Distributing an estate and the rules on intestacy
This is the last in a series of articles about wills and probate. Distribution of the estate is the last of the steps in the probate process, and this article cover how executors should distribute the estate, and if there are no named beneficiaries, to whom the estate should be given.
Pay the debts of the estate first
The debts of the estate are paid first, using assets (including cash) that form the residuary estate (i.e. not using gifts specifically left to an individual or group). If the value of the residuary estate is less than the debts (i.e. the remainder after specific gifts have been set aside is not enough), then gifts of cash are reduced proportionately to meet the debt. If these are still not sufficient, specific items left as legacies will need to be sold to raise the required amount.
There may be further tax to pay
Income generated from the date of death to the date of distribution is liable for income tax. All income is charged to tax at the basic rate, with no personal allowance.
Capital gains on assets disposed of after the declaration of value at the time probate is granted may be liable to capital gains tax. Executors should consider whether not to sell possessions that may make the estate liable to CGT, and instead whether to distribute them directly to beneficiaries.
Once debts are repaid, the estate is distributed to the beneficiaries. Beneficiaries might be named in the will, or they might need to be identified using the rules of intestacy (see below).
Ask each beneficiary to acknowledge receipt of the gift
The executors should ask each beneficiary to sign a receipt for the gifts he or she receives. The receipt acts as proof of distribution. The receipt should record in detail:
- the gift
- the date the distribution was made
- the full name of the beneficiary
- the names of the executors
A beneficiary could reply by e-mail or electronic means, but the best form of acknowledgement is a signed paper receipt.
If the gift is to a child, it is either kept in trust by the executor until the child either reaches 18 (or a greater age specified in the will) or the parent or guardian takes the gift on behalf of the children. If the latter, the will must specifically allow this.
Both the beneficiary and the executors should keep copies of the receipt.
Transferring company shares
Shares owned directly by the deceased are transferred using a stock transfer form. This is signed by all executors and sent to the company registrar, with a share certificate and a copy of the grant of probate. The registrar updates the share register and issues new share certificates in the name of the beneficiary.
If the shares are to be distributed to more than one beneficiary, you should prepare a stock transfer form for each beneficiary.
Stamp duty is not payable on transfer provided the forms have been completed fully.
To distribute shares held by a nominee stockbroker, the executors simply instruct the nominee to hold the shares on behalf of the beneficiary instead.
Transferring real property
The forms require a witness to the executors’ signatures, and that the beneficiary also signs.
The completed forms are sent to the Land Registry with a copy of the grant of probate, the land certificate and a fee (which depends on the value of the property net of any mortgages).
If the land is unregistered, then it is advisable to seek the advice of a solicitor to register the land as a first registration application.
Draw up the accounts of the estate
The executors should make up the accounts of the estate so that each beneficiary can understand them and approve them by signing. The accounts do not have to have any set format – a list of all assets and debts categorised by type is usual.
Other claims on the estate
For up to six months following the grant of probate, claims may be made by people who feel that they are entitled to the estate but haven’t received “their share”. These claims might be spurious or be well founded. It is therefore usual for the executors not to distribute the residue of the estate until six months have passed. This allows for successful claims, if there are any, to be paid without having to return to beneficiaries who have received specific gifts (usually less easily divisible).
Once all the beneficiaries have signed the accounts, distribution is complete. Accounts in the deceased’s name can be closed.
Paperwork should be kept for at least 12 years after distribution. If there is a life interest in the estate, paperwork should be kept for at least 12 years after the final distribution to the person who eventually inherits.
Succession on intestacy
If someone dies without having made a will, or if their will is invalid (for example, the signature was not witnessed correctly), then they are termed “intestate”. There are rules as to who can administer the estate of someone who has died intestate, and to whom it is distributed.
In short, the estate is distributed in an order that prioritises the closest family members first, and the Crown last. But the rules are complicated.
If the deceased is survived by a spouse or civil partner
Provided the husband, wife or civil partner of the deceased survives for 28 days after the death of his or her spouse, then:
If there are no children, then the spouse receives the entire residuary estate.
If there are children, then the spouse receives:
- a tax free statutory legacy (assets valued up to a certain amount), and the interest accrued on the estate from the date of death to the date of payment
- the personal chattels (possessions) of the deceased
- a life interest in a trust comprising half of the estate less the statutory legacy less the personal chattels. The spouse receives interest on the life interest, but cannot spend the capital. Once the spouse dies, the trust is distributed to the surviving children.
The children receive (divided equally between them):
- the other half of the estate immediately
- the trust
If any of the children of the deceased have died before the deceased, leaving children, then those children take their parent’s share by substitution. For example, if the deceased has 2 children, A and B, and each has two children, if B dies before his parent, his share of the estate is left equally to his children.
If there are no children, but there are other relatives, the value of the statutory legacy increases so that the spouse receives a larger share of the estate.
The rest of the estate is given in equal shares, in priority order to:
- parents; and if there are no surviving parents to
- brothers and sisters “of whole blood”, or their children if a brother or sister dies before the deceased
If there remains no-one to inherit the “half” of the estate, then the whole estate passes to the spouse.
If the deceased is not survived by a spouse or civil partner
If the deceased does not have a spouse who survives him or her, but there are children, then the estate is divided equally amongst the children. If any children die before the parent, but leave children of their own, those children inherit their parent’s share equally. If any children are under 18 years of age, then their share of the estate is held in trust until they reach the age of 18 or marry.
If there is no surviving spouse nor children, but the parents of the deceased are still alive, the parents receive the entire estate between them.
If there are no parents, children or spouse, the estate is given to (in the following priority order):
- brothers and sisters (or their children under substitution)
- half-brothers and half-sisters (or their children under substitution)
- aunts and uncles of whole blood (or their children under substitution)
- aunts and uncles of half blood (or their children under substitution)
- the Crown
As a reminder, if you don’t currently have a will yourself, or if it is a long time since you did, you might like to make one that reflects your current position in life. To help, we provide several templates (likely to be suitable for most people) with no catches or conditions. A number are free to download and use. Visit our library and choose the most suitable as a basis for your wishes. If you need any help choosing, just contact us.
Please note that the information provided on this page:
- Does not provide a complete or authoritative statement of the law;
- Does not constitute legal advice by Net Lawman;
- Does not create a contractual relationship;
- Does not form part of any other advice, whether paid or free.
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