What Are the Biggest Legal Pitfalls During the Inheritance Process?

Passing on wealth and property requires careful planning early on to avoid legal complications, excessive tax liabilities and emotional stress later down the line. Many of the issues that often arise can be avoided with proper estate planning. This includes creating a will or trust, and instructing an executor to carry out the estate administration process when it is time for the estate to be passed on.

The team at Percy Hughes & Roberts specialises in Trusts, Wills, and Probate services. Here, we discuss the most significant legal pitfalls that people face when planning for the administration of an estate and how you can avoid them.

The Consequences of Not Having a Will

If a person dies without a will, they are said to have died "intestate," and their estate is distributed according to the rules of intestacy. In the UK, these rules are strict and may not reflect the deceased's personal wishes or the needs of their loved ones.

Under the intestacy laws, the distribution of assets follows a set formula that prioritises close relatives such as spouses, children, and parents. This can lead to unintended outcomes. For instance, if you are in a long-term relationship with someone but are not married or in a civil partnership, your partner will not be entitled to inherit your estate. Unfortunately, under intestacy rules in the UK, unmarried partners have no automatic right to inherit. This lack of protection can leave a surviving partner financially vulnerable, especially if the family home or other assets were solely in the deceased’s name.

Meanwhile, if you are living apart from a spouse or civil partner, but you are not formally separated or divorced, they will inherit the estate even if this goes against your wishes. In cases where there are no surviving relatives recognised under the rules of intestacy, the estate could pass to the Crown.

As such, the absence of a clear and legally binding will can lead to disputes among family members. Differing expectations and assumptions about what the deceased would have wanted can cause rifts, resulting in legal battles. It will ultimately be up to your spouse, or anyone else who inherits your estate under the intestacy laws, to decide what to do with your funds and assets. The best way to avoid these pitfalls is to have a properly executed will.

Understanding Tax Requirements for Wills and Trusts in the UK

The main taxes that may affect your estate include Inheritance Tax (IHT), Income Tax, and Capital Gains Tax. These can impact the value of the estate and may even lead to legal issues if not handled appropriately. However, with careful estate planning, it is often possible to limit or mitigate your tax liability, and enable your family to enjoy as much of your estate as possible.

IHT is charged at 40% on the value of an estate that exceeds the tax-free threshold (also known as the "nil-rate band"), which is currently set at £325,000. There are allowances and reliefs, such as the residence nil-rate band, that can reduce the amount of IHT payable if you leave your home to your direct descendants. Additionally, assets left to a spouse or civil partner are generally exempt from IHT. A professionally drafted will can help you take advantage of these allowances and structure your estate in a way that minimises the IHT burden.

Income Tax is incurred on any income generated from the estate’s assets (e.g., rental income from properties, dividends from shares). If a trust is set up as part of the estate planning process, the income generated by the trust may be subject to Income Tax. Discretionary trusts are taxed at a higher rate than other types of trusts, so your choice of trust structure is also vital. 

Capital Gains Tax is payable on any profit made when assets such as property or shares are sold or transferred. Trusts may also be subject to the tax on the disposal of assets, though they benefit from certain exemptions and allowances. By carefully planning the timing of asset sales and using available allowances, a solicitor can help you to minimise the impact of this tax on the estate. 

Choosing Executors

An executor is the person who takes legal responsibility for the distribution of the contents of a will or trust. They will be named in the will and have a legal obligation to follow its instructions. An executor can be a family member or a trusted friend, and you may wish to appoint more than one if the estate is complex and to cover the situation where an executor dies before you.

Executors are tasked with a wide range of duties, including locating the will, valuing the estate, applying for probate, paying off any debts and taxes, and distributing the assets to the beneficiaries. This can be intricate and time-consuming, especially when the estate includes multiple properties, investments, or business interests. Executors must also ensure compliance with legal requirements and deadlines, which can be challenging without professional guidance.

