weeks and weeks and weeks before you start the confirmation process.
Angela: OK, so shall we look at what Confirmation actually is then? What does it mean and what sort of documents do you need to bring to? And does a solicitor organise it then?
Austin: Well, probably about 99.8% of estates have solicitors running the procedures. Strictly speaking, you can do it yourself. And if the gross estate is under 36,000 pounds, it's what's called a small estate, capital S, capital E in Scots law.
And you can go along to the sheriff court, and the sheriff clerk, the administrators there, can help you or must help you with the paperwork. But most estates, to be honest, I mean, that's an old-fashioned figure, and most estates are much...
Angela: It sounds so small.
Austin: It really does, doesn't it? I was going to say, your maiden aunt might have that in premium bonds, but actually, your maiden aunt probably has a huge fortune. I've seen that a few times because she doesn't have any children or the spouse to waste all the money, and she's saved over all these years.
But the point is that if you have any kind of substantial estate at all, the forms, and in Scotland, our main form is called a C1. It's an HMRC and court form. They're very exacting.
They're very detailed. And if you get them wrong, the sheriff court will bounce them. They will send them back and say, no, do this again.
And indeed, Glasgow Sheriff Court now have a pro forma questionnaire which has to be filled in before you can even lodge the form. And the questionnaire is about 10 pages long of detailed questions about the estate. And the reason for this is that winding up an estate is not just winding up an estate.
If the estate is liable to inheritance tax, then there are preliminary forms that need to be filled up with HMRC, IHT 400 and all the other ones. And within the C1 form, there are provisions that force the executor to kind of disclose whether there is an IHT liability or exposure or not. There's all sorts of details and rules about how you lay out the estate, because within the C1 form, there is an inventory.
And the inventory does what it says in the tin. It's a list of items in the estate, so bank accounts, a property if you own all or part of the property, insurance policies that are going to pay out on death, other investments, ISAs, also jewellery or physical items. So the estate has to be listed in a particular order.
And also items in Scotland have to be separated out from items in England. And although the person lives in Scotland, the items may be English because it's an English investment company that runs them and that's where they're based. All these have to be listed and listed in a particular way.
One example, if you've got a bank account with the Royal Bank of Scotland, say other banks are available, then you can't just say Royal Bank of Scotland account 16,000 pounds. You've got to say Royal Bank of Scotland branch, West End, Edinburgh, and you should put in sort code and account number. And if it's a joint account with the surviving spouse, you've got to say joint account, one half thereof.
And you know, if it's 32,000, then 16,000 applies to the estate, if that's the correct formula. So there's a huge amount of detail and rules and obstacles. So anybody that wants to do it themselves without a solicitor is taking a gigantic, not so much risk, because you can't kind of lose that way, but it may take you much, much longer and you make lots of mistakes innocently.
Whereas a solicitor, once you hire them, they know exactly what needs to be done and can do it all from A to Z.
Angela: And what about things like debt, if there's credit card bills and is that listed in that?
Angela: Yes, it's listed in a slightly separate way, but debts are listed. And almost more importantly, whoever you owe money to, whether credit card or the bank overdraft or something like that or mortgage, the executor should contact them immediately or as quickly as possible to say that the person has died and either interest will be frozen or the lender will know not to send chasing letters or put a debt collector in place because they've been told there has been a death. They'll see a copy of the death certificate as proof.
And they will then hold off for a period of time whilst the administration of the estate takes place. And the thing about debts, if the executor does not repay the debts because they have paid out the assets in the estate to the beneficiaries, then the executor could become personally liable to repay the debts. Now, if there are debts and there's no estate, no assets to pay those, then the estate is insolvent just like a person would be.
And there are procedures for that, the executor simply administers that, corresponds to they are not personally liable. But if the executor does not pay the debts first before dividing out the estate, there may be a situation where they are personally liable.
Angela: So don't pay out anything until you're absolutely sure.
Austin: That's right. And that kind of plays into the question of timing. People always ask us when they come in to see us, how long will this take?
They ask, how much will it cost? We'll get back to that in a minute. How long will it take?
What do you need from me? And you ask for all the documentation, etcetera. So how long will it take?
