Is Deferred State Pension Lump Sum Income?

[Charlottesquare]

So, it looks like moving bank once a year and keeping no prior account bank statements in the house is the way to go

Smiley noted, but just in case anyone takes you seriously, for normal transfers from one bank account to another, part of an executor's due diligence is to find out where the money was transferred from, then contact that bank with a copy of the death certificate and ask about the account it came from (among other reasons, to establish whether it still has a balance, and whether the deceased held - and maybe still holds - any other accounts with the bank), including I think asking for copy statements of the account. And if the executor finds that that account was opened a year earlier with a transfer from a third bank, to repeat the exercise, and so on...

So basically, what that exercise is basically create work for one's executor. For lay executors, making the job unnecessarily difficult with such antics is not a nice thing to do to someone who is being asked to do you a final favour - and a cautious lay executor will take care not to 'intermeddle' with the estate (basically by carefully avoiding giving any instructions about it or actually doing anything with it, just gathering information about it) until it's become clear whether it's straightforward enough for them to be able to deal with it, and then decide to decline their appointment as executor if it's going to impose too much work on them. A less cautious lay executor might have already accepted the appointment by 'intermeddling', but can still turn it over to professionals to do all the work, and those professionals will charge more for more work. And of course, if one appoints a professional executor in the first place, they'll also charge more for more work.

In short, what one does by indulging in such antics is potentially getting any lay executor one appoints into trouble if they badly underestimate how much diligence is due from them and/or making the job harder than it need be, both of which are likely to sour their memories of you, and probably leaving a larger-than-necessary slice of one's estate to solicitors and other professionals.

Less usual ways of transferring the money from one bank account to another exist, of course, and some of them make it harder to trace the sources of the money - but that just makes the executor's job harder still, and probably more expensive as well...

Gengulphus

It can of course in reality be beneficial digging about, when pulling together paperwork for my wife's Grandfather's estate (to pass to family solicitors) I noticed a single small payment going out, it was on investigation only paid once a year, something like £6.67, but there was no paperwork in the house suggesting what it was for. Turned out it was a life insurance policy and after a bit of legwork the life office paid out the £1,500 life cover.

My comment was very much tongue in cheek, I do appreciate the complexities of executry work, my father as a solicitor (as was my mother) and made his living in large part untangling the webs humans spin within their lives, his favourite toast being "God bless the man who writes his own will"

[Lootman]

I would add that an executor's due diligence goes beyond merely looking for "large sums". After all a large number of small sums can easily equal a single large sum. ...

In that case, a large sum has left the estate, hasn't it? I didn't say anything about how it left the estate... But yes, you're right to clarify that both leaving the estate all in one go and leaving it in dribs and drabs are both things that the executor needs to look out for in doing the required due dilligence - and that just how much diligence is due isn't well-defined.

I agree. But in practice, a lay executor is more likely to notice a single £35,000 item than a regular pattern of, say, weekly £100 cash withdrawals. Both amount to the same number over 7 years. But the latter will look a lot more like beer money and casual expenditure, and probably be skimmed over.

As I said upthread, the sheer number of different ways of moving or spending money these days, compared with 20 or 30 years ago, means that an executor has to decide what to focus on and what to let slide.

So, it looks like moving bank once a year and keeping no prior account bank statements in the house is the way to go

Smiley noted, but just in case anyone takes you seriously, for normal transfers from one bank account to another, part of an executor's due diligence is to find out where the money was transferred from, then contact that bank with a copy of the death certificate and ask about the account it came from (among other reasons, to establish whether it still has a balance, and whether the deceased held - and maybe still holds - any other accounts with the bank), including I think asking for copy statements of the account. And if the executor finds that that account was opened a year earlier with a transfer from a third bank, to repeat the exercise, and so on...

So basically, what that exercise is basically create work for one's executor. For lay executors, making the job unnecessarily difficult with such antics is not a nice thing to do to someone who is being asked to do you a final favour - and a cautious lay executor will take care not to 'intermeddle' with the estate (basically by carefully avoiding giving any instructions about it or actually doing anything with it, just gathering information about it) until it's become clear whether it's straightforward enough for them to be able to deal with it, and then decide to decline their appointment as executor if it's going to impose too much work on them. A less cautious lay executor might have already accepted the appointment by 'intermeddling', but can still turn it over to professionals to do all the work, and those professionals will charge more for more work. And of course, if one appoints a professional executor in the first place, they'll also charge more for more work.

In short, what one does by indulging in such antics is potentially getting any lay executor one appoints into trouble if they badly underestimate how much diligence is due from them and/or making the job harder than it need be, both of which are likely to sour their memories of you, and probably leaving a larger-than-necessary slice of one's estate to solicitors and other professionals.

