Tony Wickenden: Advisers should beware the will executor responsibility

The results of a recent court case remind us of the perils of being a personal representative 

Tony WickendenYour reaction when asked to be maid of honour, best man or godparent is usually one of pride and your answer one of enthusiastic acceptance.

But there are a few occasions when a request to do something for a family member or friend is one you would rather not have had, especially those with a potential financial or legal implication. Often it is very hard to say no without putting a strain on the relationship.

The law has recently reminded us of the perils of being a personal representative.

In the case of Harris v HM Revenue & Customs (2018), the personal representative, who released a substantial amount of the estate’s assets to the brother of the deceased who was a beneficiary, was held liable for inheritance tax payable on the estate.

When expression of wish forms can let clients down

The liability of personal representatives for IHT under the IHT Act 1984 is relevant here. Below is a short summary of the key provisions:

  • Section 4 (IHTA 1984) provides that IHT is charged on the death of an individual as if they had made a transfer of value equal to the value of their estate immediately before death.
  • Section 200 (IHTA 1984) provides that the deceased’s personal representatives (with limited exceptions) are liable for the IHT arising on the deemed transfer on death.
  • Section 216 (IHTA 1984) requires the personal representatives to deliver an IHT account and pay any IHT due before the court issues the grant of representation to them. Where the estate includes land, the IHT on that land can be paid in 10 equal annual instalments and when the land is sold, any unpaid instalments will become immediately payable.

So, let’s have a closer look at the specific facts of this interesting case.

Harris was the appointed personal representative of the late Helena McDonald. On 28 April 2013 he filed the IHT account – form IHT400.

On 16 April 2014, HMRC opened an enquiry into the account and on 7 October 2015 issued a determination for £341,279 of IHT.

Tony Wickenden: Turning IHT anger into planning opportunities

Harris requested a statutory review of the determination and, in a letter dated 20 July 2016, was informed it had been upheld. Harris decided to appeal against this review decision on the grounds of insufficient funds.

Before “concluding business” with HMRC, Harris had released a substantial amount of the estate’s assets to the brother of the deceased, who was a beneficiary of the estate, on the understanding he would settle the IHT. However, the brother returned home to Barbados without settling and Harris was not able to contact him.

Remember you are liable for inheritance  tax as a personal representative before distributing assets to beneficiaries

The First-tier Tribunal struck out the appeal as having no reasonable prospect of success.

The fact Harris had transferred the assets of the estate to a beneficiary on the basis the beneficiary would be responsible for payment of IHT, and was ignorant of his obligations as a personal representative to pay the IHT, was not a valid defence. How many times have we heard that “ignorance is no defence”?

Tony Wickenden: A radical alternative to IHT reform

This case illustrates just how aware personal representatives ought to be of their obligations when considering taking on this role. In particular, they should ensure they have sufficient funds to pay any IHT (and any other liabilities) before they make any distributions to beneficiaries.

For illiquid estates, and in any case where there is a desire to ensure the beneficiaries receive the full value of a deceased’s estate, having life assurance held on appropriate terms under a trust can be well worth considering.

Tony Wickenden is joint managing director of Technical Connection. You can find him Tweeting @tecconn

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