Is, to some extent, a piece of string. The more complicated the estate, the longer it will take, fairly simply. But what executors do, and they're supported in the law in this, is they undertake not to settle the estate before six months.
Angela: Right.
Austin: Because if there are unknown debts, then six months is the kind of initial period of inquiry …
Angela: and you would expect anyone to have been in touch or any bills to land or that kind of thing.
Austin: That's right. Now, that's not to say that after six months, you can do what you like.
But in terms of the initial work, the worst thing to do is to say, all right, there's a couple of bank accounts, let's get them closed down and get the money away to beneficiaries or ourselves, if the beneficiaries are also the executors. So don't do that. And the solicitor will advise you, look, we'll need to report this to the bank, and we'll need to check about any debts that there are, etc, etc.
And that will take some time to do. Coming back to a point about banks and release of money, some banks will release funds up to a certain point if the account is smaller than their sort of internal threshold. And by internal threshold, I mean strictly by law, no bank or financial institution needs to release money without Confirmation, this certificate of Confirmation from the court.
Angela: How long does that take to come through?
Austin: Well, that’s at least two or three months, really and truly. But we work on six months because it ties into this period of checking out for debts. But if somebody dies with even with a kind of relatively small estate, and they've got a bank account of say 7,000 pounds, just use that figure for the moment, then if there's no other estate and there's maybe a will, appointing executor, appointing a beneficiary within the family, the bank might see the death certificate, see the will and say because of the low level of money that's held here, we are prepared to release this if the executor will sign a form, kind of release a declaration form helped by this lister.
And that process can be quite quick. That process could be a matter of weeks. And the bank are not interested if there are other debts, you know, that money is going to be used for or whether it's going to go straight to beneficiaries.
That's not their job, but the executor's job and legal duty, very onerous duty, is to be responsible for repayment of debts. So even if you're able to uplift that money in a shorter period than the six months, the best practice is not to pay out any of that, but to wait until the six months has gone past, and you then have a better view of the overall estate, and anything needs to be paid is paid first, and then the remaining money is paid out. But any substantial estate requires Confirmation before banks or other financial institutions will release it.
And you certainly need the Confirmation before a house, a property can be passed on to whoever it's going to.
Angela: And what if something like equity release has been organized on the house? What does the executor do then?
Austin: Well, equity release is in law equivalent to just an ordinary mortgage. I mean, there are different rules, and it may be that when the person dies, full repayment, perhaps they've not had any interest to pay since they took out the equity release, but that has built up, and there's a settlement figure which either builds that in or is something that was expected from when the equity release was taken out. It's a debt on the estate.
The executor has to pay that debt from the estate, and the executor can choose. If there are other assets, then they can be used to pay off the lending company, and the house is unaffected, although the security on it is discharged, so the title deed becomes free of that. The reality is, if it's a substantial equity loan, then the house will have to be sold to repay that.
And again, once Confirmation is granted, the executor has the authority, and only from that time, to sell the house, and then from the sale proceeds, and of course, the sale has to be done by lawyers, no matter what else is happening. Lawyers have to do the conveyancing, and the money from the sale proceeds is used to pay off the equity lender. And whatever net proceeds are left after that, they can be assets of the estate and go to be divided among beneficiaries.
Angela: What about, I can imagine a lot of people might worry that there are debts out standing, and there's no money left.
Austin: Yes.
Angela: is the family liable?”
Austin: No, I can absolutely reassure you of that. I would have to say on the rare occasions we get insolvent estates like that, that's almost the first thing that we're asked. And I say those estates are rare because nowadays, particularly people who own a property, even though they themselves may have scant savings and have to budget kind of carefully all the time, the fact that they've got a property and property goes up in value means there should be something left when that is sold.
But families should be reassured and executors should be reassured that the debts do not cling to live individuals. They are part of the estate, and if the estate on a net basis has not enough to pay the debts, then the estate in effect goes bankrupt, and creditors have to either take nothing or a share in whatever is left. I think sometimes that's rather inelegantly called a haircut on the debt.
Angela: Really?