Less usual ways of transferring the money from one bank account to another exist, of course, and some of them make it harder to trace the sources of the money - but that just makes the executor's job harder still, and probably more expensive as well...

Agreed, although I cannot help but think that you are perhaps a lot more diligent than the average lay executor, who would probably look only for accounts that were open at the time of death, or closed accounts that a family member of the deceased draws their attention to. To do the job as thoroughly as you suggest might imply, for a deceased with fairly complex financials, the executor would need to give up their job for a number of weeks or months.

So it comes back to what is "reasonable" for an executor to do. One could get carried away and investigate every last transaction but that is surely overkill. For example it is not unusual for me to make up to 100 debit card transactions a month. Over 7 years that could be 7,000 items or more. In practice you are going to have to decide to ignore most of them and focus on the larger amounts, as discussed earlier. Probably by deciding that you will ignore all transactions for less than, say, £500. Then there are my Amazon purchases, of which there were a few dozen a year even before lockdowns. Were they for myself, my wife or for others as a gift? How many other online shopping accounts do I have? Do I have a paypal account? How would you know? And so on. And if a transfer is hard for an executor to find, it will also be hard for anyone checking up on that executor to find.

Which is why CK's idea, if it works, would be so worthwhile. With gifts from income it is common to document them to help your executor. If an executor relies on that, then why not also rely on documentation from the deceased about gifts from capital? Assuming it is recorded in a legally valid form, which I trust CK to know how to do.

[Avantegarde]

Surely the starting point for any executor would be to ask benefactors and surviving relatives if they had received any gifts from the deceased in the previous seven years? Or if they knew of anyone who had? That, plus a quick perusal of any available bank statements ("I see you got a cheque for £5,000, what was that for?") should suffice unless they had any other evidence of "hidden" gifts? Executors are not supposed to investigate a deceased's finances like administrators of an insolvent company. Or are they?

[Gengulphus]

Agreed, although I cannot help but think that you are perhaps a lot more diligent than the average lay executor, ...

Please keep such thoughts to yourself! They are personal comments, as would be similar comments I could make about what I cannot help thinking about you - but discussing each other's personal characteristics is not the subject of this board.

... who would probably look only for accounts that were open at the time of death, or closed accounts that a family member of the deceased draws their attention to. To do the job as thoroughly as you suggest might imply, for a deceased with fairly complex financials, the executor would need to give up their job for a number of weeks or months.

So it comes back to what is "reasonable" for an executor to do. ...

Yes, and clearly giving up one's job for a number of weeks or months isn't reasonable, and I wasn't suggesting doing any such thing. What I was sort-of-suggesting is that if the job of being someone's executor requires that much effort, refuse to take on the job! Or if you're unwise enough to have taken it on by "intermeddling" with the estate before discovering that it requires that much effort, make it someone else's day job (i.e. employ professional help) at the estate's expense.

And in particular, I would definitely suggest taking one or other of those steps if it becomes apparent that the deceased had deliberately made the executor's job unnecessarily difficult.

Gengulphus

[Clitheroekid]

Surely the starting point for any executor would be to ask benefactors and surviving relatives if they had received any gifts from the deceased in the previous seven years? Or if they knew of anyone who had? That, plus a quick perusal of any available bank statements ("I see you got a cheque for £5,000, what was that for?") should suffice unless they had any other evidence of "hidden" gifts? Executors are not supposed to investigate a deceased's finances like administrators of an insolvent company. Or are they?

Unfortunately, it's not as simple as that. For a start, although people seem to think it's only the 7 years before death that matter that's not always the case. If a gift was made with reservation of benefit (for example, if the testator gave the capital to someone but retained the right to the income) then such gifts have to be declared in the IHT return if they were made at any time after 18 March 1986!

That's 35 years ago. How on earth would any executor, particularly an independent one, with little knowledge of the deceased's family or history, be expected to discover such a gift? And even if some evidence was discovered the chances of any paperwork surviving that long are minimal.

This only occurred to me after I'd posted my original suggestion, so I'd now amend clauses 1 and 2 of the Declaration to read as follows:

1. I am aware of the rules regarding Potentially Exempt Transfers and Gifts with Reservation of Benefit and the need for my executors to be made aware of any such transfers / gifts.

2. At the time of making this declaration I have not made any Potentially Exempt Transfers within the last 7 years, neither have I made any Gifts with Reservation of Benefit since 18 March 1986.

