The office of executor is a position of huge responsibility and can often become a burden if due care and diligence is not taken at every turn. The annals of law are littered with cases of executors falling foul of negligence and even misconduct, often paying a heavy price for their actions.
Broadly speaking, it is the responsibility of the executors to make ‘reasonable’ enquiries into the affairs of the deceased to ensure that all assets are identified and valued correctly. As a result of current inheritance tax (IHT) law, there is an additional requirement to identify any gifts made by the deceased in the seven years prior to their death. Any such gifts would be deemed part of the estate – a way of preventing an individual from disposing of their assets immediately prior to death, thereby defeating inheritance tax.
But occasionally it is the beneficiaries and not the executors who are on the wrong end of a court decision. The recent case of Hutchings v HMRC  should provide some comfort to all those executors struggling to carry out their fiduciary duties in accordance with the law.
In this instance, the professional executors had submitted the inheritance tax account based on the responses (or lack of!) of the beneficiaries. They had written to each beneficiary asking them to disclose any lifetime gifts that they may have received from the deceased. This question was again put to them at a face-to-face meeting.
Only one of the beneficiaries responded, by saying that she was not aware of any gifts.
Two years later, as a result of a tip-off, HMRC learnt that the deceased had made a substantial lifetime gift to one of the beneficiaries, Clayton Hutchings. The sum of £450,000 had been transferred into Clayton’s Swiss bank account just a few months before his father’s death.
HMRC sought to recover the additional IHT through the beneficiary. Whilst Clayton Hutchings paid the additional tax, he did not accept that he should be liable for the £87,000 penalty imposed. His lawyer argued that his father’s executors had not made it sufficiently clear to him that he must declare all lifetime gifts, and that the letter they sent him asking for disclosure of gifts was ‘gibberish’. He also criticised the executors for not thoroughly searching the late Mr Hutchings’ home for relevant documents, which might have disclosed the gift to them.
The court did not accept this argument and ruled that the executors should be entitled to rely on the information provided to them and cannot be expected to search a house for every document. Further, Hutchings had been asked at least twice about lifetime gifts and had failed to respond.
Perhaps this case should serve as a warning to executor and beneficiary alike?
Beneficiaries beware – a failure to give frank and honest answers to executors’ questions could result in a substantial fine.
As an executor, treading the line between diligence and common-sense can be confusing and costly.
At Barrett & Co our experienced solicitors have years of experience in assisting executors in the administration of estates and know the pitfalls and areas of risk.
If you the executor of an estate and would like some advice or assistance, contact a member of our Private Client Department.