Austin: Well, commercially, that's a phrase that I've heard used when a major public company or institution falls into a loss or being put out of business or completely bankrupt, then the creditors that there are have to take a haircut on their debt. So that may be they only take 40 pence in the pound or less than that. Very often it's less than that.
And for ordinary individuals who have lent money, maybe members of the family or a company that has given credit without security, they come down the pecking order at the very end and might get nothing or 5p in the pound. HMRC will come before that and local authority perhaps have a charging order in the house for unpaid council tax. So if an estate is in insolvency, it can be very problematic.
And in that situation, the executor has an awful lot of work to do for no reward.
Angela: And what about things like possessions within the house, like jewellery or TVs or that sort of thing? What happens to all of them? Is that listed as well?
Austin: Yes, strictly speaking, that should be listed. Now, it becomes a question of moderation, shall we say, or relevance. Jewellery may be worth a lot or a little, depending on what the person was interested in.
If they had these prized pieces of jewellery or jewellery handed down through the family, and if it's worth thousands of pounds, then that absolutely needs to be valued and proper valuation put into the inventory, and it forms part of the estate. Individual items of jewellery may have been left in the will, and that's fine. They can go to the person they're going to, but the value of them requires to be accounted for.
If there's any question about how much a jewellery is worth, because there are fluctuations over many years in the value of gold. I mean, gold just goes up and up and up. So strictly speaking, you should have a value or professional valuation of items, gold, jewellery, but everything else on the date of death, because that's the date that everything crystallizes for law, legal purposes.
If there is no question of inheritance tax, and if the jewellery is costume jewellery or just small things that are sentimental rather than anything else, then there's really not much need to put in values for this tiny thing and that tiny thing in the inventory or just clog it up. But it's for the executor to be realistic, particularly in speaking to the solicitor saying, well, he or she has got these things, these gold signet rings or this magnificent tiara. How many of us have a tiara?
You're wearing headphones, but not a tiara just now.
Angela: Sadly not.
Austin: So there's an exercise in being realistic and honest and fair about valuations. Furniture is a bit different. The thing about furniture is you may have bought a beautiful leather suite for £3,000.
I don't know what leather suites cost. My wife may be hurling abuse at the radio just now. But if you have paid a lot of money to fit out your house, the day after you bought it, it is worth nothing.
Angela: A bit like a car.
Austin: A bit like a car. But cars keep a kind of a value, but furniture in particular is worth nothing. And we see this also, I think we've discussed this when talking about divorce cases.
If you're dividing up a house between husband and wife, and one of them claims, I want 10,000 pounds from that one because she or she is getting all the fittings and the furniture. And the reality is, a) they're worth almost nothing after you bought them. But X years down the line, particularly if it's an older person or a person that's had these things in their house for years and has sat in the armchairs, they will literally be worth less than it costs to remove them and dump them.
So as long as again, you're being realistic and fair and relevant, if there's no value in the contents of the house, then you don't put anything in the inventory or else you put a notional figure in. And you can explain it by saying, furniture and contents in home, literally five pounds or a hundred pounds or whatever it happens to be. And as long as that is a decent realistic valuation, that's fine.
What to do with those things, if their value doesn't substantially affect the estate, then if charities will take them, give them to charities. If members of the family, grandchildren want in their first flat, wanting that, or there's an old dresser or something that has actually become a family heirloom, but it's only worth tuppence ha’penny, then give it away.
Angela: Okay, so we've applied for confirmation and that's come through. So the next part is ingathering the estate, is it called? I've never heard that word before.
Ingathering.
Austin: Yes, it's a fancy word, and it's payment of the estate, payment of the assets into the estate, and then payment of the shares due out of the estate. So the ingathering is the first part of that. So really, all the executive does or more likely the solicitor acting for them does is, you get the Confirmation certificate, which covers the whole estate, but you can get individual single sheet certificates for each item.
So I earlier on said in the inventory, and I ran through bank accounts and the insurance and so forth. The estate may have 12, 15, 20 items in it. So rather than getting 12 big booklets, which is the format for the Confirmation, you get individual certificates for the Royal Bank of Scotland account number 562, the Prudential Insurance Policy Proceeds number 656, the House Title number 12 Acacia Avenue.”