Turning to the question of how thorough an executor's enquiries should be it all comes down to the most profitable word in the lawyer's lexicon - "reasonable". What would that legendary (though by now rather aged) figure the man on the Clapham omnibus think?

All it really means is applying the increasingly rare commodity of common sense. The executors are supposed to use such knowledge and records as they have to form an overall view of the estate and the deceased, and then decide on the basis of that overall view whether and to what extent further enquiries are necessary. In the large majority of cases such further enquiries are not required.

Having read the posts from Lootman and Gengulphus my own view would tend towards that of Lootman.

For example, Gengulphus says:

... for normal transfers from one bank account to another, part of an executor's due diligence is to find out where the money was transferred from, then contact that bank with a copy of the death certificate and ask about the account it came from ...

I would say that level of enquiry is beyond what most reasonably conscientious executors would undertake, or, more importantly, be legally obliged to undertake. In the large majority of cases all an executor will do is to look at the closing balance on the deceased's account and leave it at that. If a bank account exists there is almost invariably some form of evidence with the deceased's papers, though admittedly this is gradually changing, with more and more people eschewing paper records.

Bank statements would certainly be looked at, but usually only to see if there appeared to be any sources of income that weren't already known about, or regular payments that may indicate assets such as life insurance or savings bonds.

Even where IHT is payable, executors would not be expected to trawl through 7 years' worth of bank statements looking for evidence of gifts unless there was prima facie evidence that such gifts may have been made.

There was an interesting case on this a few years ago, that of Clayton Hutchins -v- HMRC. CH, who appears to have been a somewhat obnoxious character, was the son of a fairly wealthy businessman, who had squirrelled away about £450k in a nice, old-fashioned Swiss bank account.

Shortly before his death the account was transferred into his name by CH (appropriate initials!) flying to Switzerland with a sealed letter from his papa instructing the transfer. Interestingly, he agreed with the manager that it would be a `hold mail' account - in other words the bank must not send any mail to him.

When his papa popped his clogs a few months later the executors had a meeting in which they asked the various members of the family if they knew of any gifts, to which they all replied that they didn't.

The executors then wrote to each of them repeating the question in a letter that was - perhaps unwisely - described by CH's learned counsel as "gibberish". Again, CH kept schtum.

Unfortunately for him, HMRC received an anonymous tip off - probably from one of his disinherited siblings - and HMRC started an investigation. The account was discovered and a substantial six-figure sum was demanded by way of taxes and penalties.

CH challenged the penalty on various grounds, including that he had been so stricken with grief at the passing of his papa that the existence of the account had simply slipped his mind, and another of which (somewhat optimistically) was that the executors had failed to undertake sufficient enquiries, and that if they had they would have discovered the account!

Needless to say, the Commissioners gave these arguments short shrift, and his appeal was dismissed, but the case makes interesting reading, as there is some discussion about the extent of the executors' duties to enquire.

The full case is here - https://financeandtax.decisions.tribuna ... C04221.pdf - but there's also a summary here - http://www.spiresolicitors.co.uk/news/s ... alty-bill/

[Gengulphus]

For example, Gengulphus says:

... for normal transfers from one bank account to another, part of an executor's due diligence is to find out where the money was transferred from, then contact that bank with a copy of the death certificate and ask about the account it came from ...

I would say that level of enquiry is beyond what most reasonably conscientious executors would undertake, or, more importantly, be legally obliged to undertake. In the large majority of cases all an executor will do is to look at the closing balance on the deceased's account and leave it at that. If a bank account exists there is almost invariably some form of evidence with the deceased's papers, though admittedly this is gradually changing, with more and more people eschewing paper records.

You've lost some context there, which is that I made that remark in response to:

So, it looks like moving bank once a year and keeping no prior account bank statements in the house is the way to go

I would say that faced with the situation Charlottesquare's (not very serious) idea would produce, in which there is no record in the deceased's papers (and electronic records) of any bank accounts that existed more than a year ago and there is evidence that another probably existed before that (and might still exist) in the form of a normal bank transfer into the deceased's known account to open it, a reasonably conscientious executor would do what I said - not just as a matter of checking for gifts in the previous 7 years, but also of checking for as-yet-unlocated assets. I was not saying or implying that the degree of 'due diligence' I suggested was appropriate for other situations - there are clearly situations in which it would be completely undue!

Gengulphus

[Charlottesquare]

Surely the starting point for any executor would be to ask benefactors and surviving relatives if they had received any gifts from the deceased in the previous seven years? Or if they knew of anyone who had? That, plus a quick perusal of any available bank statements ("I see you got a cheque for £5,000, what was that for?") should suffice unless they had any other evidence of "hidden" gifts? Executors are not supposed to investigate a deceased's finances like administrators of an insolvent company. Or are they?

