Chapter 21 — Keeping Estate Accounts

Estate accounts are the financial record of the administration. They show what the deceased owned, what money came in, what was paid out, what remains and how the balance is to be distributed. They are not the same as an ordinary bank statement, and they should not be left until the final week of the estate.

Good accounts protect the personal representatives and give beneficiaries a clear explanation of what has happened. Poor accounts create suspicion, even where every decision was honest. The safest approach is to record each transaction as it occurs and keep the supporting document with it.

Start at the beginning

Open the estate accounts as soon as the assets and liabilities begin to be identified. Do not wait for the grant or for the property to be sold. The opening record should contain the assets and liabilities at the date of death, including items that will not pass through the estate account.

Record the source of each figure. A bank balance may come from a date-of-death statement. A property figure may come from a professional valuation. Personal possessions may be supported by a valuation report or a reasonable household estimate. A debt should be supported by a creditor's statement rather than copied from an old bill without checking it.

Mark figures as confirmed, estimated or disputed. This prevents an early estimate from later being mistaken for a final amount.

What the accounts should show

A complete set of estate accounts normally needs to show:

the assets at the date of death;

the liabilities at the date of death;

capital received during the administration;

income received after the death;

debts, tax and administration expenses paid;

assets sold, transferred or distributed in kind;

gains or losses between valuation and sale;

interim distributions to beneficiaries;

the reserve retained for outstanding matters; and

the final balance available for distribution.

The precise format can vary. What matters is that another person can follow the figures from the original asset schedule through to the final distribution without having to guess.

Separate capital from income

Capital is the value belonging to the estate, such as bank balances, sale proceeds and the value of investments. Income is money arising after the death, such as interest, dividends or rent received during the administration.

The distinction can affect tax and the amount due to different beneficiaries. A person entitled to income may not be the same person as the person entitled to capital, particularly where a trust or life interest is involved. Keep separate columns or schedules and obtain tax or legal advice where the will creates continuing trusts.

Reconcile the estate bank account

The estate account should be reconciled regularly. This means matching the account balance to the accounts after allowing for payments that have not yet cleared and money that has been recorded but not yet received.

For each transaction, record the date, payer or payee, reference, amount, category and supporting document. Number invoices and receipts so that they can be found quickly. If money is transferred between estate accounts, record both sides so that it is not counted as new income.

Never force the figures to balance by creating an unexplained adjustment. Find the difference. It may be a bank charge, duplicate entry, missing interest payment, uncleared cheque or simple typing error.

Record assets that do not pass through the bank

Not every estate asset becomes cash. A beneficiary may receive jewellery, furniture, a vehicle, shares or a property. The accounts should show the value used, the person who received the item and the date of transfer.

If an item is sold to a beneficiary, record the sale price and the money received. If it is appropriated as part of that beneficiary's entitlement, record the agreed value and how it reduces the beneficiary's share. Do not describe an item as having no value merely because it did not pass through the bank.

Jointly owned assets, nominated benefits and trust property may pass outside the estate, but they may still need to appear in the opening information or tax records. Make their treatment clear rather than silently leaving them out.

Property sale accounts

The gross sale price of a property is not the amount available for distribution. The accounts should show the sale price, mortgage redemption, estate-agent fee, conveyancing costs, service charges, repairs, insurance, clearance and any other deductions.

Use the solicitor's completion statement as the starting point and reconcile the net proceeds to the estate bank account. If a cost was paid earlier by an executor, show the reimbursement separately. If the property sold for more or less than its probate value, record the difference and check whether a tax issue arises.

Clearance, sale and disposal records

Property clearance can involve money paid out, money received and possessions distributed to family members. Keep the clearance quotation and invoice, photographs where appropriate, auction or dealer statements, charity receipts, waste-transfer records and any credits given for saleable items.

If a clearance company offsets the value of items against its charge, the paperwork should show the gross clearance cost, the value credited and the net amount paid. This makes the transaction understandable and avoids the appearance that saleable items simply disappeared.

Where the family carries out the clearance, record van hire, lawful disposal charges, storage and agreed reimbursements. Do not create informal cash payments that cannot later be explained.

Personal representatives' expenses

Record expenses claimed by each executor or administrator separately. The entry should show the date, purpose, amount and receipt. Travel, postage, document fees and necessary property visits may be legitimate estate costs. Ordinary personal time, inconvenience or lost earnings are not automatically chargeable.

If a professional executor charges for work, show the legal basis and invoice. If a personal representative uses their own business or a connected supplier, disclose the relationship and retain evidence that the charge was reasonable.

Gifts, loans and advances to beneficiaries

Do not confuse a lifetime gift made by the deceased with a payment made during the administration. Record any relevant lifetime gifts in the tax or background schedules where required. Record estate payments to beneficiaries as interim or final distributions.

