The Execution

It’s easy enough to die, the rest is where the trouble lies. The dead person is referred to as “The testator”, without a will, the personal representative is called “The Administrator” and with a will, the “Executor”.

The executor of anyone’s last will and testament is pretty scary – my Executor has to make sure that my last wishes are granted with regards to the disposition of all my assets, property and possessions (estate). They are accountable for any mistakes made.

“Being named as Executor in a Will can bring with it complicated, difficult and time-consuming duties which often take up to a year to complete.

It is crucial to get everything right because the Executor is legally responsible for administering the estate in accordance with both the terms of the Will, and the law. An Executor is responsible for everything they do or fail to do, in respect of the estate.

Acting as the Executor of a Will can be a very daunting prospect because the role carries with it a considerable amount legal, tax and administrative responsibilities. An Executor’s responsibilities last for the duration of the administration of the estate and can also carry on into any ongoing Trust.”
Co-op Legal Services

The law requires that every Executor act in good faith to fulfil their duties with the utmost honest and diligence (fiduciary duty). The Executor is not entitled to any proceeds, but can charge a fee.

My Administrator or the Executor of my will is responsible for making sure that any debts and creditors that I might have at the time of death are paid off, including fees, charges, taxes and the cost of my funeral – and then that any remaining money or property is distributed according to any wishes I may have stipulated in my will/ trusts.

I don’t think dying intestate is the best option, so I need to draw up a will and think of someone to be my executor.

I have rooted about online, and it seems quite onerous to be an Executor. I wouldn’t fancy the job!

  • First of all, they will have to decide whether court is required to prove that the will is valid;
  • Then they have to apply to the court for the Grant of Representation – which is the confirmation of legal authority to administer the estate.This is called the Grant of Probate (but if there is no valid Will, this is called Letters of Administration).
  • Then they have to find all my assets somehow;
  • They usually have to set up a new special bank account in the name of the estate to make paying off debts to creditors easier;
  • The funds in the estate’s bank account can be used for making mortgage, insurance and other recurring payments that need to be paid during the administration of the will. They are in charge of all that;
  • Keep estate accounts;
  • They have to keep all my assets safe until the will is executed;
  • They have to identify and deal with any valid claims against the estate.
  • Then they will have to decide which of my assets should be sold to be divided up among the beneficiaries;
  • They have to complete and submit the Inheritance Tax (IHT) return and pay any Inheritance Tax owed;
  • Complete the relevant Income Tax and Capital Gains Tax returns and pay any outstanding tax owed;
  • They would have to find – and contact – all the people named in my will to tell them and then to make sure they get their inheritance;
  • They would have to find all my investments, bank accounts, credit cards, memberships, accounts, state benefits, etc – and cancel/ notify them all of my death – and settle everything;
  • Property that is given through a will should be given as it is recorded. However, if there is other property that is not named in the will, the executor needs to check with a lawyer about what the law states should happen.

This is a LOT of work – and it’s responsible and serious, even with a guy like me with simple affairs. I don’t know if it is the best idea to burden my widow with all that as well as funeral arrangements, grief and dealing with family during bereavement.

“Anyone aged 18 or above can be an executor of your will. There’s no rule against people named in your will as beneficiaries being your executors. In fact this is very common.

“Many people choose their spouse or civil partner or their children to be an executor. But that doesn’t mean they have to write them out of the will.

“Up to four executors can act at a time, but they all have to act jointly so it might not be practical to appoint that many people.

“It’s a good idea, though, to choose two executors in case one of them dies before you do. For example, you might choose one family member and one professional, like a solicitor or accountant.

“Professional executors tend to charge, but it can be helpful to have someone involved with specialist knowledge. You can appoint substitute executors to cover the situation if your first choice dies before you…

“Choosing a solicitor as one of your executors makes a lot of sense, especially if sorting out your things is likely to be complicated – they’re experienced at the job and know their way around legal, tax and property issues.

