Executor investing estate funds

[Hivishero26]

I’m Executor for a relatives estate and have probate. Their property is unlikely to sell for many months, if not years and in the meantime there is a hefty maintenance charge. As the bank accounts are healthy, I’d like to invest the estate funds so they can generate an income to offset the maintenance costs . However, I can only see Executor current accounts with zero interest.

Does anyone know of Executor investment accounts ? .. the bank suggested I invest it in my own name, but that doesn’t feel right as it’s not my money even if kept separately.

Invest how? In the stock market? Probably not wise, markets can go down as well as up, as we are repeatedly told!
I would probably just hold the ££ in the highest earning savings account the existing bank has available.

An investment account is what I’m actually after .. but one that will be held as an Executor .. not in my own name. Executor accounts seem to be a very specific thing .

But an investment account is used to invest in S&S, right?

An investment account can make losses as well as gains - as the executor I don't think you can make a decision that might end up with a loss to the estate?

If you’ve had probate granted who is the money/property left to? Can they not invest it in their own name?

I use the term ‘investment’ in a broad sense .. I don’t want risk .. I want a guaranteed 3% savings account if that makes it clearer.

You should distribute whatever funds are currently available to the beneficiaries and hold a little back for maintenance/bills etc.

it is highly irregular to invest speculatively with liquid estate assets - you have been trusted to manage the funds in the best interests of the beneficiaries, so yes, keep some back for anticipated bills but not any more than necessary.

Also, unless it's a historic pile with listed status and hundreds of acres, the property will sell for the right price. Once again, holding out for the highest price might not be in the beneficiaries' best interests and they can take steps to remove you as executor if you're dragging the process out (ask me how I know...)

You could try Metrobank. They have trustee bank accounts and a fixed term savings account for trustees. I'm not sure what the rates are but worth a try.

I think (from googling) part of the problem is paying tax on the interest earned. If it’s in an account in you name then your own tax code would be affected by any tax owed on interest earned. If it’s in an executors account then what happens as there is no one individual tax code against which to pay the liability? - hence why executors accounts don’t get paid interest. Your only legal requirement is to protect the original amount, (less bills incurred) there is no legal requirement for you to grow that original amount.
I’ve probably not explained this clearly. So here’s a link community.hmrc.gov.uk/customerforums/pt/a57dfd64-a988-ee11-a81c-6045bd0e4841

Premium bonds?

Ok, you want a savings account then, or deposit account, not an investment account.

Have a read of this thread. MSE boards are pretty useful (better than MN usually) for this sort of question actually.

forums.moneysavingexpert.com/discussion/6458549/do-banks-pay-interest-on-executor-accounts

@Roryno The property isn’t left to anyone .. It needs to be sold and form part of the estate. There is an ongoing liability to the estate until the sale completes so I can’t complete the distribution as I don’t know what will be left.

@Anotherfrozenpizzafortea without wishing to get into a debate its a. MaCarthy and stone property , bought for £160k , currently estimated to sell at £15k with 30% of the block empty and an £8k a year maintenance charge. Selling will be a real challenge.

@Alphabet1spaghetti2 For the sake of the beneficiaries I want to put the bank account contents in an interest bearing account (no risk) to generate an income .. otherwise I’m sitting on £100k+ earning no interest whilst paying out £750 pm. This is why I want an income .. to preserve as much of the capital as long as possible . If there is a tax liability on the account then can’t that could be paid in the same way as if the property sold for way more than expected ?

Thanks all … sounds like maybe I should be looking for a trustee account then, rather than an interest bearing executor account.

@Hivishero26 no, because the tax paid on income/interest earned is attached to a NI number and paid at source. You may be able to claim it back or argue your case according to the previous link - but in my recent dealings with HMRC and my husbands estate, I wouldn’t bank on winning any discretion from them. Even my solicitor was getting to the point of sending them very terse letters pointing out the law regarding tax liabilities. Inheritance tax is attached to the estate and any capital gains on property is attached to the property. (Yes yes a very eli5 explanation)

I get that you want to earn interest and see that as a way of preserving the capital, unfortunately the red tape of law/banking/procedures/tax doesn’t see your costs as eroding the capital, they see it as an expense of the estate which needs to paid not as detriment to the estate. It’s like they only see one side of the financial equation! As far as the law goes, you’ve done your bit by putting in a bank account regardless of ongoing expenditure. (Daft but that’s the law for you sometimes.)