No, but as I pointed out up thread sometimes trawling through say the last 12 months bank statements can work to one's advantage, the amount of "lost" assets within banks and life offices is staggering and, as has been pointed out, this Brave New World of not having printed bank statements will likely only make it worse. (Executors not scanning back as no ready to hand pile of statements, hands up who uses online banking and does not have statements from their bank, I am one such.)

Not everyone is my father with financial records to die for, so to speak, he tabulated his personal assets and liabilities every fifth April and left the sheet in a bureau drawer with a copy of his will and all the share certs/passbooks etc alongside, but then again as a solicitor he had spent his entire working life sorting out the mayhem others wrought with their finances so was not leaving us an untidy estate.

[Gengulphus]

The effect of a statement of truth is to make the declaration the legal equivalent of sworn evidence.

Of course it's always possible that the declaration may be untrue, but (1) the executors would be entitled to rely on its veracity without any further enquiry (unless there was clear evidence that it was blatantly untrue) thereby saving them a lot of trouble and worry; (2) in the event of a HMRC enquiry it would provide them with an effective defence to a claim that they had not made adequate investigations; and (3) a dead man can't be prosecuted for perjury!

I really like your idea and might do something like that myself.

However I do worry that such a device might be used as an instrument of fraud. Imagine that the will maker creates a document like this, and the document declares no gifts. But now suppose that he secretly makes gifts to a beneficiary anyway. Upon death the following will hold:
...
2) The beneficiary and/or next of kin have no legal obligation to cooperate with an executor anyway, and the executor has no authority to compel them. ...

It seems from Clitheroekid's link to the summary of the Clayton Hutchins -v- HMRC case that although what you say is probably strictly speaking correct, there can be serious consequences in the form of an HMRC penalty for not cooperating with an executor. I.e. if an executor asks one about gifts in the 7 years before death, and there have in fact been such gifts, "I can refuse to answer and the executor cannot make me" is true, but it's not the whole truth one should take into account when deciding whether to tell the executor about the gifts...

... In fact the gift beneficiary may not be known to the executor.

There are two cases there. The first is that if the "gift beneficiary" is both the recipient of the gift and a beneficiary of the will. That could happen, e.g. in the case of the deceased having had a child from a previous relationship whose existence they've carefully hidden from all of their current family, but have supported with gifts all records of which they've carefully concealed because they want the existence of that child to remain hidden even after their death - but they've carelessly allowed their will to make all their children beneficiaries. If that ever comes out, sorting out the consequences is liable to be a big mess, not just involving Inheritance Tax!

I'd guess though that you have the case of a gift recipient who is not a beneficiary of the will in mind. I do wonder whether the gift recipient could be in danger of a similar HMRC penalty if they knew that the executor wanted information about gifts in the 7 years before death - i.e. whether the wrong-doing required to impose such a penalty is withholding wanted information from the executors or withholding requested information from the executors. But it would probably be a very rare case in which it would be sufficiently provable that the gift recipient knew that the executor wanted the information without the executor having requested it, so that's very largely just a bit of theoretical wondering...

Gengulphus

[Lootman]

Agreed, although I cannot help but think that you are perhaps a lot more diligent than the average lay executor, ...

Please keep such thoughts to yourself! They are personal comments, as would be similar comments I could make about what I cannot help thinking about you - but discussing each other's personal characteristics is not the subject of this board.

Tangential to the topic but, for the record, I did not base the characterisation on anything I may have learned about you from prior posts on TMF and TLF. Rather I based it purely on the content of your posts on this topic which indicated, to me anyway, that you regard the role of an executor as being more comprehensive than I and some other contributors to this topic have suggested is adequate. And there is nothing wrong with you taking such a role more seriously than some others might do. I was merely suggesting that the average performance of an executor may fall short of your own high standards.

... who would probably look only for accounts that were open at the time of death, or closed accounts that a family member of the deceased draws their attention to. To do the job as thoroughly as you suggest might imply, for a deceased with fairly complex financials, the executor would need to give up their job for a number of weeks or months.

So it comes back to what is "reasonable" for an executor to do. ...

Yes, and clearly giving up one's job for a number of weeks or months isn't reasonable, and I wasn't suggesting doing any such thing. What I was sort-of-suggesting is that if the job of being someone's executor requires that much effort, refuse to take on the job! Or if you're unwise enough to have taken it on by "intermeddling" with the estate before discovering that it requires that much effort, make it someone else's day job (i.e. employ professional help) at the estate's expense.

