Trusts, Estates & Tax: what makes a winning team - Part 2

In October 2023, the Berkshire, Buckinghamshire and Oxfordshire Law Society awarded me (Louise Lewis) “Lawyer of the Year” in recognition of my work with my team, with my community and with the legal profession, including my voluntary work with STEP. I was very quick to publish my thoughts to say that this was not my award, but my team’s award and that everything we do, we do as a team. I therefore wanted to take the opportunity this year to showcase the team and to let everyone know about the work that we do.

Next to be profiled is Associate, Juhi Ahluwalia and below is an example of her recent work.

Questionable expenses, elusive chattels and failed ‘PETs’ – independent administration case study

Juhi is currently acting for an Independent Administrator who has been appointed by a Court Order under Section 50 of the Administration of Justice Act 1985, following a dispute between the executors and a beneficiary of the estate. The process of administering a deceased person’s estate can be convoluted and hard on the family of the deceased, and disputes between family members frequently arise. Independent administrators have a duty to act in good faith and impartially, and have the experience to carry out their role competently and efficiently. 

Where an estate administration has become contentious, it is not uncommon for executors to be accused of being dishonest and carrying out their duties in an improper manner. In this case, one of the beneficiaries raised concerns regarding the expenses that the executors were claiming from the deceased’s estate. Executors are entitled to claim back their reasonable out-of-pocket expenses that arise from them properly carrying out the estate administration.

However, in this case the executors were accused of claiming several unreasonable and unrelated expenses, resulting in a significant decrease in the amount of the funds available to distribute to the beneficiaries, in conflict with the executor’s duties. Consequently, court proceedings were initiated by the beneficiary and the firm’s Independent Administrator client was appointed to administer the estate in place of the executors named in the Will.

Part of Juhi’s role has involved a careful review and analysis of the executors’ bank statements and expense information to determine what is and is not properly repayable to the former executors.

Accurate accounting, valuing and reporting of chattels is also an important task in terms of the reporting of the deceased’s estate for Inheritance Tax purposes and the distribution of the entirety of the deceased’s estate. In this case, the deceased had several valuable chattels that were sold by a number of auction houses in the years following her death in 2017.

Juhi was therefore required to peruse the statements provided by the auction houses and liaise with them to find out which chattels have been sold and accurately accounted for, which chattels have sold for an undervalue and which chattels remain unsold.

A further interesting and complex aspect of this estate relates to payments to the deceased from her ex-husband during her lifetime. The deceased was divorced but was still being financially supported by her ex-husband for her care and living expenses. Her ex-husband died four years after her and her executors had tried to assert that the monies paid were loans from the deceased’s ex-husband, and repayable to his estate. However, in the absence of evidence of loan agreements, this argument was rejected by HMRC. Instead HMRC concluded that the monies should be treated as failed potentially exempt transfers (‘PETs’). Whereas PETs between a married couple are exempt from Inheritance Tax, PETs between two divorced persons are subject to Inheritance Tax to the extent that the amounts exceed the donor’s annual tax-free exemption.

As the deceased’s ex-husband had failed to survive many of the PETs by a period of seven years, tax became payable on the value exceeding his nil rate band allowance, and as the recipient of the gift, the deceased (or rather, her estate) is liable for that tax.

When filing the IHT400 a lot of care must be taken in correctly reporting the value of gifts, as they can affect the overall Inheritance Tax liability of the estate. Incorrect initial reporting could mean that the estate does not pay the correct amount of tax, resulting in a later demand by HMRC for the additional tax, together with any interest that has accrued on the unpaid sum.

Having now submitted the Inheritance Tax account to HMRC and the application for the Grant of Representation to the Probate Registry, we await the issue of the Grant to enable us to proceed with the rest of the administration of the estate.

If you have queries about contentious estates, please contact either Louise or Juhi who will be happy to help.