The recent case of a man found personally responsible for the £340,000 inheritance tax due on a Will he administered graphically illustrates the importance of fully understanding your responsibilities as a personal representative.
A personal representative is the person appointed when someone dies without a Will or is appointed under the terms of someone’s Will. The former is called an administrator and the latter an executor.
Mr Glyne Harris was appointed as the administrator responsible for distributing the assets of Mrs Helena McDonald’s estate after she died without having made a Will.
It’s a little known fact that both administrators and executors are personally liable for paying any inheritance due, even if they are not a beneficiary of the estate assets.
Beneficiary went to Barbados
The problems began after Mr Harris made the mistake of discharging the assets of the estate based on what he claimed was an understanding that the beneficiary of the Will, Mrs McDonald’s brother, would pay the inheritance tax (IHT) owed to the taxman.
But the beneficiary left the country for his home in Barbados, did not pay the IHT due and when he remained uncontactable, it fell to Mr Harris to foot the bill.
And though he appealed against this, claiming that he no longer had the estate’s funds to pay, a tax tribunal rejected this meaning Mr Harris is now expected to find the money out of his own pocket.
Potentially, the Inland Revenue could now go after his own assets, including his house, to settle the bill – a terrifying thought for all personal representatives.
Judge Nicholas Aleksander said: “IHT is clear. It is the personal representatives of the deceased (in this case, Mr Harris as administrator) who have the obligation to account for any inheritance tax arising in respect of the deemed transfer on death.
“It is no defence to any inheritance tax determination that Mr Harris may have transferred the assets of the estate to a beneficiary on the basis that the beneficiary would be responsible for payment of the inheritance tax due.
“Nor is it a defence that Mr Harris was ignorant of his obligations, as a personal representative, to pay the inheritance tax owing.”
This case, although extreme, serves as a stark reminder of how complex the process of being an executor or administrator can be. It emphasises the importance of making sure you know what you are signing up for when you say ‘yes’ to taking on the role for a friend or relative – something that many of us are asked to do at some point in our lives.
Before agreeing, it is vital to have a full understanding of your obligations and legal duties. Key to this is understanding your responsibility to ensure that the deceased’s estate is correctly valued for IHT purposes and that any tax bill is paid.
The Office of Tax Simplification is currently carrying out a sweeping review of Inheritance Tax. Click here to read what we’ve written about this recently.
If you are at all unsure, it’s a good idea to seek legal advice.
For help and information about this complicated area of the law, please contact Wards Solicitors’ Wills, Probate and Mental CapacityTeam.