How to Prepare Estate Accounts as an Executor

Estate accounts are the formal financial record of everything that passed through an estate from the date of death to the point of final distribution. They show exactly what assets were collected, what debts and expenses were paid, what income was received during administration, and how the net estate was divided among beneficiaries. Preparing clear, accurate estate accounts is one of the most important duties an executor carries out -- and one that is frequently neglected in informal estate administrations.

Who is entitled to see estate accounts?

All residuary beneficiaries -- those who receive a share of the residue of the estate -- are entitled to receive estate accounts before they receive their distribution. This is not just good practice; it is a legal entitlement. Beneficiaries have a right to know precisely what they are receiving and why. If an executor refuses to provide estate accounts, the beneficiaries can apply to the court for an order compelling the executor to account.

Beneficiaries receiving only specific legacies (a fixed sum or a named item) are not automatically entitled to full estate accounts, but they are entitled to receive their specific legacy in full. If there is any doubt about the estate's solvency or the treatment of assets, giving all beneficiaries sight of the accounts is sensible.

When to prepare estate accounts

Estate accounts are prepared at the end of the administration period -- once all assets have been collected, all debts and taxes paid, and the estate is ready for distribution. In a straightforward estate this might be six to twelve months after the date of death. More complex estates, or those involving property sales, contested matters, or HMRC correspondence, can take significantly longer.

During the administration period, it is good practice to keep a running record of all transactions as they happen. Trying to reconstruct the full picture at the end from incomplete notes is time-consuming and error-prone.

What estate accounts must contain

There is no prescribed legal format for estate accounts, but they conventionally comprise three sections:

1. Capital account

The capital account records all assets at the date of death and all capital payments made from the estate. It should include:

• All bank and building society balances at the date of death
• Property valuations at the date of death (not the eventual sale price, though any difference is noted as a gain or loss)
• Investments, ISAs, shares, and bonds at date-of-death values
• Valuations of chattels (personal possessions, vehicles, jewellery)
• Any other assets: life insurance proceeds paid to the estate, money owed to the deceased, business interests
• Deductions: mortgage, secured loans, funeral costs, inheritance tax paid, probate court fees, solicitor or administration fees, and all other unsecured debts

The result is the net capital available for distribution. Where a property or investment was sold during administration at a price different from the probate value, the actual sale proceeds replace the probate value in the final accounts.

2. Income account

The income account records all income received by the estate during the administration period and any associated expenses. Typical income items include:

• Bank interest earned on estate funds held in an executor's account
• Rental income from estate property that was let during the administration period
• Dividends received on shares before they were transferred or sold

Against this, deduct any expenses directly related to generating that income -- for example, letting agent fees, property management costs, or utility bills for an estate property that was occupied or managed during administration.

The net income figure is added to the capital available for distribution, or accounted for separately if some beneficiaries have different entitlements to income and capital.

3. Distribution account

The distribution account shows how the net estate is divided. It sets out each beneficiary's entitlement under the will (or intestacy rules), states the amount or assets they are to receive, and records the date and method of payment. After each beneficiary's entry, there should be a running total confirming that the full net estate has been accounted for.

Tax during the administration period

Income earned by the estate during administration is taxable. The estate is treated as a separate taxpayer for the period between the date of death and the date of final distribution. Interest, rent, and dividends received during this period are subject to income tax.

If the estate has relatively modest income during administration (broadly, if the total income tax liability for the period is below £500), HMRC may not require a formal return. However, for larger estates or those with significant property income, the executor should register the estate with HMRC and file an estate tax return (SA900). Any income tax due must be paid before the residue can be finally distributed. An accountant can assist with this if the position is complex.

Separately, if assets are sold during administration at a price higher than the probate value, capital gains tax may be due. The estate has its own annual exempt amount (currently £3,000 for the tax year) and any gains above this threshold are taxable.

Getting beneficiaries to sign

Before making the final distribution, ask each residuary beneficiary to sign a copy of the estate accounts. This signature serves two purposes. First, it confirms that the beneficiary has received and reviewed the accounts and agrees with the figures. Second, it provides the executor with documentary evidence that they carried out their duties properly and distributed the correct amounts to the right people.

A simple form of words alongside the signature is sufficient: "I confirm that I have received and reviewed the estate accounts and I confirm receipt of [amount] in full and final settlement of my entitlement under the estate of [deceased]."

If a beneficiary raises a query or objection before signing, deal with it properly before distributing. Do not distribute and hope the issue goes away -- unresolved disputes about estate accounts can result in court proceedings against the executor personally.

How long to keep estate records

Keep all estate records -- accounts, bank statements, valuations, receipts, correspondence, tax returns, and signed beneficiary receipts -- for at least 12 years after the completion of the administration. This reflects the general limitation period for claims in equity, which can arise years after an estate has been distributed if a beneficiary later alleges a breach of duty.

In practice, storing documents digitally is perfectly acceptable provided they are backed up and legible.

For more on the overall process of administering an estate, see our guides on executor duties and what to do after probate is granted. For a clear explanation of what the residuary estate is and how it is calculated before you reach the distribution stage, see our guide to the residuary estate. If you need to understand the rights beneficiaries have throughout the process, our guide to beneficiary rights covers this in full.