Executor expenses – funeral costs, inheritance tax and more

When making your will, it is important to consider who you appoint to act as executors. This role carries great significance as those appointed will be responsible for ensuring that your wishes are carried out.

Depending on the terms of your will and the assets in your estate, you may consider appointing family members or friends to be executors. This can often be seen as being more straightforward than having a professional executor appointed. However, an issue which is often overlooked or misunderstood is that non-professional executors are, in most cases, not able to charge for their time spent carrying out their duties.

Given the amount of work involved with administering an estate, some non-professional executors often submit claims to be reimbursed for their time in dealing with the estate.

The general rule is that executors may only charge for out-of-pocket expenses for the execution of the duties of the office.

Exceptions to the general rule are:

• Where the will contains an express charging clause – which is commonly the case – and the executor is acting in a professional capacity, such as when a firm of solicitors are appointed
• Where the will does not contain such a charging clause, a professional executor may receive reasonable remuneration if each of the other executors agree in writing

This topic has been the subject of a number of cases before the courts and the outcome of those cases show that executors have no right to profit, even though they may have spent considerable time and effort carrying out their duties diligently – and even if their own affairs have suffered as a result of the time spent in undertaking their executor duties.

One area which is often raised by executors are costs relating to the deceased’s funeral and what can be reimbursed from the deceased’s estate.

Most costs incurred by the executors relate to events taking place post-death and therefore are not deductible for inheritance tax purposes. The main exception to this relates to funeral expenses, and HMRC accept ‘reasonable’ funeral expenses to be deducted from the estate for the purposes of inheritance tax. There is no statutory definition of ‘reasonable’ and each case is viewed on its own merits.

It appears from guidance provided by HMRC that one area of expenses relating to funerals which will not be accepted as deductible for inheritance tax purposes is the travelling and accommodation expenses of the executors or the members of the deceased’s immediate family.

Executors must therefore be careful when deciding whether they reimburse expenses incurred in administering the estate, as they are ultimately responsible to the beneficiaries of the estate. Executors have a right to be indemnified for liabilities which they have incurred in carrying out their role, provided they have acted properly and within their powers by incurring liability.

If this basis cannot be established, they would only be able to reimburse themselves with the agreement of all the beneficiaries of the estate. This requires all beneficiaries to have been ascertained and be deemed to have legal capacity to provide authorisation for a payment i.e., that they are over 18 and are not lacking mental capacity. In the absence of the agreement of all the beneficiaries for whatever reason, the executors would be left with needing to apply to the court to provide directions as to whether the expenses can be reimbursed to them from the estate.

It is sensible to understand the limits upon executors in charging for their time when appointing them and discussing this with them to make sure that they are willing to act.

Estate administration can often be more complex than you would initially think. It is worthwhile considering the appointment of a professional executor who is familiar with the process and will ensure that all aspects are dealt with effectively.