Estate Accounts and Administration: A Practical Guide for Solicitors

Administering an estate is a legal, tax and accounting exercise rolled into one, and it is also where a large proportion of professional negligence claims against private client solicitors originate. Get the process right and a personal representative (PR) discharges a straightforward, well-documented duty. Get it wrong — by distributing too early, misreporting Inheritance Tax, or failing to account properly to residuary beneficiaries — and the PR, and often the supervising solicitor, can face personal liability. This guide sets out the practical steps of estate administration, the standard structure for formal estate accounts, and the protections available to a PR acting in good faith.

The administration timeline, in outline

Every estate follows broadly the same sequence, whether the deceased died testate or intestate: establish who is entitled to act, value the estate, obtain the grant of representation, collect in the assets, discharge debts and tax, and finally distribute the residue and prepare formal accounts. The detail of each stage, and how long it reasonably takes, depends heavily on the size and complexity of the estate, but the underlying duties owed by the PR do not change.

Step 1: Obtaining the grant of representation

Where there is a valid will appointing executors, the executors apply for a grant of probate. Where there is no valid will, or no executor able or willing to act, the person entitled under the intestacy rules (or, on a partial intestacy, entitled to the undisposed-of estate) applies for letters of administration. Before any grant can issue, the estate must be valued and, in most cases, Inheritance Tax reporting requirements satisfied — the grant application and the IHT reporting obligation are now closely linked (see below).

Solicitors advising executors on drafting wills and assessing testamentary capacity at the outset can materially reduce administration risk later — see our related guide on wills, drafting and testamentary capacity for the drafting-stage issues that most often resurface during administration.

Step 2: Collecting in the assets

Once the grant issues, the PR's authority to deal with the estate is confirmed and they can collect in assets: closing bank accounts, selling or transferring investments, dealing with property, and pursuing any sums owed to the deceased. Assets should be collected promptly and, where they are volatile (shares) or depreciating (motor vehicles), realised or insured appropriately — a PR who allows estate assets to lose value through neglect can be personally liable for the loss.

Step 3: Paying debts, liabilities and the insolvent estate

Debts, funeral expenses and testamentary expenses must be paid before any distribution to beneficiaries. Where an estate is or may be insolvent — liabilities exceed assets — the PR should apply the statutory order of priority that applies to insolvent estates, which broadly mirrors the order used in personal bankruptcy: secured creditors first, then funeral and administration expenses, preferential debts, ordinary unsecured debts, interest on debts, and only then deferred debts. A PR who pays one unsecured creditor in full while others go unpaid, without following this order, risks personal liability to the creditors left out. Where insolvency is genuinely uncertain, taking specialist insolvency advice before distributing anything is the safer course.

Reporting Inheritance Tax: which HMRC form applies

Since the reforms that took effect for deaths on or after 1 January 2022, most estates that qualify as "excepted estates" no longer need to send a separate return to HMRC at all — the PR simply confirms the estate's value and excepted-estate category as part of the probate application itself. An estate is excepted where it falls into one of three categories:

• Low-value estates — gross value does not exceed the nil-rate band (£325,000).
• Exempt estates — gross value does not exceed £3 million and the estate passes entirely, or almost entirely, to exempt beneficiaries such as a spouse, civil partner or UK-registered charity.
• Estates using a transferred nil-rate band — the deceased's estate benefits from the unused nil-rate band of a predeceased spouse or civil partner, the combined nil-rate band does not exceed £650,000, and the gross estate does not exceed £3 million.

Where an estate does not meet excepted-estate criteria — most obviously, where any Inheritance Tax is actually payable — the PR must complete form IHT400 (the full Inheritance Tax account), together with the relevant supplementary schedules for particular asset classes such as land, business or agricultural property, trusts, and lifetime gifts. Any tax due must generally be paid within six months of the end of the month of death, after which HMRC charges interest; for certain assets, such as land or a controlling shareholding, tax can instead be paid by instalments over up to ten years. Because the nil-rate band (£325,000) and residence nil-rate band (up to £175,000, giving a combined allowance of up to £500,000 for an individual, or £1 million for a surviving spouse or civil partner) remain frozen for the 2026/27 and 2027/28 tax years, more estates are being drawn into reporting and payment obligations as asset values rise against static thresholds. That is worth flagging to executors early, since it affects both cashflow — tax is usually due before the grant issues, and before assets can be sold to fund it — and the accounts prepared later.

Preparing formal estate accounts

Once administration is substantially complete, the PR should prepare formal estate accounts before distributing the residue. These are not optional paperwork — they are the PR's primary record of having administered the estate correctly, and residuary beneficiaries are entitled to see them. The conventional structure has three parts:

• Capital account — lists each asset at its date-of-death probate value, records the amount actually realised (or the value at which it was transferred in specie), shows Inheritance Tax paid, administration expenses and legal costs, and arrives at the capital residue available for distribution.
• Income account — records income arising during the administration period, such as interest, dividends and rent, net of income tax and expenses properly attributable to income, and shows how that income is apportioned between the estate and beneficiaries entitled to income.
• Distribution account — sets out how the combined residue is actually divided: pecuniary and specific legacies paid, assets appropriated in specie, and the balance due to each residuary beneficiary, together with any interim payments already made.

