Student column

  • Author : Amanda Edwards
  • Date : June 2010
Amanda Edwards TEP is an Associate with Boodle Hatfield

‘Do we really need estate accounts?’ is a question which lay personal representatives often ask professionals assisting in the administration of an estate, usually with a view to saving costs. In the most simple of cases a cash statement may be sufficient. However, such a cash statement only shows cash held by the executors (or held for the personal representatives, e.g. on a solicitor’s client account) and the various deductions and distributions from those funds, and it is therefore of limited use.

By contrast, a full set of estate accounts shows all the assets and liabilities in the estate, the inheritance tax paid (if any), administration expenses and pecuniary legacies, details of interest, dividends and rents etc. received since death, with a distribution account showing how the estate has passed to the beneficiaries. It will be easy to see at a glance, for example, if accounts are prepared annually, how much can be safely distributed to a beneficiary at any particular time, which should avoid the pitfall of making an over-distribution (whether an interim or final distribution).

In short, estate accounts give a complete picture of how an estate is made up and has been dealt with and as such provide an invaluable source of reference in relation to the completion of the personal representative’s tax returns and for any queries that can arise after the administration has been completed. Doing without a full set of estate accounts is therefore usually a false economy, as Hapless, a solicitor, discovers in the example below.

Example

Towards the end of administering an estate, Hapless agreed with lay executors not to prepare estate accounts in order to save costs. Subsequent events led him to regret this.

A few months after the end of the administration period, several beneficiaries contact Hapless to explain that their accountant is asking for details of income received during the administration. Hapless recalls his files to obtain the information.

One of the beneficiaries is now selling some shares specifically bequeathed to him by the executors. He is asking Hapless what his base cost for capital gains tax purposes is and Hapless is sure that has the information but will have to retrieve it from his files. When he does so Hapless realises that the dividends received during the course of the administration belonged to the legatee and not to the estate as a whole.

One of the deceased’s relatives has found a share certificate in the name of the deceased, and Hapless realises that these particular shares have not been declared to the Revenue. Dividends had in fact been received during the course of the administration, but Hapless had assumed that these related to another shareholding in the same company, for which he did have the certificate. He has to re-open his file, declare the holding to the Revenue and make arrangements to settle the additional inheritance tax.

There was a small will trust that arose under the will and the will trustees ask Hapless for the details they need to give to the Revenue when reporting the trust.

A large number of chattels have been sent for auction. However, some five years later the auctioneer, after clearing out its store cupboards, discovers five items belonging to the deceased’s estate that had not been sold. Unfortunately, they had not kept a proper record to check that all the deceased’s items had been sold and nor had Hapless.

In addition to these sorts of difficulties, personal representatives need to be able to demonstrate that they have dealt properly with the administration of the estate and a final set of estate accounts provides comfort to the executors themselves, the beneficiaries and the solicitor dealing with the estate that everything has been properly accounted for. Practitioners therefore need to resist pressure from lay personal representatives (and sometimes even from residuary beneficiaries) not to prepare estate accounts.

Quite aside from the practical difficulties that can arise above, personal representatives have statutory duties set out in section 25 of the Administration of Estates Act 19251:

acollect and get in the real and personal estate of the deceased and administer it according to law;bwhen required to do so by the court exhibit on oath in the Court a full inventory of the estate and when so required render an account of the administration of the estate to the Court; …’

There is no guidance as to the form or content of estate accounts. However, STEP has produced a book STEP Accounting Guidelines2, which gives examples for a range of different estates, including one with an ongoing will trust.

As amended by section 9 Administration of Estates Act 1971.
Guidelines for the Preparation of Trust & Estate Accounts in England & Wales

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