This article explores how executors can manage beneficiary expectations and inheritance tax in a volatile investment market.
The investment market
2022 has produced many surprises after an already surprising two-year period. The re-opening of the world post Covid-19, the Russian invasion of Ukraine, political leadership challenges – to name a few. Such events have inevitably impacted the global market and created uncertainty.
Duties of an executor
An uncertain market can complicate the duty of executors and administrators (“executors“) to maximise estate assets, particularly shares and investments. Inheritance tax is calculated on the value of assets at the date of death, leaving executors and administrators with a concern if the value of shares falls between the date of death and sale. More inheritance tax will have been paid leaving a net proceeds figure that is less than expected. Couple this situation with managing the expectations of beneficiaries concerning the amount they may inherit and it can be a challenging situation for all. Throughout the process, it will be key that investment advice is sought.
The views and risk appetite of the beneficiaries will be important for executors to consider when timing a sale. Some beneficiaries may wish to wait for the recovery of the share price, others may prefer an immediate sale or for the shares to be transferred to them. This is if there is any choice, in some cases all or some of the investments may need to be sold as soon as possible to settle inheritance tax.
Collating the views of the beneficiaries at the outset and keeping them informed is key for executors during the administration of the estate. Practically, if there are many beneficiaries involved, it will be helpful to agree on a lead beneficiary with whom to communicate and from whom to receive instructions.
Fortunately for executors, there is a relief to allow for the recovery of inheritance tax where a loss occurs. Loss relief is available on qualifying investments where shares are sold for less than the date of death value within twelve months and the claim for the relief is submitted within four years from the end of the twelve-month period. Informing the beneficiaries of this available relief, alongside healthy communication, will facilitate as satisfactory an outcome as possible for all concerned.
Pre death planning
To keep options open for executors, testators should arrange for investments to be in nominee names as part of their estate planning. This will allow executors to sell investments before the grant of probate is obtained. The process of obtaining a grant of probate is often subject to delays so this option allows executors not only to sell the holdings without waiting for the grant of probate but also to action investment advice on when to sell.