Given the size of the funds, it might be worth asking an IFA for a bit of advice. Some do give advice for free.
Here’s a link to metro bank regarding trustee account https://www.metrobankonline.co.uk/business/sector-services/products/trustee-banking/ it does seem that a trust needs to established.
(Not a solicitor or finanace guru)

The estate will need to pay basic rate income tax on the interest if over £500 of income in the estate in a tax year. If it is under certain thresholds you may be able to do this informally or a tax return may be required. See https://www.gov.uk/probate-estate/reporting-the-estate for the limits. At the end of the administration period you will need to give each beneficiary a r185 form detailing their share of the income of the estate. This will be required for each tax year there has been a distribution (give it to them after the end of that tax year if there is one, don’t wait for the end) as each distribution is treated as income first. They then include the details in their own tax return. If they are basic rate tax payer, they are square, if non tax payer they can reclaim tax, if higher rate will need to pay more tax. If you make no interim distributions then you get income bunching with all the income deemed to have been received by the beneficiary in the final tax year of administration. This may result in higher tax for the beneficiaries depending on their personal circumstances so it is worth making an interim distribution to at least cover the income each tax year.

@Alphabet1spaghetti2 @22mumsynet Thank you both for the clear explanations.. lots of reading ahead for me … I’m planning to do an interim distribution anyway , but had hoped that I could at least mitigate the losses .. it seems madness that I have all that cash (as executor), but no realistic means of using it for the benefit of the beneficiaries which is, after all who the Executors are meant to work for. Beneficiaries are incidentally lower rate, higher rate, child and overseas , so thats yet another layer of complexity.

Can you stick some in NS&I 2 year bonds?

You don’t have to have something specifically called an executor account as long as it is clearly distinguished from a personal one.

The interest allocation is the tricky part indeed!

@ThisGreatHazelKoala that’s interesting.. but if I do that, and its in my name, then I’ll personally pay tax on the interest won’t I ?

It may be that even if a standard savings account was in your name the interest accrued is not yours because none of the money is yours, you hold it in trust for the estate. I don't think you need any kind of formal trust deed. There would be no risk to the capital as long as you didn't invest more than £80k per account.

Could you ask HMRC the question?

MS properties can be very difficult to sell due to the high service charges and u resolved repair problems with the buildings.
If you use the MS to resell the property the service charges can be deducted from the sale price without interest charges .
Have you considered renting out the property? I agree 2/3 years is not unlikely in terms of timescale for selling.

@summersolsticesoon we thought about it, but a number of people have told me that being a landlord was a nightmare. Couple that with the fact that we live 4 hrs away its not really viable. I think its the maintenance that scares people off and even if someone rented the flat , they’d still need to pay that. Its very much a last resort , which is why gaining interest from the estate money would be the perfect solution. The M&S sales service wasn’t impressive to be honest, totally unrealistic about sales price and no incentive for them to sell as their business model is based on the maintenance fee which they are guaranteed for the next 986 years, no matter what !

What a nightmare for you as executor. Tempting to run the numbers and work out the lowest possible sale price. Set it out on a spread sheet to show that this is the best return from the flat including a column for 'costs if we don't sell for 12, 24 36 months. Then try to sell at the lowest price. It's really hard as executor as you have to show that you sold at the best price possible.

@MBL Its certainly a challenge ! Beneficiaries are all direct family so we’re all united … but the issue isn’t price .. it’s finding someone who wants to buy it and accept the maintenance charge. We’ll accept any offer … but can only do that if someone makes one :-) and with 30% of flats empty there is a lot of competition and very few buyers. It’s very sad, it was / is a great place but people aren’t thinking logically.. its a steal .. the reduction given far outweighs the length of time something would be on the market if only people would look at what they are getting and act rationally.

If only I could get the interest from the rest of the estate it would just mean we could tread water until a buyer comes along.