There are time commitments that come with being an executor, and it can be stressful. The process of administering an estate can take several months or even years to complete, depending on the complexity of the estate and whether disputes arise. Executors must navigate this process while balancing their own personal and professional commitments, which can be difficult. Choosing an unprepared executor can lead to mistakes or delays in the management of your estate.

Executors can be held personally liable for any mistakes made during the administration of the estate. If an executor undervalues an asset, pays out the beneficiaries incorrectly, or fails to settle outstanding debts and taxes before distribution, they could be held financially responsible for rectifying these errors. This risk of personal liability can be particularly daunting for executors who lack legal or financial expertise.

Before choosing someone to act as your executor, you should consider these points and decide whether they are up to the task. You should also give them time to think about this and decide whether or not they are comfortable taking on the responsibility.

The Benefits of Professional Executors

Choosing a professional executor can be more reliable than entrusting the responsibility to a family member. A professional executor such as a solicitor can bring a wealth of expertise and experience. They can make sure the estate is administered smoothly and in compliance with legal requirements, such as filing Inheritance Tax returns correctly. 

Here are some of the key benefits of appointing a professional executor:

• Expertise and experience: our professional executors have extensive knowledge of inheritance laws and the estate administration process. We can handle any complications that may arise, whether that means dealing with diverse assets, managing tax issues, or resolving disputes.

• Impartiality: a professional executor provides an objective perspective, which can be invaluable in reducing the risk of family disputes. When an executor is a family member or close friend, personal emotions and relationships can complicate the process, potentially leading to conflicts. In contrast, a solicitor acts as an impartial party, making decisions based on the law and the best interests of the estate. In this way, we can help to maintain relationships among you, your family and any other beneficiaries.

• Compliance and efficiency: the legal and financial aspects of estate administration are complex, and non-compliance with statutory requirements can result in financial penalties and other severe consequences. A professional executor from Percy Hughes & Roberts Solicitors will help you accurately value the estate and file the necessary documents and pay any taxes owed. This minimises the risk of error and expedites the process, so beneficiaries receive their inheritance more quickly.

• Relieving the burden: appointing a professional executor also alleviates the administrative and emotional burden on family members during an already difficult time. Executors are responsible for numerous tasks that require time, attention, and expertise. By appointing a solicitor, you can ensure that these responsibilities are managed with care and precision, and allow your loved ones to focus on their own healing.

By entrusting the administration of your estate to a professional executor, you can have peace of mind knowing that your wishes will be carried out correctly and that your beneficiaries will be cared for. This proactive step can significantly reduce the likelihood of disputes and ensure a smooth inheritance process.

How Percy, Hughes & Roberts Can Help

We understand the intricacies and emotional complexities involved in the inheritance process. Our Will Trusts and Wills & Probate services are designed to provide comprehensive support to ensure that your estate is managed in accordance with your wishes and in compliance with legal requirements. By creating a proper will with the support of solicitors, and assigning executors you can trust, you can prepare your estate for the benefit of your loved ones and know that administration will be handled smoothly and efficiently.

Whether you need assistance in drafting a will, setting up a trust, or administering an estate, our team is equipped to provide expert guidance tailored to your unique circumstances. We aim to make the process as straightforward and stress-free as possible to offer you and your loved ones the peace of mind you deserve.

With a proud history of serving our community in Birkenhead, Liverpool and the Wirral, we are committed to providing high-quality legal services with a personal touch. Choosing Percy, Hughes & Roberts means entrusting your estate to a firm that combines legal expertise with a compassionate, client-focused approach. We are here to guide you through every step of the inheritance process, so your legacy is preserved and your loved ones are cared for.

Contact Percy Hughes & Roberts

To speak to the Wills & Probate solicitors at Percy Hughes & Roberts, call us for a no-obligation phone consultation today on 0151 666 9090. Alternatively, you can fill out our online enquiry form to arrange for us to get in touch at a time that's suitable for you.