Accounts should be signed off by the PR and, ideally, approved in writing by the residuary beneficiaries or their professional advisers before final distribution. Firms that treat estate administration purely as a fee-earning file rather than a matter needing the same financial discipline as any other client engagement tend to see the most accounting disputes.

Personal liability, protective notices and untraceable beneficiaries

A PR who distributes an estate incorrectly — to the wrong person, in the wrong amount, or before properly providing for debts, tax or claims — can be personally liable to make good the loss, a liability sometimes referred to as devastavit. Three tools materially reduce that risk.

Section 27 Trustee Act 1925 notices

Before distributing, a PR can place statutory notices under section 27 of the Trustee Act 1925 — in The London Gazette and, where appropriate, a newspaper circulating in the area where any land in the estate is situated — inviting anyone with a claim against the estate to send in particulars of it within a stated period of not less than two months from the date of the notice. Once that notice period has expired without a claim being made, the PR can distribute the estate without personal liability to a claimant who later emerges, though that claimant may still be able to trace and recover assets from the beneficiaries who received them.

Benjamin orders and missing beneficiary insurance

Where a specific beneficiary cannot be traced despite reasonable enquiry, rather than an unknown or general class of creditor, a section 27 notice does not help. The traditional solution is a Benjamin order, a court order permitting the PR to distribute on a stated assumption, commonly that the missing beneficiary predeceased the testator. This requires an application to court and tends to be proportionate mainly for higher-value shares. For smaller shares, missing beneficiary indemnity insurance is now the more common and cheaper solution: the estate takes out a policy that indemnifies the PR and the other beneficiaries if the missing beneficiary later reappears with a valid claim, allowing distribution to proceed without a court application.

Retaining a fund and beneficiary indemnities

Where the risk is modest, some PRs simply retain a reserve from residue against a possible claim, or obtain an indemnity from beneficiaries before distributing early. Indemnities are only as good as the beneficiary's covenant, however, and are not a substitute for a section 27 notice where the class of possible claimants is genuinely unknown.

Common pitfalls

• Distributing before the notice period expires. Distributing any part of the residue before the section 27 notice period, a minimum of two months, has run removes the statutory protection entirely for that distribution.
• Poor or informal accounting to residuary beneficiaries. Beneficiaries are entitled to proper accounts, not an informal summary email; failing to produce a capital, income and distribution account invites disputes and, in the worst cases, an order for an account to be taken by the court.
• Errors in Inheritance Tax reporting. Under-valuing assets, missing lifetime gifts made within seven years of death, or misclassifying an estate as excepted when it is not, are among the most common triggers for an HMRC compliance check, which can delay the grant, generate interest and penalties, and expose the PR, and the advising solicitor, to a negligence claim.
• Overlooking income tax and capital gains during administration. Income arising and gains realised during the administration period have their own tax treatment, separate from the Inheritance Tax position at death, and are easy to miss on a file focused solely on the IHT account.

Frequently asked questions

Does every estate have to submit an IHT400 to HMRC?

No. Since 1 January 2022, most excepted estates — broadly, low-value estates, exempt estates up to £3 million passing to a spouse, civil partner or charity, and estates using a transferred nil-rate band up to a combined £650,000 — report simply through the probate application itself. IHT400 is required only where the estate does not meet excepted-estate criteria, most commonly where tax is actually payable.

How long should a solicitor advise a PR to wait before distributing?

Where section 27 notices have been placed, distribution should not take place until at least two months from the date of the notice have passed. That is the statutory minimum, not a target, and many practitioners build in a short additional margin to allow for post to arrive.

What should a PR do if a beneficiary cannot be traced?

First, carry out and document reasonable tracing enquiries. If the beneficiary still cannot be found, either apply to court for a Benjamin order or, more commonly for smaller shares, arrange missing beneficiary indemnity insurance before distributing.

What happens if it turns out the estate is insolvent?

The PR must apply the statutory order of priority for insolvent estates rather than paying creditors as bills arrive, and should take specialist insolvency advice where the position is unclear — paying one unsecured creditor ahead of others in the wrong order can itself create personal liability.

Estate administration sits at the intersection of probate procedure, tax reporting and trust-style accounting discipline, and the margin for error is genuinely narrow. For solicitors handling probate and trust and estate files, staying current on Inheritance Tax reporting changes, the statutory protections in the Trustee Act, and the standard expected of formal estate accounts is core CPD territory. Browse Learnsignal's full range of accredited Legal CPD courses to keep your probate and estate administration knowledge current.