So having those, you then send them to the relevant party, such as Prudential Insurance or Royal Bank, to their bereavement office. They will check or approve or just see that the certificate's been granted. They will issue a closure form, which is really just for the executor to sign, saying, we now wish to liquidate or get the money from this account or this policy, and they sign it, the solicitor sends it.
And then the money is sent either to the executor, because it belongs to the executor for administrative purposes, or again, more likely to the solicitor's firm. Solicitors all run client accounts, which are where they hold all of the client money, whether it's for a house purchase or a divorce settlement, or in this case, an estate. They take it in and keep careful hold of it for the executor until everything is gathered in.
So all the different banks and institutions that are holding money, feed the money back into the solicitor. It's held in a central ledger. The solicitor will then draw up a cash statement showing all the money in and where it's due to go out again to these beneficiaries, whether it's family or charities or a mixture.
Once all the ingathering is done and the fund is held in a central place in our bank account as solicitors, the executor then gives authority for payments to be made out to beneficiaries. Now, the beneficiaries may be due £5,000 because there's a gift in the will, the bequest in the will, or they may be due 25 percent of the estate. So the solicitor has to do a statement showing how that is calculated from the money in, costs taken off, funeral, legal costs, state agency costs if you're selling the house.
Angela: What about inheritance tax?
Austin: Yeah. Inheritance tax is kind of a huge thing where it applies. It still is for most solicitors, other than those who are dealing with the real kind of wealthy top end people.
For most solicitors, and I include myself and our firm in this, unless the net estate is, and this is after a second death, you know, with husband and wife or his partners, unless the net estate in the second death is more than a million pounds, then it's not going to be a thing that needs to be paid. Now it may be that we have to report to HMRC with these IHT 400 forms, clearance letters saying, no, you're right, there's no tax due in this estate. And we have to get that before we get Confirmation.
But, and if there is inheritance tax actually due to be paid, that needs to be paid before Confirmation. And again, just like I said with the bank earlier on funeral costs, there is a scheme whereby banks can pay that inheritance tax direct to HMRC before Confirmation. But by the time we've got Confirmation being granted by the sheriff court, all of that is out of the way.
Angela: okay, so you're not risking...
Austin: We're not risking being caught out and not paying that as a debt. But in the cash statement, the cash statement goes from the date of death up to the date of everything being divided up. So what this list will show is all the money that has come in, but also all the money that has already been paid by way of inheritance tax or other debts.
So the cash statement is a comprehensive, detailed, and specific account of everything that has happened from first to last in the estate. And it is shown to some of the beneficiaries, it's shown to the percentage beneficiaries, because they're entitled to see why their 25 percent is 42,000 pounds instead of 44,000 pounds. It's because 2,000 pounds was spent on things that the estate was due to pay.
But the specific beneficiaries that get 10,000, they really don't have an entitlement to see the rest of the estate. They simply get their 10,000 pounds. And in the will, it's usually said without tax, without expenses and so forth, so they get a net exact amount.
Angela: Families often fight about these things, don't they? It's not as simple as it might sound.
Somebody said that death can bring out the best or the worst in families. And I have found that to be a very true statement. I have been in situations where there has been absolute blood and guts because somebody feels slighted by either not being mentioned in the will or only being given a certain amount of something, or the painting that was on the wall has gone to somebody else, or that it's just the point at which the culmination of years of infighting or bad feeling or, you know, just difficulties, resentments, bubble up into hatred or argument, or it supercharges the resentment so that what was in the background before becomes front and centre.
And it can be as bad as at the funeral reception afterwards. I had one where a client of mine had a late marriage and sadly died of cancer, unexpectedly and quite quickly. And there were two funeral receptions after the actual service.
Daggers drawn, nobody ever spoke to each other. And that took place, I'm going to say, 25 years ago, maybe 30 years ago. I am still in between the two parts of the family corresponding because the client had left provision for, they didn't have any children, but they had nieces and nephews and they left provision for them to get money when they were 21.
So, you know, over time, that developed into an ongoing thing. And although they thought they were doing a good thing, the reality was it kept a running sore over all these years. And every time, actually, I ended up in very good terms with the first family, because we just you know, I was corresponding with over years.
