Executor Bank Account for Continuing a Sole Trader's Activities.

HappyScotsman

My mother recently passed away and I'm concerned about some advice.

My late father bought some office buildings many years ago. The intention was to lease units to generate income for their old age. When he died, it passed to my mother. She had no interest in their running, so it was fell to me. I sort of understood the financial background, and always meant to review, but never did. Broadly my father was a partner in a firm, the partners died off, and he became a sole trader with outright ownership of the property. The bank account behind it was a sole trader business account. His business activities have long since been wound up but there's still commercial property with leases.

My understanding is that the estate, which naturally includes her business, is under the stewardship of the executors (me and my sister). The rental business is relatively small and simply money in, money out but will provide a small income to the estate.

However, when I contacted a business manager (different BM per call nowadays) at the bank he said that since the intention was to carry on trading, even in the short term, an executor account wasn't appropriate since theirs are used to wind down a business. His recommendation was that I open a new sole trader account, in my name, to carry on the business. I followed through with his advice and started the wheels in motion.

Now I've thought about it, I'm wondering if I was incorrectly advised. From HMRC's perspective, surely it appears as if I am making an income which has personal tax implications, rather than the estate? I'm also wondering how the insurers will react when the deeds are held by executors but the payments/interactions are with an individual rather than the representative of the estate.

xylophone

Your father personally owned some commercial  property which he let out  -  he managed  the income through a sole trader account in his name? This was closed when he died?

 Ownership of the premises passed to your mother who then opened a sole trader account in her name  but never actually managed the business - you did this for her?

What  exactly does your mother's will say about who inherits the  commercial property?

HappyScotsman

From memory father's accounts were closed and various aspects of his business life wound up. I remember we had a sole trader business account named "Executors of the late ..". Eventually it had it's name changed to my mother's but I certainly don't remember the account number changing though I could be wrong. Memory is hazy after decades.

I "ran" the business on her behalf as she had no inclination to do so. I'd give her cheques to sign etc. After a bit she added me as a signatory to the account so I wouldn't have to bother her. At that time she lived about an hour away so it wan't a big deal. About 15 years ago she moved to the other end of the country but gave me power of attorney over the business interests so I could sign leases, negotiate utility contracts etc.

Her will doesn't mention the commercial property. It's basically a set of gifts with a "and split whatever is left between son and daughter".

naedanger

It does not sound ideal to me. That said, I can see why the bank does not want you to use an executor account to essentially run a business. If you want to operate the estate in this way rather than either selling its assets and distributing the proceeds, or alternatively distributing the assets in their current form, then I think the onus is on you to find the best way of managing this, and perhaps you need to seek professional advice e.g. from an accountant or solicitor.

HappyScotsman

This can't be a unique situation; an estate that has an ongoing business. The more I consider the tax stance and legal obligations, the more I think I was poorly advised. For the bank to transfer funds from the estate to a beneficiary before probate is illegal. Similarly for me to get money from the estate by means of making an income from funds and assets in the estate would also be illegal.

@naedanger you make it sound like there is a choice; operate the estate as a business or distribute the assets but there isn't. The business continues by default and until probate is granted, assets can't be distributed. 

getmore4less

Read up on death of sole trader.
The business dies with the sole trader.

There are loads of examples of how to deal with the assets.

Marcon

HappyScotsman said:

This can't be a unique situation; an estate that has an ongoing business. The more I consider the tax stance and legal obligations, the more I think I was poorly advised. For the bank to transfer funds from the estate to a beneficiary before probate is illegal. Similarly for me to get money from the estate by means of making an income from funds and assets in the estate would also be illegal.

An estate isn't a legal entity so it can't run an ongoing business. The executors can, or they can hire someone to do it - but you'd need to maintain a separate bank account in respect of the business.

There is nothing illegal about moving funds around before probate is granted - unwise, possibly!

Maybe now is the moment to get some proper professional advice from someone who has actually seen the will and knows the details of the business?

getmore4less

It is perfectly legal to have estate income outgoing and asset storage in a personal account of the administrator, happens fairly regularly.
They held as a trust with the beneficial interest belonging to the estate.

naedanger

HappyScotsman said:

This can't be a unique situation; an estate that has an ongoing business. The more I consider the tax stance and legal obligations, the more I think I was poorly advised. For the bank to transfer funds from the estate to a beneficiary before probate is illegal. Similarly for me to get money from the estate by means of making an income from funds and assets in the estate would also be illegal.

@naedanger you make it sound like there is a choice; operate the estate as a business or distribute the assets but there isn't. The business continues by default and until probate is granted, assets can't be distributed. 

Well if you are only holding the assets until they can be distributed you could go back to the bank and explain you are just using the bank account until you can distribute the assets. 

That said they are not obliged to offer an executor account and are likely to have terms and conditions in any existing account that gives them the right to close it subject only to a notice period. 

You do not actually need an executor account to administer an estate. And I don't think you will have any problem with HMRC provided you keep your dealings on behalf of the estate separate from your own affairs. (I currently am dealing with two separate estates with just separate current accounts in my own name.) 

But some things might be difficult - insurance as you have identified being one. I would also be concerned to ensure I would not personally be liable e.g. in the event of some huge claim arising from the commercial property that the insurer refused to pay. So in your situation, where the estate includes commercial assets, I would be seeking professional advice.

I also thought executor accounts were generally only offered once probate had been received.

HappyScotsman

Yes, you're right about getting professional advice. The MSE guide makes this probate thing look quite easy until you start digging into the details.

I'm also starting to think that the whole sole trader/business banking thing is a red herring. Yes, a sole trader business dies with the trader, but my mother never traded as such. Leases were in a personal capacity, not a business name. I think she ended up with a business banking account because it was easier for the bank to sell another product rather than advise what was appropriate, and the solicitor never raised it either.

So I think it boils down an office block that was owned by a person and leases with that person named as the landlord. Chartered survey can value the building, and the leases reduce down to the value of the remaining terms. 

Keep_pedalling

HappyScotsman said:

Yes, you're right about getting professional advice. The MSE guide makes this probate thing look quite easy until you start digging into the details.

I'm also starting to think that the whole sole trader/business banking thing is a red herring. Yes, a sole trader business dies with the trader, but my mother never traded as such. Leases were in a personal capacity, not a business name. I think she ended up with a business banking account because it was easier for the bank to sell another product rather than advise what was appropriate, and the solicitor never raised it either.

So I think it boils down an office block that was owned by a person and leases with that person named as the landlord. Chartered survey can value the building, and the leases reduce down to the value of the remaining terms. 

Regardless of names used, your mother was trading and running a business and was presumably completing the self employment section on her tax returns. 

Regardless of what bank accounts are used you will need to file a SA return for the estate showing the revenue coming in. As long as you keep the bank statements with the estate accounts you should not have any issues with showing that this is not your personal income. A standard business account should be fine. 

A business run by a sole trader does not die with the owner if it keeps trading.