By Laura Williams, Paralegal and Elizabeth Potter, Trainee Solicitor.
If you have been appointed as an Executor (or Administrator of an intestate estate) or Trustee, the expense involved with this can be a worrying factor. Here we offer some guidance in respect of what expenses and remuneration, if any, can be claimed from the estate and/or trust assets.
Expenses of an Executor or Administrator (‘Personal Representative’):
If you are a Personal Representative, you will be responsible for arranging the funeral. This can be a costly account and understandably, a concern as to how it will be paid for considering the deceased’s assets will be frozen. The funeral account can be paid directly from the deceased’s bank account to the funeral director. You will need to provide the bank with the death certificate and funeral account. If you pay for the funeral yourself, you will be able to claim the costs back from the estate, however you will not be able to do so until the estate is in funds, which may not be until after the Grant of Representation has been obtained.
Inheritance Tax can also be a big concern for a Personal Representative, as it is their responsibility to ensure it has been paid. Inheritance Tax becomes payable six months from the end of the month that the death occurred, before interest begins to accrue on the balance outstanding. With that in mind, if the estate is in funds, it is also possible for the bank to release funds directly to HMRC to pay the Inheritance Tax.
If there are insufficient accessible funds to pay the Inheritance Tax then the Personal Representative should seek specialist advice as they may need to take out an Executors Loan to pay the Inheritance Tax which would be repaid from the estate after assets such as the property has been sold following receipt of the Grant of Probate.
For further information in this respect, please refer to our previous articles ‘Administering an estate: Where do I start?’ or ‘What are the first steps to take when someone dies?’
Can I claim for my time?
A very common question is whether as a Personal Representative you can claim compensation for your time in administering the estate. Although professional Executors are able to do so, such as a Firm of Solicitors, lay Representatives cannot. Over time, case law has determined that a Personal Representative is not entitled to any allowance for their time, or any commission for collecting rents, acting as auctioneer or banker.
A Personal Representative can however claim for reasonable out of pocket expenses, such as:
- Probate Registry Court fees;
- Travel Expenses;
- Costs associated with the property maintenance, insurance, clearance or sale;
- Postage costs;
- Cost of Death Certificates; or
- Valuation fees.
The above is not an exhaustive list and unfortunately, there is no definitive list available as the list of necessary expenses is often unique to each estate. It is worth noting that although the expenses must be reasonable, a Personal Representative should not be left out of pocket as a result of the administration.
An accurate record should be kept of all expenses incurred and reclaimed as this will affect the sum that the beneficiaries receive. As such, it is important to be in a position to justify the costs if needed.
Expenses of a Trustee
Much like an Executor, a Trustee may only be reimbursed for expenses properly incurred by them when acting on behalf of the trust, such as travelling to trustee meetings. These expenses would be reimbursed from the trust funds or alternatively, any reasonable expense can be paid for directly from the trust funds. It is important to note that a decision would need to be made, in the best interests of the trust, as to whether this should be paid from the capital or income of the trust.
In order to receive remuneration as opposed to merely expenses, a Trustee may be given permission to charge for their services under certain circumstances, for example, if it is expressly stated within the trust instrument (known as a charging clause). If the trust instrument does include a charging clause this will extend the position set out under legislation. There are other situations when Trustees may be able to charge, such as if it is authorised in a court order, or if all the beneficiaries of the trust give informed consent.
If remuneration is not authorised by the trust instrument, legislation permits remuneration of Trustees if they meet certain criteria:
- The Trustee must be acting in a professional capacity;
- If the Trustee is an individual rather than a Trust Corporation, they are only allowed to charge professional fees if the other Trustees agree in writing (If there are no other trustees to agree, the Trustee would only be allowed to charge if it was included in the trust instrument); and
- Lastly, the remuneration of Trustees must be reasonable, taking into account factors such as the size of the trust and the nature of the services being provided.
An agent, nominee or custodian of the trust may be paid from the trust funds if they have engaged in terms entitling them to reasonable remuneration. Those terms entitling remuneration can be specifically stated within the trust instrument or alternatively, would be set out in legislation.
If you are look for assistance or guidance in your role as Executor or Trustee, Irwin Mitchell have specialist teams who will be in a position to assist you with any aspect of your role.