They knew I wasn't, you know...
Angela: You didn't have an agenda.
Austin: I didn't have an agenda. I was there just simply trying to hold the jerseys. I mean, you've quite right identified that there's a human part of this.
And we talked about resentments and people that actually get worse. They just can't stand other people within the family or within the kind of estate beneficiary community. But sometimes there are actually wonderful things that happen.
It gets people together or because the deceased has said in their will, I wish to recognize my neighbour such and such because for years they helped me and supported me and I was very down, but they looked after my feelings, my mental health or my dog. There are some really kind of nice things that happen when a client dies, then you can have very positive experiences dealing with members of the family. Maybe never met before, but you find out things and good works that the deceased did, that they didn't tell anybody about.
Sometimes it can be unexpected things that are a mixed blessing. I have a client who found out after a parent died. I'll be honest that they were adopted and they hadn't known, but they also through the process found another sibling that they knew nothing about, which was a kind of conflicting thing, but worked out okay.
So it's difficult to overstate the personal drama and journey that death and executory work through solicitors can bring about. It can be good, bad, and everything in between. In fact, I had an exchange with, I was asked by the Law Society to take over an estate where there had been court of session litigation between different, you know, beneficiaries and parts of the family.
Very bitter. And I was asked to take over as an independent executor. So over the time, we worked through everything and got it settled.
But at the very last, I had an email from one of the beneficiaries saying, I'm accepting this final payment and full and final settlement. But I just want it recorded that everything I did was to protect my relative and my relative's memory and the relationships within the family and everything I did, even though it cost money and was complicated and not everybody agreed.
I did it for the relative, for the deceased relative.
And I wrote back saying, that came through. I said, I can put my hand in my heart and say, I recognize that everything that was done was not done for money, but was done for personal relationships and feelings. And I think as solicitors, we help the process if we never forget that we're not just dealing with paperwork and tax and assets and debts.
We are dealing with people's feelings that can be very raw and very deep, and their grief and suffering that can be very long lasting. So the worst thing we can do is treat it just as a technical exercise. That's not to say we go along and have a cup of tea with them and put our arms around them or anything.
But you've just got to remember that unlike, I will say unlike accountants, lawyers deal with, sorry, all accountants. I love some of you. Lawyers deal with the personal as well as the professional and the technical.
Angela: Okay. Common myths and mistakes. Let's have a look at this.
I think I know the answers after what you've said. But number one”
If there's a will, the process is simple, true or false?
Austin: It's simpler. It's more straightforward. It's more organized and kind of uniform.
It's just easier for everybody, and that's for the executor, for the solicitor, for the court, and for the beneficiaries and any creditors. It is easier because the will sets out what the now deceased wants to happen and who they want to deal with it. So it is simpler.
Nothing is simple, but without a will, it can be vastly complex, take ages and be very unsettling for people as they find that the law doesn't say what they think it says.
Angela: Number two, the eldest child automatically deals with everything.
Austin: No is the answer to this. Some parents will appoint children in a kind of pecking order that reflects their own feelings and wishes. They may feel the eldest child should be given priority.
The law says nothing about that. And very often I've had clients coming in saying, my eldest is X, but they're either not responsible or they're not strong enough by way of, you know, making demands and making things happen. Whereas my middle child has the right skills.
Or else the middle child may be an accountant or a solicitor or something used to dealing with these things. Or the middle child might live in Scotland and the other ones are in Australia. But the law does not make any assumptions about the eldest child, even if there's no will.
Angela: Third myth, executors can divide the estate as soon as the funeral is over.
Austin: No, we've scorched that myth already in great style because debts come first. Actually, there's a legal pecking order, and it is debts come first, then specific bequests, i.e. jewellery and stuff, then monetary bequests, the £10,000 or £1,000, and then the residue of the estate divided up.
Legally, you have to work through that order of things.
Angela: And finally, if everyone in the family agrees, they don't need to follow the formal process.
