Disclosure on death - beware!
When a person dies, the people charged with establishing the extent of their estate at death and distributing the Estate are known as 'Personal Representatives'. This is a term covering both Executors who are appointed in a person's will and Administrators who are appointed if there is no will.
One of the first and most important responsibilities imposed on a Personal Representative is to establish the extent of the deceased's estate at the date of death. As part of this exercise, it is necessary to establish whether the deceased made any gifts within seven years of the date of death. If so, it will be necessary to count all or part of the value of that gift back into the Estate for the purposes of calculating the overall value of the Estate at the date of death. Whether it is necessary to pay Inheritance Tax to HM Revenue and Customs (HMRC) will depend on this value so it is vital to ensure that the figures are correct.
It has recently been reported that a man from Sussex received an £87,000 penalty from HMRC for not revealing to his father's Personal Representatives a cash gift that he had received the year before his father's death.
In this case, the Personal Representatives were professional Executors. They wrote to the beneficiaries requesting information about any gifts received from their late father in the preceding seven years. Only one beneficiary replied indicating that she was not aware of any gifts. No further disclosures were made and the value of the Estate was calculated and disclosed to HMRC. About two years later, HMRC received an anonymous tip-off that one of the beneficiaries had received an undisclosed off-shore bank account with some £450,000 contained in it. This led HMRC to claim an extra £47,000 in inheritance tax from the beneficiary personally. The beneficiary tried to appeal against this claim but was unsuccessful.
This is a salutary tale because it first shows that Personal Representatives, whether professional or otherwise, should make full enquiry of the deceased's family to attempt to fully establish whether the deceased made any gifts in the seven years prior to their death. In this case, the professional Executors avoided a personal penalty for submitting inaccurate figures on the basis that they could demonstrate that the issue of lifetime gifts had been properly raised.
Secondly, however, the blame in this case of course, fell on the person who had deliberately failed to provide the required information.
Many Executors now consider applying for a Grant of Probate without the benefit of professional help. However, this case is a reminder of the importance of making full investigations and disclosures as the Personal Representatives can carry personal liability for any failure.
To discuss this, or any Probate related issues, contact us.