If a beneficiary receives an advance, obtain written acknowledgement and show how it will be deducted from the final entitlement. Do not call an advance a loan unless there is a genuine loan agreement and the personal representatives have authority to make it.

Interim distributions

An interim distribution can be made when enough is known about the estate and a proper reserve is retained. The accounts should show the amount paid to each beneficiary, the date, the bank reference and the balance of that beneficiary's expected entitlement.

Use the same proportion for beneficiaries with equal or proportional shares unless there is a recorded reason for doing otherwise. Obtain a receipt or written acknowledgement. Make it clear that the figure is interim and may be adjusted when the final accounts are completed.

Do not make an interim distribution merely because one beneficiary is applying pressure. First consider tax, creditor claims, professional fees, property costs, disputes and the possibility that an asset will realise less than expected.

Keep a reserve visible

The reserve is estate money retained for known or reasonably expected costs. Show it as a separate figure, with a note explaining what it covers. Typical items include final tax, utility bills, legal costs, property expenses and an unresolved claim.

Review the reserve as matters are settled. Release the unused balance through a further distribution and record it. A reserve should not become an unexplained sum held indefinitely by a personal representative.

Beneficiary statements

The main estate accounts show the estate as a whole. A beneficiary statement shows how that person's entitlement has been calculated. It should identify the relevant clause in the will or the intestacy entitlement, the share of the net estate, items received in kind, interim payments and the final amount due.

For a specific cash gift, show the legacy and whether it has been paid. For a residuary beneficiary, show the share of the final residue rather than only the amount transferred. This allows the beneficiary to see how their payment relates to the estate accounts.

Supporting documents

Keep documents in a logical order. A useful system is to separate them into assets, liabilities, income, expenses, tax, property, distributions and professional correspondence. Give each document a reference that appears in the accounts.

Retain bank statements, valuation reports, invoices, receipts, completion statements, tax calculations, beneficiary receipts and important correspondence. Electronic copies should be backed up and named clearly. Do not rely on links to online accounts that may later close.

When beneficiaries question the figures

Questions are not necessarily accusations. A beneficiary may simply be unable to see how a figure was reached. Answer with the relevant entry and supporting evidence rather than becoming defensive.

If an error is found, correct it openly and keep a note of the amendment. If the disagreement concerns the interpretation of the will, the reasonableness of an expense or the value attributed to an asset, separate that issue from the ordinary arithmetic. Consider independent advice or mediation before the dispute grows.

Personal representatives should protect private information. A beneficiary's right to information does not mean that every person's address, bank details or confidential correspondence should be circulated without thought.

Approving the final accounts

Once all assets have been collected or transferred, liabilities and tax have been paid, and the reserve is no longer needed, prepare the final accounts. Check that the opening estate, receipts, payments and distributions reconcile.

Send the accounts to the residuary beneficiaries with any explanation needed. Ask them to confirm approval in writing before the final distribution, particularly where the estate is substantial, complicated or has involved disagreement. Approval does not excuse dishonesty or concealment, but it provides a clear record that the figures were presented and accepted.

Keep the signed approvals with the estate papers. Where a beneficiary refuses to approve the accounts, identify the exact point of disagreement and deal with it rather than withholding all information or forcing payment through.

A simple structure for estate accounts

The following structure will suit many straightforward estates:

1. Summary of the deceased, date of death and personal representatives.

2. Assets at the date of death.

3. Liabilities at the date of death.

4. Capital receipts and sale proceeds.

5. Administration income.

6. Debts, tax and administration expenses paid.

7. Assets transferred or distributed in kind.

8. Interim distributions.

9. Calculation of the net residuary estate.

10. Beneficiaries' shares and final distributions.

11. Reserve or outstanding matters, if any.

12. Approval by the personal representatives and beneficiaries.

Estate accounts checklist

1. Open the accounts when administration begins, not when it is nearly finished.

2. Record every opening asset and liability with its source.

3. Mark estimates, disputes and confirmed figures clearly.

4. Separate capital, income and transfers between accounts.

5. Reconcile the estate bank account regularly.

6. Record property, possessions and shares distributed without a cash sale.

7. Show gross proceeds, costs and net proceeds for property and valuable items.

8. Keep clearance costs, sale credits and disposal records transparent.

9. Support reimbursements and professional charges with evidence.

10. Record interim distributions and obtain acknowledgements.

11. Show the reserve and the reason for retaining it.

12. Prepare an individual statement for each beneficiary where appropriate.

13. Keep the supporting documents in the same order as the accounts.

14. Correct errors openly and resolve disputed entries before final distribution.

15. Obtain written approval of the final accounts where appropriate.

Estate accounts are not an optional piece of paperwork added at the end. They are the financial map of the administration. If they are kept properly from the beginning, the final calculation becomes a reconciliation rather than a reconstruction.

The next chapter explains how to distribute the estate safely, including cash payments, personal possessions, property transfers, receipts and final safeguards.