“If the financial side of your will is especially complicated, it could be a good idea to choose a bank or accountant as one of your executors.

“Of course, these professional specialists will charge you for their work. This happens in one of two ways:

  • By sending a bill for their time when your things have all been sorted out
  • By taking a share of the total value of your estate – this will be written into your will

“Make sure you understand how your solicitor, bank or accountant will charge for being an executor and how much each option will cost before you commit yourself.

“As a last resort, there’s a government official called the Public Trustee who will be your executor if there’s really nobody else who can do it.

“The most common situation where the Public Trustee will step in is if your will leaves everything to one person and that person can’t act as executor himself or herself – for example, a child or an adult whose disability means they are incapable of managing financial affairs.”
moneyadviceservice

So far, it seems, I need to put on my thinking cap about who to appoint as Executors and Trustees. Just now I am leaning away from burdening my family. It may be additional cost, but perhaps a lawyer would be a good idea.

It seems to make sense at this time to have a lawyer on board to put together a will and perhaps also look at sharing the executor role and possibly act as a trustee too.

 

Doing Nothing

What if I simply decided to do nothing at all?

After all, why get all hot and bothered when my wife will get everything anyway? I am likely to die first, so the problem of the children’s inheritance is really down to her – not me; she’ll be fine inheriting all my stuff automatically.

This is called intestacy.

My estate is divided in accordance with what are commonly known as ‘the rules of intestacy’, which are derived from different statutes. It breaks down to (a) who is the administrator of the estate ( ie “personal representative” – which is in my case probably my next-of-kin – ie widow), and (b) who gets everything (next of kin – ie widow again).

The only complications of modern lives – such as people with previous marriages (or relationships that bore children), civil partnerships, transgenders, adopted children, jointly owned properties, trust funds, debts, hire-purchase agreements or financial arrangements of that ilk – simply do not apply to me and my situation just now.

My life is pretty simple – wife and children, no HP, nothing being paid up or paid back. As simple as it gets.

The worst that can happen to me is that my wife dies first, but in terms of intestacy, it’s still basic and straightforward.

Nevertheless, I have some concerns. A Personal Representative / Administrator (ie my widow) is personally financially liable for any loss resulting from a breach of their duty, even if the mistake was made in good faith; such as

  • Failure to pay my debts and liabilities;
  • Failure to pay all Inheritance Tax, Income Tax & Capital Gains Tax due.
  • Failure to distribute funds to an individual who is successful in their claim against the estate;
  • Failure to identify, and correctly distribute funds to the beneficiaries; including those initially not known about.

This can go on longer than I would have thought; my creditors can potentially make a claim against my widow/ Administrator for up to 12 years after my death! And disappointed family members or dependants have up to 6 months to make a claim after the Grant of Representation has been issued.

There are always further unknowns – so it is a real concern.

Doing nothing means leaving all the bother and fuss to my widow – right at the time she doesn’t need such aggravation.

Is she really the best one to be Administrator? I am not so sure this would be a great idea.

Fact is, if I decided against dying intestate, and went for arranging a will – is she the best person to be the executor? If I get a life insurance policy written into trust, should I get another trustee or two to help out?

And another thing – as husband and wife, we are a couple – and so we do things together – so what would happen to the children if something happened to us both?

How would funerals be managed and paid for?

All things considered here, it is really not the best idea to do nothing. Intestate is not a good state.

Trust

A trust is simply a legal arrangement that allows the settlor (me) to bequeath my life insurance to the beneficiaries.

This is looking like the best idea so far.

If I did nothing, my bank accounts and investments would be immediately frozen. Over-50s and term insurance don’t seem all that great now, and the worst are the funeral plans. Life assurance seems like the best deal – you get money out, it can be accessed outside of the estate (not frozen up), and you can then negotiate with everyone to get a package you actually want – and can pay for.

But before we can go whoop-de-do finally, the people I leave my millions to will get hit with tax, so I need to look at having my life assurance made into a trust.

