Estate accounts: what executors must prepare and how to do it

What are estate accounts?

Estate accounts are the document an executor produces at the end of an administration, showing every sum that came into the estate, every sum that went out, and the balance paid to each beneficiary. They are the record of what you did with other people's money.

Estate accounts are not the valuation you prepared to apply for probate. The valuation is a snapshot of what the person owned and owed on the date of death, covered in how to value an estate for probate. Estate accounts run from the date of death to the final distribution, showing how the date-of-death figures turned into money received and paid.

Are estate accounts a legal requirement?

No statute says an executor must prepare estate accounts in a particular form, but the duty to account is real and enforceable. Section 25 of the Administration of Estates Act 1925 places a personal representative under a duty to "when required to do so by the court, exhibit on oath in the court a full inventory of the estate and when so required render an account of the administration of the estate to the court" (legislation.gov.uk).

GOV.UK is more direct than the statute. Its guidance on records tells you to keep the final accounts and to "Send copies of the final accounts to all beneficiaries" (GOV.UK). MoneyHelper advises executors to prepare a final document showing all the money that has come into and gone out of the estate, because beneficiaries and people owed money are entitled to request accounts (MoneyHelper).

An executor who cannot produce accounts cannot prove they administered the estate properly. That matters when someone complains, which is when the accounts stop being paperwork and become evidence.

Who is entitled to see estate accounts?

Residuary beneficiaries are entitled to see the estate accounts. A residuary beneficiary inherits a share of what is left after the legacies, debts, taxes and expenses are paid, so the size of their inheritance depends on every figure in the accounts. They cannot check what they are owed without the whole picture.

A pecuniary legatee is in a different position. Someone left a fixed cash sum, say £5,000, gets exactly £5,000 whatever else happens, so they are entitled to their legacy and to know when it will be paid, but not to the full accounts. The same applies to a specific legatee left a named item. The distinction catches families out, because everyone named in a will assumes they can see everything.

HMRC can require the records behind the estate's tax position, and creditors can ask whether the estate can pay them, as covered in what happens to debt when you die.

What must estate accounts contain?

A full set of estate accounts is built from three parts, plus a short summary at the front.

• The capital account. This lists every asset at its date-of-death value, then what was actually realised, alongside the debts, funeral costs, administration expenses and inheritance tax paid out of capital.

• The income account. This records income arising after the date of death, such as bank interest, dividends and rent, with the income tax paid on it. Income after death is treated differently from capital, which is why it is kept separate.

• The distribution account. This shows each beneficiary's entitlement, any interim payments already made, and the final balance due to each of them.

The summary should state the gross and net estate, the total distributed, and the date the administration ended. Attach the evidence GOV.UK expects you to keep: letters from HMRC confirming the inheritance tax position, receipts for debts and expenses paid, and written confirmation that each beneficiary received their share (GOV.UK).

Is there an estate accounts template you have to use?

No. There is no official estate accounts template and no prescribed format. Professional guidance is that there are no prescribed rules as to the form the accounts should take, and that the overriding requirement is that they are clear, accurate and easy for the personal representatives and beneficiaries to follow. For a straightforward estate, a simple cash account with receipts on one side and payments on the other will do.

You can produce a workable set in a spreadsheet without a solicitor. Build it as you go, not at the end:

• One column each for the date, the description, money in, money out and the running balance.

• A separate tab for capital, income and distributions, so the three accounts fall out without retyping.

• Record every transaction on the day it happens, using the reference on the bank statement.

• Keep the paper. Every invoice, valuation and HMRC letter is the evidence behind a line in the accounts.

• Reconcile to the bank statement each month, so the closing balance always matches.

Where the estate holds a business, agricultural property, a trust interest or assets abroad, professional help is worth the fee.

Do beneficiaries have to approve and sign the final estate accounts?

Beneficiaries do not have to sign, but getting the residuary beneficiaries to approve and sign the final estate accounts is standard practice and worth the effort. MoneyHelper's guidance is that the final document should be approved and signed by the executor and the main beneficiaries (MoneyHelper). A signature records that the beneficiary has seen the figures, agrees them, and accepts the sum being paid.

Send the accounts before the final payment, not with it. A beneficiary who has already banked the money has little reason to engage with the detail. Give a reasonable deadline and offer to answer questions.

Approval is not a formal legal release, and it does not protect an executor who has concealed something or acted dishonestly. It does make it far harder to complain later about a figure already signed off.

What happens if a beneficiary refuses to approve the estate accounts?

An executor faced with a beneficiary who will not approve the accounts has three options: distribute the estate anyway, pay the disputed share into court, or apply to the court for directions and ask it to approve the accounts. Ask what the objection is first, because most refusals come down to one figure that can be explained or corrected.

The beneficiary has routes of their own. A residuary beneficiary can apply to the Probate Registry that issued the grant for an inventory and account under section 25 of the Administration of Estates Act 1925. The procedure is set out in rule 61 of the Non-Contentious Probate Rules 1987. The circumstances in which a court will not order an account are very limited, and practical difficulty in gathering the information is not a defence.

Failure to keep adequate accounting records is also a recognised ground for asking the court to remove an executor, which sits alongside the other exposures described in what an executor of a will does.

Does HMRC need to see estate accounts?

HMRC does not require you to file estate accounts, but it can ask for the records behind them, and it has a long window in which to do so. GOV.UK states that "HMRC can ask to see your records up to 20 years after Inheritance Tax is paid" (GOV.UK). Keep the will, signed inheritance tax forms and supporting documents, records showing how you valued each asset, documents showing any unused threshold transferred from a spouse, and the final accounts. Our guide to the inheritance tax threshold sets out the current bands.

The estate may also owe income tax or capital gains tax on what happens after the death. An estate with income of less than £500 in a tax year has no tax liability and no reporting requirement. Above that, personal representatives can use HMRC's informal payment procedure only where all three of these conditions are met (HMRC, Trusts, Settlements and Estates Manual):

• Estate value: less than £2.5 million when the person died.

• Tax due: total income tax and capital gains tax under £10,000.

• Asset sales: proceeds under £500,000 in any one tax year.

Estates outside those limits report on a trust and estate tax return. Where you pass income to a beneficiary, give them a form R185 (Estate Income) showing the income and the tax already paid.

If you also need to report the death itself, how to notify HMRC after a death covers what Tell Us Once does and does not do.

How do estate accounts protect you when distributing an estate?

Estate accounts are the executor's own defence, because distributing an estate is when personal liability bites. An executor who pays out before the debts and taxes are settled can be pursued personally by a creditor or by HMRC, and the accounts show the order in which you did things.

Three protections work together, and the accounts hold them all in one place:

• A section 27 notice. A notice under the Trustee Act 1925 gives unknown creditors 2 months and 1 day to come forward, after which you are protected against debts you could not reasonably have known about.

• The 6 month claim window. A claim under the Inheritance (Provision for Family and Dependants) Act 1975 must normally be brought within 6 months of the date representation is first taken out (legislation.gov.uk).

• The executor's year. Beneficiaries cannot reasonably demand their share within 12 months of the date of death, which gives you time to get the figures right.

Sign and date the accounts when the administration ends, keep a copy with the will and the grant, and send a copy to every beneficiary. If money turns up later you reopen the accounts rather than start again, as explained in accounts found after probate.