Cheques written by the deceased

Sea_Shell

First up, let me say that this isn't a current problem, but one I can foresee being a possibility (close relative does everything by cheque still!), and I just wanted to check what the situation(s) would be.

Do any cheques written by the deceased, but not cashed before they passed, get honoured by the bank if then presented (if there are sufficient funds) or do they get rejected and they become a debt of the estate?    Does this depend on whether the bank have been notified of their passing?

Also what would the position be with post-dated cheques, if they were dated after the issuer passed?     My Nan used to always put the date of your birthday, as the date of the cheque, rather than the date written, when she posted your card.    

Extreme example, cheque written for £3000 now, but dated for the next tax year, on an account with a balance of £3000 kept specifically for the clearance of said cheque.    Also does the cheque have to already be in the possession of the recipient?   What if it's sitting on the mantlepiece waiting to be posted?

Thanks

Keep_pedalling

Uncashed cheques will not be honoured once the account is frozen. Any made to pay bills will go down as debts owed by the estate,  gifts will fail.

Sea_Shell

Interesting that gifts fail, and are not treated as debts to the estate.   

Bit harsh to maybe have to explain to a 10 yr old that their birthday cheque they received yesterday from their late Aunt Mable, won't be able to be cashed.

So any "deathbed" gifts, must be made using internet or mobile banking there and then then!!!

Keep_pedalling

Sea_Shell said:

Interesting that gifts fail, and are not treated as debts to the estate.   

Bit harsh to maybe have to explain to a 10 yr old that their birthday cheque they received yesterday from their late Aunt Mable, won't be able to be cashed.

So any "deathbed" gifts, must be made using internet or mobile banking there and then then!!!

With the agreement of the residual beneficiaries the executor still pay those gifts from the estate. There is always the old school option of cash rather than an electronic transfer. 

Sea_Shell

Keep_pedalling said:

Sea_Shell said:

Interesting that gifts fail, and are not treated as debts to the estate.   

Bit harsh to maybe have to explain to a 10 yr old that their birthday cheque they received yesterday from their late Aunt Mable, won't be able to be cashed.

So any "deathbed" gifts, must be made using internet or mobile banking there and then then!!!

With the agreement of the residual beneficiaries the executor still pay those gifts from the estate. There is always the old school option of cash rather than an electronic transfer. 

Would they have to do this "officially" with a deed of variation, or if it's for a small amount, just verbally agree to pay it?

Is there a discretionary limit between the two?

naedanger

You never have to use a deed of variation for the residual beneficiaries to make a gift. It is just there may be, in some cases, a potential tax advantage of doing so. However for a small gift any tax advantage of a deed of variation is unlikely to be worth the effort of making a deed of variation. 

The tax advantage of a deed of variation is that it stops the gifts ever being part of the estates of those making the gift. If their estates would be under the inheritance tax threshold anyway, or they live more than 7 years, or they gift less than £3,000 per year then there would be no inheritance tax implications from making a gift and so no advantage of a deed of variation at least assuming current inheritance tax rules don't worsen (which may be a sigificant issue if considering large gifts).

Sea_Shell

That makes sense regards the DoV, thanks.

So an envelope full of cash with "for X" written on it (and left on the mantlepiece) would be allowed to be handed out to X without it having to be included in the residual estate?

(Not withstanding potential IHT and 7 year rule)

Keep_pedalling

Mickey666 said:

Although a bank might not cash a check after death, because it is written before death surely it's a 'promise to pay'?  In which case, when the cheque is returned surely the executor should simply pay it from the estate funds, as per the clear intention of the deceased?

Extract from Practical Law:

A transfer of money by cheque is not completed until the cheque is cleared, because the transferor can cancel the cheque before then (Owen, Re [1949] 1 All E.R. 901, Swinburne, Re [1926] Ch. 38 and (before the Special Commissioners) Curnock v Inland Revenue Commissioners [2003] UKSC SPC00365)

In Curnock Mr Avery-Jones quoted Sir Ernest Pollock MR:

“A cheque, as explained by Lord Romilly, MR, in Hewitt v Kaye [(1868) L.R. 6 Eq. 198] is nothing more than an order to obtain a certain sum of money, and it makes no difference whether the money is with the bankers or elsewhere. It is an order to deliver the money; and if the order is not acted upon in the lifetime of the person who gives it, it is worth nothing.”

naedanger

Sea_Shell said:

That makes sense regards the DoV, thanks.

So an envelope full of cash with "for X" written on it (and left on the mantlepiece) would be allowed to be handed out to X without it having to be included in the residual estate?

(Not withstanding potential IHT and 7 year rule)

No the cash would need to be included as an asset in the inventory. If the amount was to repay a legal debt then that debt would also be included when calculating the net estate so the two amounts would cancel.

If there were no other assets it would be: Inventory £100 cash, debt £100, net estate £0 (I have just use £100 as an example).

If the £100 was to be a gift then it would fail and the result would be the net estate would have £100 cash.

That would be distributed and on the beneficiaries named in the Will and they could gift it to the originally intended recipient.

Alternatively the beneficiaries could do a dov which would have the effect of making the intended recipient the beneficiary. 

theoretica

Take things to the illogical extreme - someone clearly can't get around inheritance tax by making gifts of £3000 every tax year after they are dead.

Sea_Shell

theoretica said:

Take things to the illogical extreme - someone clearly can't get around inheritance tax by making gifts of £3000 every tax year after they are dead.

Obviously not, but I did wonder about the post dated cheque scenario.  Which has now been clarified.

However on a small estate, whereby the will states that X and Y are equal beneficiaries, but might have no compulsion to share, could say £1000, having been drawn out in cash and earmarked (and documented) to be gifted to Z still be gifted, if physically the gift wasn't delivered before they passed?

Or is it purely on reliant on X and Y playing ball and not digging their heels in.

In an ideal world the will could be re-written, but a gift might want to be made at short notice to a non beneficiary.