Personal representatives (PRs) have a legal duty to administer the deceased’s estate ensuring all debts are paid and beneficiaries receive their inheritance in accordance with the deceased’s will or, if there was none, the rules of intestacy.
The coronavirus lockdown in March has made it harder for PRs to administer estates within a reasonable period of time.
During the lockdown, nearly all property sales were paused meaning that delay in the administration of estates with property to sell was unavoidable.
Now we are moving out of lockdown, the property market has re-opened and sales can now start to proceed again. For estates where the main asset was a property to be sold it means there have been delays in giving beneficiaries their inheritance.
It may be too early to see the impact of coronavirus on property prices but it is hard to imagine that properties will retain their pre-coronavirus values as we come out of lockdown.
The impact on the value of shares and investments has been observed and are subject to extreme market fluctuations.
PRs will need to exercise care when arranging for sale of investments. They should consult with beneficiaries before shares are sold and be careful to manage exposure to capital gains tax as investment portfolios recover in value during the course of the administration. PRs should consider whether they or beneficiaries should obtain independent financial advice.
For property valuations, the safest course of action for solicitors is to recommend to PRs that they instruct a RICS valuer and let the valuer liaise with HMRC.
A claim for loss relief will be available on any interest in land regardless of the nature of tenure or location. The claim must be made by the person liable for payment of inheritance tax, which in the vast majority of cases will be the PR.
To qualify for loss relief, the asset must remain in the estate and the sale must be made on the open market to an unrelated party. The relief is not available if the sale price differs by less £1,000 or 5%of the value at date of death, whichever is the lower.
Quoted shares listed on any recognised foreign stock exchange and unit trusts will qualify for a claim for loss relief where such investments are sold at a loss within 1 year from date of death. Assets which may qualify for Business Property Relief including AIM shares and unlisted stocks are not eligible for loss relief.
It is important to recognise that there must be an overall loss on the sale of shares from an estate, all sales must be reported, meaning it is not possible to isolate a loss on a particular holding without offsetting any gains made on disposal of other qualifying shares.
Other examples of delays occur when confirmation of the tax position was being sought from HMRC. HMRC has recognised that it is difficult for PRs to physically sign inheritance tax forms IHT400, IHT100 and IHT205 with social-distancing measures in place.
They agreed a temporary process to accept accounts and returns without wet signatures where solicitors are acting for the PRs if: a) the names and personal details of the PRS are shown on the declaration page; and, b) the account has been seen by all the PRs and they all agree to be bound by the declaration. Solicitors using this process must include an appropriate statement on the form they submit.
HMRC have also begun sending IHT421 forms directly to HMCTS as a way of reducing delays.
A PR who has not progressed the estate or overlooks the one-year term to dispose of assets to claim loss relief for inheritance tax may be required to compensate beneficiaries for any potential loss incurred.
Traditional private client work of making wills and administering estates tends to increase during recessions and economic downturns – and anecdotally, this also bears true for the coronavirus pandemic.
Regardless of staff resource and increased workload, firms have a duty of care to all of their clients. Regular contact should be made in ordinary times and during the current crisis many firms have made great efforts to communicate to beneficiaries how they are operating during the lockdown.
Many beneficiaries, individuals and charities, will be impacted by the current crisis and may be in need of their inheritance.
As we come out of lockdown solicitors advising PRs should be identifying estates that are post grant and past the statutory six-month notice period to distribute funds at this point, should there be available funds on account.
If beneficiaries believe that the PRs are not carrying out their duties expeditiously or there is some other concern regarding their handling of the administration of the estate, for example refusing to pay an inheritance, they can make an application to court seeking their removal.
However, there may very well be legitimate reasons for the delay connected to the current crisis. If this is the case, any court application to have them removed is unlikely to succeed and the beneficiaries may then be ordered to pay all the legal costs. As time passes and we return to normal the risk of a successful challenge to PRs increases.
Ian Bond is chair of the Law Society’s wills and equity committee and head of trusts and estates at Talbots Law. Kieran Bowe is a wills and equity committee member and partner at Russell Cooke