Understanding and preparing estate accounts

Estate accounts are one of the most important parts of the estate administration process. They document all things financial which have taken place throughout. By preparing estate accounts, it provides clarity and transparency to you as executors, the beneficiaries and any third parties involved.

Here in this guide, we hope to help you understand what information you will need when preparing estate accounts. We will also explain what they are, who should prepare and sign them, and who can see a copy.

What are estate accounts?

Estate accounts are a set of statements providing information on the finances of the estate. This information including assets, liabilities, administration expenses and any monies paid out by the estate. They show the final balance left in the estate at the end of the administration period. You will pay this final balance to beneficiaries named in the will or under the intestacy rules.

In the UK, it is a legal requirement for the executors (or administrators, if there is no will) to prepare estate accounts. This is because the executors are responsible for administering the estate.

For more information on what an executor is and what your duties are, click here: What is an executor?

What do they look like?

There is no set format as to what estate accounts should look like, but they usually consist of the following pages:

·        Summary page, sometimes referred to as a synopsis

This page gives essential information to someone reading the estate accounts and includes the full name and date of death of the deceased; the date of the will, if there is one; the full names of the executors or administrators acting in the estate; a summary of the gifts made in the will and full names of the beneficiaries.

·        Summary of the estate at death

This page gives a detailed breakdown of the value of all assets and debts of the estate at the date of death, including property, bank accounts, investments, mortgages and credit cards. You must record the total amount of assets, and then the estate value minus the debts, in the probate application papers and any inheritance tax papers. This page is not a record of how much will be left to pay to beneficiaries, but a snapshot of the estate values at the date of death.

·        Inheritance tax account

This page will set out whether any inheritance tax is to be paid. If so, it will also include a calculation of how much must be paid. Not sure if you need to pay inheritance tax? Read our guide: Do I need to pay inheritance tax?

·        Capital account

This is a detailed account of all monies received into and paid out from the estate since the date of death. It also includes any changes to the date of death valuations, for instance, if an asset has been over or under valued. The capital account will usually include details of all administration expenses paid, such as funeral and legal costs, and other expenses incurred on behalf of the estate.

·        Income account

This provides a breakdown of all income, such as rental income, interest and dividends, received by the estate since the date of death, and any income tax which you have paid on this income.

·        Distribution account

This final page sets out the balance of money available to pay to the beneficiaries. You must also detail here if a beneficiary has been left a specific asset, such as a house or a car.

Can I prepare them myself?

Yes, of course! As an executor, you are responsible for preparing the estate accounts and ensuring that they are accurate and represent a true picture of the estate. Because of the complexity of preparing estate accounts for some estates, and the time involved, many executors choose to instruct a legal professional to do this on their behalf. This is a preferred option if the estate is not straightforward. Bear in mind that incorrect accounts, or a failure to prepare them at all, can result in legal penalties and delays in the estate administration.

Who signs the estate accounts?

To avoid any disagreements with the distribution of the estate, it is recommended that you ask any beneficiaries receiving a share of the estate (a residuary legacy) to approve and sign them before any monies are paid out. This is not, however, a legal requirement. You must, as executor, sign and approve the estate accounts before you pay monies out.

Who can request to see a copy?

You may receive requests from beneficiaries or third parties to provide them with a copy of the estate accounts. You should keep in mind that not everyone is entitled to see a copy. Providing a copy is usually limited to any other acting executors, beneficiaries receiving a residuary legacy, or government bodies. HMRC may request to see a copy if they have queries about the values of assets.

A residuary beneficiary will be able to see from the accounts that you have calculated their legacy correctly. The accounts also evidence that you have properly managed and distributed the estate.

If a residuary beneficiary wishes to see the accounts, you must provide them. Failure to do so can result in them applying to the Probate Registry for an order for you to provide them.

If you are still unsure if someone has a right to see the accounts, seek legal advice for clarification.