Paying Out in Sequence

The order in which the tax-collector, creditors, and beneficiaries receive money from the deceased's estate is set out in law. As an executor or administrator it's your legal responsibility to ensure that you follow this order of priority when distributing the estate:

Paying Out in SequenceHer Majesty's Revenue & Customs (HMRC). If inheritance tax is due on the estate, then it has to be paid before probate or letters of administration are granted (refer to Chapter 12 for more on these).

Paying Out in SequenceCreditors. Next in line, this description covers anyone who can prove that they are owed money by the deceased.

Paying Out in SequenceBeneficiaries. Finally comes anyone set to inherit under the terms of a will or under intestacy (where there is no will).

Paying Out in Sequence

First and foremost the deceased's remains must be disposed of properly. The cost of the funeral may swallow a small estate. If this happens, then the beneficiaries, creditors, and even the tax authorities miss out.

Paying Out in Sequence

Inheritance tax (IHT) is due on the estate after funeral expenses and money owed to creditors is subtracted. So if the assets of the estate are worth £317,000 – £17,000 above the starting level for IHT (£300,000 2007/08 tax year) – but the deceased owed £20,000 and £5,000 was spent on the funeral, then the estate for IHT purposes is valued at £292,000 and no tax is due. Or, stated another way, deduct the liabilities from the assets to calculate the net estate. IHT is due if the net estate exceeds the threshold.

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