21 Things Beneficiaries Should Know About Inheriting an Estate
Being told that you are a beneficiary of somebody’s Will can raise almost as many questions as it answers. Here are some of the points beneficiaries most often misunderstand — including timing, tax, executors, estate accounts and changing an inheritance.
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Being named in a Will doesn't mean you own the money yet
The assets still have to be collected and the estate administered.
Until that happens, the executors or administrators are responsible for the estate. A beneficiary cannot simply ask the bank to hand over their share or take possessions from the deceased's home.
Debts come before beneficiaries
Funeral expenses, debts, tax and the costs of administering the estate normally have to be dealt with before the beneficiaries are paid.
So even if a Will leaves you £100,000, that does not necessarily mean £100,000 will eventually arrive in your bank account.
Probate doesn't mean the estate is ready to pay out
A Grant of Probate gives the executors authority to deal with assets that require a Grant.
It isn't the finishing line. Property may still have to be sold, investments realised, tax dealt with, debts paid and accounts prepared.
Estates can take longer than beneficiaries expect
There is an old expression called the “executor's year”.
It doesn't mean every estate must take a year, but beneficiaries shouldn't assume that an inheritance will be paid a few weeks after the funeral. Simple estates can be dealt with quite quickly. Complicated estates can take considerably longer.
A fixed gift and a share of the estate are very different
If a Will leaves you a fixed sum, that is normally a pecuniary legacy.
If instead you receive a share of the residue, you receive a share of whatever remains after debts, expenses, tax and other gifts have been dealt with. The final figure may be very different from the value of the estate at the date of death.
One point worth remembering
An expected inheritance is not money in the bank. Property values, debts, tax, administration costs and delays can all affect what is eventually received.
The value of your inheritance can change
Houses can sell for more or less than expected. Investments can rise or fall. Unexpected debts can appear. Professional fees may be incurred and tax liabilities can change.
For a residuary beneficiary, all of these can affect the eventual inheritance.
The executor can also be a beneficiary
This is extremely common.
Someone might appoint their spouse or one of their children as executor and also leave them part of the estate. There is nothing inherently wrong with that, although an executor still has duties to all the beneficiaries and cannot simply favour themselves.
Beneficiaries don't run the estate
Beneficiaries understandably want to know what is happening, but responsibility for administering the estate rests with the executors or administrators.
They will often have to make practical decisions about assets, debts, property and investments. A beneficiary cannot normally insist that every decision is made in the way they personally prefer.
Residuary beneficiaries should pay particular attention to the estate accounts
Estate accounts show what came into the estate, what was paid out and how the amount available for distribution was calculated.
They are particularly important for residuary beneficiaries because their inheritance is based upon what remains. If something doesn't make sense, ask about it before approving the accounts.
You don't normally pay the deceased's Inheritance Tax personally
Where Inheritance Tax is due, it is generally dealt with as part of administering the estate.
There are exceptions and special situations, but the usual position is not that HMRC sends each beneficiary a bill for their share. The tax can, of course, reduce the amount ultimately available to beneficiaries.
Receiving an inheritance can create tax issues of your own
The inheritance itself is not normally treated as income simply because you receive it.
But what happens afterwards can matter. Inherited investments may produce taxable income, an inherited property might produce rental income, and selling an inherited asset later for more than its relevant value may result in Capital Gains Tax.
An inheritance may affect means-tested benefits
An inheritance can affect entitlement to benefits which depend upon your income or capital.
For example, inheritance payments can count as capital for Universal Credit. If you receive means-tested benefits, take advice before assuming the inheritance will have no effect.
Joint assets might not pass under the Will
A house, bank account or other asset held jointly may pass automatically to the surviving joint owner rather than under the terms of the Will.
With property, much depends upon exactly how it was owned. This is one reason why the apparent value of someone's assets and the value actually passing under their Will can be very different.
You don't have to accept an inheritance
A beneficiary can sometimes disclaim an inheritance.
But this isn't simply a way of saying, “Give my share to my daughter instead.” A disclaimer and redirecting an inheritance are different things, and once a beneficiary has accepted or benefited from an asset it may be too late to disclaim it.
You may be able to redirect your inheritance
A beneficiary can often redirect some or all of an inheritance using a variation.
This can be useful where, for example, a parent inherits money they do not need and would prefer it to pass to their children. There are conditions and a strict two-year time limit from the death, so advice should be taken early.
Don't give the inheritance away first and ask about tax afterwards
Giving money away after receiving it is not necessarily treated in the same way as properly varying the estate.
If significant sums are involved, decide what you want to achieve before moving the money.
An executor may make an interim payment
Some estates have enough cash for executors to make payments to beneficiaries before every last matter has been resolved.
But executors need to be cautious. They may retain money to cover tax, debts, professional costs or liabilities which have not yet been finalised.
Personal possessions can cause disproportionate arguments
Money is divisible. Mum's engagement ring isn't.
Photographs, jewellery, furniture, collections and sentimental possessions can cause some of the worst family disagreements during an estate administration. Sensible discussion is usually far better than allowing relatively modest possessions to cause a permanent dispute.
Don't spend an inheritance before you've received it
Anticipated inheritances sometimes get mentally spent long before they actually arrive.
Never commit yourself financially on the assumption that a house will sell for a particular figure, there will be no unexpected debts, probate will be quick, or you will receive exactly the amount you expect.
Inherited pensions have their own rules — and those rules are changing
Pension death benefits don't necessarily follow the Will and the tax treatment can be quite different from ordinary estate assets.
For deaths on or after 6 April 2027, most unused pension funds and pension death benefits are due to be brought into the estate for Inheritance Tax purposes. This is an area where beneficiaries and executors should check the current rules.
Ask questions early if something doesn't look right
Most estates are administered perfectly properly, but beneficiaries shouldn't ignore genuine concerns.
Examples might include unexplained delays, assets apparently disappearing, an executor refusing to provide reasonable information, disagreement over what the Will means, concerns about the validity of the Will, or suspicious transactions before or after the death. Different types of claims have different time limits, so early advice is sensible.
Finally — an inheritance can be an opportunity to review your own affairs
Receiving an inheritance often changes somebody’s financial position quite substantially. It can therefore be a sensible time to look at your own:
- Will
- Lasting Powers of Attorney
- Inheritance Tax position
- Pensions
- Investments
- Trusts
- Lifetime gifts
- Plans for the next generation
The decisions made after receiving an inheritance can sometimes be just as important as the inheritance itself.
This article provides general information for England and Wales and is not a substitute for legal, tax or financial advice about an individual estate.