The current rate of Inheritance Tax (IHT) is 40% of the estate above the nil rate band of £325 000.

An example is a life insurance pay-out of £600 000:-
Take the nil rate band of £325 000 off – (£600,000 – £325,000) to get £275 000.
40% tax on this £275 000 equals a tax bill of £110 000, reducing the pay-out to the family of £490 000.

If I  put my life policy in trust, it will not form part of my estate and the beneficiaries will receive ALL of the money quickly without having to wait for a grant of probate.

As the settlor, I decide who will get the pay-out, and even how it is spent. For example, I could insist that any proceeds are used to fund my children’s education.

However, it’s not as simple as it seems; a trust needs THREE trustees minimum, and once a policy is put into trust it is almost impossible to cancel the arrangement.

All three trustees take legal ownership of the trust and look after the deeds which govern it. So I wouldn’t own the trust; it wouldn’t legally be mine.

Okay, I can appoint myself as a trustee (settlors can be trustees too), and it seems reasonable to make my wife a trustee, but now I’m stuck – who the heck can I pick to be the third trustee?

While we are all duty bound to act in the interest of the beneficiaries at all times, I alone have responsibility to pay the premiums for the life policy.

I understand that it is a straightforward process to set a trust up – I just ask the insurance company for the forms. Although a trust option should be offered when taking out a policy, an existing policy can be put into trust later on.

There are various different types of trust, so the matter needs some thought, especially as different types of trust can be treated differently for inheritance tax. The trust itself might even have to pay tax!

  • A “Discretionary Trust” is a flexible arrangement that would allow me to add beneficiaries and give guidance to trustees in a “letter of wishes”.
  • An “Absolute Trust” is more rigid because the beneficiaries cannot be changed.

The bottom line is that I ought to seek out good legal advice on trusts, and I need to decide on who the third trustee could be.

At the moment, though, it is looking pretty good. I wonder what the premiums are?

Insurance

Life Assurance provides for my family upon my death. The trouble is that the taxwoman jumps in.

Avoiding the tax burden might be why people go for insurance rather than assurance.

For Term life insurance policies – I need to decide how much cover and pick a term (length of time for the cover to run).

  • Level cover  – is where the pay-out on death remains the same over the term of the policy;
  • Decreasing cover – is where the pay-out on death reduces in line with a debt, such as a mortgage;
  • Increasing cover – is where the pay-out increases either with the rate of inflation, or by a set amount every year.

It only pays out on death during the term – so if death doesn’t happen, all the money spent on the insurance is gone. Luckily I do not have pre-existing medical conditions, which make premiums expensive, but I am over 50.

There is something called Over-50s life insurance – these are plans that promise a fixed lump sum on death. The problem with this, as far as I can tell looking around online, is that I would probably have to make monthly payments for the rest of my life.So the longer I live, the more it costs. Not only that, but it is possible that the pay-out on death would be less than the amount paid in premiums. There are also quite onerous cancellation charges – and if a single monthly payment is missed for whatever reason, I would probably not get a pay-out at all!

On the other hand, I understand that there are plans that link the pay-out with inflation, and other over-50 plans that only require premiums until I reach a certain age. These tend to be more costly, though.

Is there a way to avoid the tax burden but steer clear of insurance policies?

Yes, life assurance pay-outs are subject to inheritance tax (IHT) because they form part of the estate upon death….unless the life assurance policy is placed in trust.

Putting a policy in trust also helps beneficiaries avoid probate – meaning they can get hold of the pay-out without a lengthy legal process. That a winner right there.

I am thinking now that I need Life Assurance in Trust to cover the cost of my funeral and to provide for my family without a tax burden upon my death.

This is what I need to look at next.

 

 

Life Cover Death

OK, so there is a risk of unexpected costs in leaving my body to research, meaning that I need to still consider paying for funerals somehow, and if funeral plans are out of the question, then how can I make sure the costs are covered?