Austin: That's a kind of loaded question by which I mean, so far as the court's concerned, the Confirmation is simply confirming the executor's appointment. Now, the executor's duties under the will or under the law are to divide out the property or assets or money according to the will or according to the law, because there's no will. But if everybody who's entitled to get something in the will or in the law agrees a different formula, then they are entitled to do that.
There's two ways of doing it. One is just to agree that. And lawyers are not good at informal agreements.
But the reason I say there is an informal possibility is that if somebody dies and their surviving spouse and grown up children are there, and the grown up children don't want to claim the estate, they want their mum or dad to stay in the house, to have the benefit of the money, to be looked after, then often enough, it's just done informally and the children don't claim their legal rights or don't claim the share they might be given in the will. They say, no mum, dad, you carry on. The other way of doing it is what's called a deed of variation, which is a perfectly good and effective legal document.
The deed of variation takes the will and rewrites it. And the beneficiaries and executor, if everybody accounted for in the will agrees to make a change, a deed of variation can be drawn up and signed and it replaces the will. And that can be for the reason I mentioned that the children want the surviving parent to get it.
Or there may be a tax reason. It reduces the estate going to the surviving spouse. And therefore, when the surviving spouse dies, they won't be exposed to inheritance tax.
I think we've got another podcast where we can drill into inheritance tax and only geeks will listen to it because it's a very complicated and finicky thing.
Angela: But everybody's worried about it.
Austin: Everybody's worried about it. So, A, yes, they can do that deed of variation. They can't so much do an informal alteration if there's an inheritance tax thing.
That's why I say there are some situations where you can work informally. If in doubt, do the proper thing. But going way back to before anybody dies, one of the triggers for making a will or speaking to a solicitor about making a will is, what about inheritance tax?
If you're not sure or if you think, well, actually, when I count everything up in my head, when I die, my house, the insurance policies will kick in. Even pensions are going to come into the inheritance tax regime in a different way soon. So, and if the solicitor says to you, actually, see, when you do count everything up on a sheet of paper that I've got in front of me, yeah, you could be paying 60, 70 grand in inheritance tax.
That's the point at which to consider making a will. If you don't do that, or you don't take inheritance tax into account when you're making a will, then you die, it potentially is too late, because it's not for everyone that a deed of variation will work. And if you've died and if your estate is beyond the inheritance tax threshold, then somebody, the executor, will have to pay it from your assets, and it will reduce the amount going to your family.
So whether when you see about making your own will, you think about gifts before you die, you think about putting things into trust, you think about transferring assets to the family, and I'm not recommending all those things, but they're there to be talked about. Those are the things you can do so that when you do die, your executor actually then has a simpler job because there's no tax liability, you've dealt with all of the difficult legal manoeuvres to get the estate reduced, and the Confirmation process that we talked about, the ingathering and distribution of the estate are much less complex than they would otherwise be.
Angela: And we actually didn't cover costs. What can you expect to pay?
Austin: In some estates, once the solicitor has talked to the executor about what needs to be done, there are some estates where it is simple enough and you can tell that it's going to take this and that time to do, and these are the limited number of assets in the estate, so you can offer a fixed fee. Now, that fixed fee would be for either the process of seeing through to Coonfirmation, giving the Confirmation certificates to the executor and the executor carrying on, speaking to banks and bringing in the money, and that would be one fee. If you want the solicitor to do all that, plus be responsible for getting in the money and paying out, doing the cash statement and all that, it'll be a higher fee.
But here's the crucial thing. Solicitors have to quote or estimate fees in advance, and they have to put that in writing before they can get started. And the final thing to say about fees is that the courts will charge, and this bond of Caution, if there is no will, the Caution company, insurance company, will charge.
So there are what we call outlays, and these are, and there may also be search fees if there's a title, you know, title needs and a property. There are add-ons which solicitors sort of buy in at cost. They don't charge more for them.
But at the court, depending on the size of the estate, it may be 300-odd pounds or 700-odd pounds or more than that, that the court will charge for their booking fee. And again, solicitors have to check and itemize this, so that before you get started with a solicitor, there is at least an understanding of what costs may be as you go along.
Angela: So this was a lot more involved than I can imagine, but I think you've been very thorough, so thanks very much for explaining the whole process.
Austin: It's my pleasure.
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