Handling probate and estate administration without professional guidance can expose executors and personal representatives (PRs) to significant risks including personal liability. Here are the top five common mistakes that lead to these liabilities.
1. Misunderstanding Probate and Inheritance Tax Laws
UK probate law requires strict compliance with procedures, deadlines and documentation. Executors and PRs often underestimate the complexity of the Inheritance Tax (IHT) process, which involves detailed calculations and filing requirements that can be difficult without tax expertise. Errors in filing IHT can result in penalties, personal liability for any tax shortfalls, interest on unpaid amounts or fines for missed deadlines. If an executor or PR distributes the estate without ensuring all taxes and debts are settled, they may be held personally liable for any outstanding amounts.
2. Failing to Properly Identify and Settle Debts and Liabilities
One primary duty of an executor or PR is to pay off the estate’s debts before distributing assets to beneficiaries. However, executors and PRs sometimes overlook this step or fail to notify creditors adequately, risking personal liability. To mitigate this risk, executors and PRs should place a “statutory advertisement” in The Gazette and local newspapers. This notice gives creditors two months to make a claim. Failure to issue such notices can leave executors liable for any overlooked debts, even after estate assets have been distributed. Professional assistance can help ensure all debts are identified, verified and paid accurately.
3. Incorrectly Valuing and Distributing Estate Assets
Accurate asset valuation is essential for calculating IHT and ensuring fair distribution among beneficiaries. Executors and PRs sometimes miscalculate property or other assets, leading to overpayment or underpayment of IHT, which can create personal liability. For instance, distributing assets without formal valuation may lead to beneficiary disputes or unexpected IHT penalties. Executors and PRs are also responsible for ensuring beneficiaries receive their entitlements accurately. Professional appraisers or solicitors can help ensure that valuations are correct and distributions are equitable and compliant with the law, reducing the risk of errors and associated liabilities.
4. Overlooking Required Tax Filings and Payments
In the UK, executors are required to file a final income tax return for the deceased, address any outstanding tax liabilities and manage the IHT calculation. Failure to do so accurately may result in personal financial liability. For example, if an executor distributes assets before settling these tax obligations, HMRC can pursue the executors and PRs directly for any unpaid tax, penalties and interest. Executors often overlook the fact that IHT payments are due within six months from the date of death, with interest accruing on unpaid amounts. Professional assistance can ensure that taxes are filed and paid accurately and on time, helping executors and PRs avoid unexpected costs and penalties.
5. Lack of Communication with Beneficiaries and Mismanagement of Expectations
Beneficiaries have a legal right to be informed about the estate’s administration. In the UK, if executors and PRs fail to provide regular updates, beneficiaries may suspect mismanagement, leading to disputes, claims or even legal action against the executor or PR. Executors and PRs can face personal liability if they are found to have mishandled funds or failed to act in the beneficiaries’ best interests. Regular, transparent communication helps prevent conflicts and misunderstandings, reducing potential liabilities. A solicitor can facilitate clear communications, helping executors and PRs maintain transparency and avoid issues.
Why do it yourself and expose yourself to risk?
DIY probate can expose executors and PRs to significant personal liability. From managing complex IHT requirements to handling debts, valuations and beneficiary communication, the process demands a high level of expertise and attention to detail. Errors in any of these areas can lead to fines, interest and even Court proceedings.
By engaging a solicitor or probate professional, executors and PRs can navigate these complexities smoothly, reduce their risk of personal liability and fulfil their responsibilities effectively.
Please contact me below if you need any help with administering an estate.
Nivashia Vigneswaran LL.M.
Barrister (non-practising)