I have savings in various accounts – but I just realised that these accounts get frozen as soon as I die, and becomes part of my estate – so I am now worried that my wife will be unable to access money to cover my funeral costs – or even to continue with the costs of running the house and family.

I suppose I could simply set up a joint account and then whoever doesn’t die gets sole control of the account.

Some kind of investment is required. That much is clear – but how do I arrange this to work upon my death? How do I arrange for the investment to be accessible by my widow or family, and not be frozen into my estate?

Maybe if I did not leave a will, everything would simply transfer to my widow, and vice versa. I don’t know how quick the transfer may be. I’m guessing that the tax man might want to be involved, which might mean there is a financial problem for at least a period – and people will want paid – fees and charges as well as tax. That’s not the best time for complexity – and that is exactly what I am trying to avoid.

I think people exploit the situation to their own advantage. I can fully appreciate how attractive it is to allow someone else to take care of everything – and you just hand over money – whatever it costs.

This could be where Life Assurance comes into play.  If I remember rightly, there are two main types – Term and With-Profits (or Endowment) policies.

The Term insurance is about paying a small premium every month until the term is up – it only pays out on death during the term, whereas life assurance policies can be joint, can be cashed-in, offer bonus pay-outs on death and so on.

This is all from memory of getting mortgages over the years – I remember getting a Capital & Interest Mortgage (constant net rate annuity mortgage), and each monthly payment was made up of repaid capital and calculated interest – and I had to get Term insurance as security for the loan – to cover paying-off whatever capital was outstanding on death so the lender wouldn’t lose out and my debt would not be inherited.

Whenever I had an Endowment Mortgage, I paid only interest each month, and the policy was designed to pay off the whole capital on my death – with “terminal bonuses”. These mortgages got a good name because of this, but then got a bad name because they failed to pay off the capital when the mortgagee did not die before the term!

It looks like I need to talk to a financial adviser. The trouble is deciding on the amount of cover – I still do not know how much a funeral will cost today let alone in years to come!

The Free & Easy Funeral

One way to avoid a lot of fuss and cost is to simply “leave my body to science”.

This seems like a brilliant plan all round because not only is it altruistic, helpful and meaningful – it also relieves the burden of arrangements on family and friends, and is free from costs too!

To do this, I need to get in touch with the Anatomy Department of Glasgow University Medical School (the only others are: Aberdeen, Dundee, Edinburgh, and St Andrews), to get advice on the procedures – such as getting on the Bequest Register. I would also need to keep a written statement of the intention to benefit medical science among my papers or in my will so everyone would know about this decision.

“In normal circumstances, the costs of removing the body, and burying or cremating it are normally borne by the Medical School. A body used for teaching purposes will normally be cremated or buried within 3 years at a special memorial service”.
– Scottish Government Website

However, there is a catch: bodies are normally refused if there has been a post mortem examination, if any major organs have been removed, if the body is in a bad condition, or if the Medical School doesn’t need it (it has enough cadavers).

University of Glasgow, School of life Sciences, Anatomy Facility – telephone 0141 330 5397

It’s difficult to get information on specific details about donating a body under certain circumstances – for example, if I die at home, will the University pay for collecting my body? Also, if I am on the Bequest Register at Glasgow University, but die abroad – say, in England & Wales – would costs of repatriation to Scotland be covered or could the Bequest be transferred to a Medical School nearer to the place of death?  If the body has organs removed, then the Medical School will reject the body, which means I can’t be an organ donor and leave my body to science!

“I was amazed to discover that a man donated his body to medical research – thinking that he had avoided all costs. He told his family he had left his body to science and not to worry – but universities and hospitals are not legally obliged to accept donated cadavers, and they didn’t need that body – so the family were hit with unexpected costs!”
Funeral Poverty is a Thing

What all this boils down to is that while it may be a good thing to leave yourself to science, it cannot be banked on as a way to get a free funeral, so finances still would need to be in place – just in case.