What is a Personal Representative?
When you make your Will, you designate an Executor to ensure that your wishes are dealt with according to your wishes. The role of a Personal Representative (an Executor if appointed by a Will or Administrator if not) can be onerous and the responsibilities attached numerous.
How can an Executor or Representative’s role go wrong?
The case of Harris v HMRC recently proved to be a startling reminder of the importance of the role, and that what might appear to be fair or just to the lay Personal Representative does not necessarily mean anything at all when it comes to fully discharging their duties in this role. Mr Harris was the Executor of an estate which he distributed to the beneficiary (the sole recipient named in the Will) before settling the inheritance tax due in relation to it.
Mr Harris was well aware of the tax due (some £340,000.00!), yet transferred the estate’s assets to the beneficiary before the tax had been paid. Mr Harris made the payment in good faith; the beneficiary was also well aware of the tax owing and so to his mind, surely there was no question of the beneficiary simply paying it thereafter out of the assets he had received? Even if not, surely it would be the beneficiary who would ultimately responsible to the revenue for payment?
Stick to the rules with HMRC
Unfortunately for Mr Harris, neither were so, and so followed lengthy and ultimately unsuccessful litigation when the beneficiary failed to pay.
The fact that Mr Harris did not have the personal funds to pay the tax, nor the fact that this was an entirely genuine mistake on his part were deemed irrelevant by the Court. Legally speaking, Mr Harris was the Personal Representative of the Estate and therefore personally liable for the debts of the same when matters went wrong.
It is not simply a case of the Personal Representative ascertaining any tax due (or indeed any other debts connected to an estate such as mortgages and credit cards etc.); they are taking on a potential personal debt - meaning that if the estate is not dealt with by them in the correct manner thereafter, it could very well be payable by them rather than via the estate’s assets. As in the particularly extreme example above, such debts could have the effect of diminishing the Personal Representatives own estate - perhaps entirely.
How to get the legacy distribution right ...
It is important to remember that any debt owed by the deceased could become those of their Personal Representative. It is extremely important in the first instance therefore for the Personal Representative not just to establish the exact extent of the estates assets and debts (and whether there is any inheritance tax due), but also to deal with them in the correct manner. Taking professional advice can help ensure that all of this is undertaken effectively, and ultimately that the Personal Representative is not exposed to financially crippling personal liabilities.
Cunningtons LLP can help executors and other representatives
Our Wills and Probate Department specialises in probate matters, meaning that they are able to advise Personal Representatives in such a way as to avoid results like those seen in Harris v HMRC. Our team can assist right from the early stages in determining the nature and extent of the estate’s assets and liabilities, as well as whether any inheritance tax is due, right through to payment of the same and distribution of the remainder to the beneficiaries.