Receiving an inheritance of any kind is an experience which often provokes complex responses from the bereaved. While the loss of a loved one is one of the most devastating experiences someone can go through, it is usually during that difficult time that first-time property inheritors must be most aware of the common financial pitfalls in their path.
When it comes to maintaining financial stability, inheritors need to be, from the jump, aware of their position and role in the process of inheriting property. Fortunately, there are ways to keep your head above water and avoid the common money mistakes made by first-time property inheritors.
Overlooking your responsibilities as executor
As executor, you can become personally responsible for any mistakes made in the distribution of assets. A misinterpretation of the will can prove financially troublesome, and the responsibility for making up the difference for the other beneficiaries will fall at your feet. Moreover, you can become personally liable as executor for the money mistakes of beneficiaries.
For example, if a beneficiary is bankrupt, as executor of the estate you can become responsible. A bankrupt beneficiary should inform the trustee in bankruptcy should they become entitled to property, and inform the executor of their bankruptcy. If they fail to do so, and the executor acts without this knowledge, the executor is in threat of being sued, not the beneficiary, law firm Hugh James explains. In order to avoid the costly fallout of any surprise revelations, executors should conduct a bankruptcy search prior to the distribution of assets. It is vital that you understand your responsibilities as executor.
Failing to get to grips with inheritance tax
Understanding that, as executor, you could become personally responsible is crucial – particularly when it comes to navigating the complicated process of establishing how much Inheritance Tax you need to pay. Conducting valuations of the estate – including the inherited property and its contents – is necessary to calculate how much tax you will need to pay.
As Law Donut points out, Inheritance Tax is payable if the estate’s value exceeds the Inheritance Tax threshold, which stands at £325,000 per person.
Not fully understanding Inheritance Tax can really set first-time property inheritors back as the process rolls on. For example, some beneficiaries overlook that, as the UK Government’s website outlines, gifts given by the deceased may be liable to tax if they were made within seven years of their death. To avoid mistakes, you could enlist a solicitor’s help if the estate is particularly valuable and Inheritance Tax is likely to be payable.
Not thinking carefully about if and when you need to seek help
Inheriting property is certainly not as simple and straightforward as you might assume. It is important to know if and when to seek help and expert advice. If the estate you are executor of is particularly valuable, you may especially benefit from legal advice. For some first-time property inheritors facing a complicated process of applying for probate or the prospect of clearing the property for sale, defaulting to seeking help from solicitors and estate agents seems the easiest option.
However, this isn’t always the most cost-effective option, and can lead to inheritors getting stuck paying fees they could have avoided. While inheritors would be forgiven for becoming overwhelmed in the early stages, there are financial benefits for those who take matters into their own hands. For example, those who choose to go down the route of selling an inherited property would save time and money by clearing it for sale themselves.
Failing to properly weigh up your options when selling an inherited property
Many first-time inheritors opt to follow the traditional strategy of selling their property through an estate agent without properly considering other options available to them. Indeed, while choosing to sell directly might seem daunting, doing so could actually save a lot of money. First time inheritors looking to sell their property might find themselves in lengthy and costly contracts with estate agents, who charge for things like probate valuations.
If a property takes some time to sell, this can become a costly affair. First-time inheritors should consider other avenues open to them. For example, Probate Purchasers guarantee to make you an offer, and are quick and cost-effective. Selling your property in this way is completely free: with Probate Purchasers, you incur no agent’s fees, and they could even cover any legal fees.
Failing to be sensitive to the feelings of other beneficiaries
Understandably, emotions run particularly high in the aftermath of a loss. Grief manifests in different ways, and there is no right or wrong response to losing a loved one. First-time inheritors sometimes struggle with the responsibility of managing the deceased’s estate, particularly when there are multiple beneficiaries with differing opinions.
For example, the discussion of choosing what to do with a property can quickly derail if beneficiaries have opposing feelings towards the property in question. Some might prefer to sell it on quickly, and others may feel that the sentimental value of the property outweighs any financial gain they stand to make. Executors and beneficiaries don’t always appreciate that the contents of the property – and the property itself – aren’t just sentimental reminders of a loved one. These contents are assets, which need to be valued and recorded accurately and distributed fairly.
Executors therefore have the responsibility to try and strike a balance between compassionate sensitivity to all beneficiaries and a proactive approach with regards to sorting out what happens to the property. By ensuring that everyone is on the same page, executors can avoid any fallouts that may occur further down the line and could, in many instances, lead to financial trouble.
Losing a loved one is a tremendously difficult event to comprehend, and the complexities of dealing with their estate can easily overwhelm inheritors. Failing to take care of the financial aspect of the process will only compound any emotional stress already felt by first-time inheritors. By taking steps to avoid common mistakes, executors can ensure that the process of inheriting a home and choosing what to do with it can run as smoothly as possible whilst maintaining financial stability.