Receipts and Indemnities and Paying out to Beneficiaries
29 September 2021
A core part of estate administration will be the distribution of funds to beneficiaries. This will normally come nearer to the end of the administration process. At this stage the residue has been established, debts have been paid and Revenue, HSE and Social Welfare clearance also obtained.
In addition to this, a final estate account will be prepared and approved by the executor. Discussions will also take place with each of the beneficiaries as to how they wish to manage their own tax treatment. Eventually one then arrives at the final figure to be paid to each of the beneficiaries.
When paying out funds to beneficiaries it is advisable for practitioners to obtain a receipt. The Law Society recommended receipt is contained at p 457 of the current version of the Probate Handbook (6th edition). It is drafted on the basis that the beneficiary has received the funds and then acknowledges receipt.
The beneficiary receipt will contain an acknowledgment of receipt of funds and will generally contain an acknowledgment by the beneficiary that they will deal with their own tax affairs. The beneficiary also confirms that by receipt of the funds they are waiving all claims against the executor and will indemnify the executor for any claims made against the executor in the administration of the estate.
Difficulties in obtaining a receipt
It can be difficult however for practitioners to obtain this receipt once sums are paid out to beneficiaries. Once beneficiaries have received their monies they can move on to other issues and returning a signed receipt can slip their mind. This leaves the solicitor in managing the file in a difficult position, in that, firstly they are not 100% sure whether the funds were received and also they do not have on file the tax indemnity and other executor indemnity wording which is contained in the receipt and for the benefit of the executor.
As a way forward for solicitors, one approach is to send out the beneficiary receipt first and indicate to clients that they wish to have this signed prior to sending out the funds.
One can see the logic from the solicitor’s point of view of wishing to have on file a beneficiary receipt, prior to payment of funds, as, it may be difficult to obtain such a receipt after funds have been paid out. However, on the other hand, it can be the case (and rightly so) that beneficiaries will query why they are being asked to acknowledge receipt of monies that they have yet to obtain. This is particularly so because the standard Law Society form of Receipt and Indemnity contains the phrase “I hereby acknowledge receipt . . .”
Another method is alter the receipt so that it can be sent out first prior to payment of funds. In that case payment is only made after the “receipt” is received. To do this, one must alter the wording of the “Law Society” receipt and indemnity. Instead of requesting the beneficiary to acknowledge receipt, one can indicate that funds on receipt will constitute a discharge to the executor and that it will represent satisfaction of their share. By this method, a solicitor has on file a beneficiary receipt and a discharge to the executors, which is a central element of the beneficiary receipt system. By this method one could argue that the beneficiary is not strictly acknowledging receipt, but rather indicating that they are providing an indemnity to the executor once funds are received.
Neither solution is ideal. Either one has on file a full receipt from the beneficiary acknowledging receipt after the payment is made (which may never be signed or may take a considerable period to obtain once funds have been paid), or one has on file a statement acknowledging that funds on receipt constitute satisfaction of their share and a discharge to the executor.
I set out below the suggested form of revised receipt which you may find helpful to deal with this ongoing dilemma.