And in particular, I would definitely suggest taking one or other of those steps if it becomes apparent that the deceased had deliberately made the executor's job unnecessarily difficult.

I too would renounce executorship if I sensed that I was being lied to by beneficiaries or relatives of the deceased.

And I am conscious of the intermeddling trap, although I do wonder in practice exactly who would be in a position to hold me to that task if I intermeddled and then renounced? Whoever it is, they would need a court order to make me continue with the task. And quite why others would want me to carry on when I am demotivated, unhappy and unlikely to do a good job is a mystery. I certainly would not impose that on another in such a situation.

... In fact the gift beneficiary may not be known to the executor.

I'd guess though that you have the case of a gift recipient who is not a beneficiary of the will in mind. I do wonder whether the gift recipient could be in danger of a similar HMRC penalty if they knew that the executor wanted information about gifts in the 7 years before death - i.e. whether the wrong-doing required to impose such a penalty is withholding wanted information from the executors or withholding requested information from the executors. But it would probably be a very rare case in which it would be sufficiently provable that the gift recipient knew that the executor wanted the information without the executor having requested it, so that's very largely just a bit of theoretical wondering...

Yes, it is this latter case I was thinking of. If the gift beneficiary were someone the executor would otherwise have no reason to know about AND there are no documents from the deceased or another indicating such a gift, then that gift would be near impossible to discover. And I doubt that an executor would be held liable in that case if it later came to light.

The gift beneficiary could be held liable for withholding that information in some cases, as you suggest. But it might also be possible that the beneficiary was not aware of the probate happening, was not aware of who the executor is, or might even not have known the deceased was dead!

[Gengulphus]

Agreed, although I cannot help but think that you are perhaps a lot more diligent than the average lay executor, ...

Please keep such thoughts to yourself! They are personal comments, as would be similar comments I could make about what I cannot help thinking about you - but discussing each other's personal characteristics is not the subject of this board.

Tangential to the topic but, for the record, I did not base the characterisation on anything I may have learned about you from prior posts on TMF and TLF. Rather I based it purely on the content of your posts on this topic which indicated, to me anyway, that you regard the role of an executor as being more comprehensive than I and some other contributors to this topic have suggested is adequate. ...

Then comment on the content of my posts, not on how diligent you think I am! Among other reasons, it allows me and other readers to look at what you're basing your comments on and to reply accordingly, and you actually know what the content of my posts is, whereas you don't know how diligent I am - maybe I behave as I think I ought to, maybe I don't...

Gengulphus

[Lootman]

Please keep such thoughts to yourself! They are personal comments, as would be similar comments I could make about what I cannot help thinking about you - but discussing each other's personal characteristics is not the subject of this board.

Tangential to the topic but, for the record, I did not base the characterisation on anything I may have learned about you from prior posts on TMF and TLF. Rather I based it purely on the content of your posts on this topic which indicated, to me anyway, that you regard the role of an executor as being more comprehensive than I and some other contributors to this topic have suggested is adequate. ...

Then comment on the content of my posts, not on how diligent you think I am! Among other reasons, it allows me and other readers to look at what you're basing your comments on and to reply accordingly, and you actually know what the content of my posts is, whereas you don't know how diligent I am - maybe I behave as I think I ought to, maybe I don't...

In any event I think it is reasonable that different people might perceive differently how far an executor needs to go to satisfy the standard required. Perhaps this is inevitable given that the word "reasonable" is not defined, and probably cannot be. There is a subjective element to it.

A lot will depend on how worried an executor is about being held personally liable for any errors or omissions. The more worried that executor is, the more research and analysis he/she may feel like undertaking. And the extent of that worry in turn may be based on how confident they feel in their research, how much they have to lose and how familiar they are with the financial affairs of the deceased. In many cases a person will only act as an executor for their parents, and in such cases they should feel fairly confident in knowing the situation well. It can get more complex if those parents or relatives have remarried, had more children and so on.

But most cases are straightforward. Of the 3 times I have acted as executor, two were for my parents and I was basically running their finances anyway via a POA, so the task was trivial. The third was a more distant relative who was murdered overseas. As you can probably imagine, that was more messy and I felt the need to retain counsel in that country.

Finally, as an alternative to CK's excellent suggestion, I would like to mention what I do. Each year, at the time of doing my tax return, my accountant asks me about gifts made from capital or income in the previous tax year. These are not tax events for the purpose of my return. But they do build a picture over many years of my pattern of gift-making. In the event of my demise, my executor could "reasonably" rely on a letter from my accountant detailing those gifts, and that in turn could restrict further research to just the last/final year.