Revenue Clearance and Estates – Part 2 – The Due Diligence Process
31 March 2022
Last week we looked at some of the preliminary aspects of the new Revenue Clearance system for estates. Today we are delving deeper into this important development for estate practitioners.
To be able to submit your application for clearance the personal rep needs to have conducted due diligence. In last week’s blog, I set out for you the due diligence form. The form is in two sections, section A and section B.
Section A sets out some basic information and is generally non-controversial. While section A looks for the date of grant you don’t need to have the grant to make the application, just to make sure you have submitted your application. Section A contains two important questions which overlap with section B. These are each looked at below.
Market Value of Assets disposed of
Section A requires one to list the market value of any assets disposed of, including gifts, in the 4 years to the date of death of the deceased. This question kinda doubles up on a later question in section B, which looks for information about disposals in the last 10 years. In many estates we are dealing with the estate of persons who died elderly and so disposal or gifts (even in the last 10 years) would not have been common. Obviously, this must be investigated. When the form talks of the market value of assets it’s not clear whether it is looking for market value as of the date of death or market value at the time of disposal. One would have thought it was market value at the time of disposal. If there were gifts of real property in the four years prior to death, more than likely this would have been done through a solicitor and a valuation obtained at the time. Market value of other assets such as shares, cash, etc may be readily ascertainable. Does putting a bank account into joint names come within this rubric? One would have thought so, particularly if the intention was that the other joint holder was to benefit on survivorship from the account.
This also raises a difficulty, in that, what if a solicitor is aware of a disposal which has not been disclosed by a beneficiary or instructing executor? For example, a diligent solicitor may request all transactions on shareholdings of a deceased in the 10 years prior to their death. This may reveal sales of shares not disclosed to the solicitor. Perhaps this was unknown to the beneficiary/executor? Perhaps there is an attempt to conceal?
Further, this also raises the question of the extent of our professional obligation in these matters. Do we take it upon ourselves to conduct investigations, or, do we rely on information supplied by executors and not look behind this?
Further section A also looks for business activities and income sources in the last four years prior to death. In each case here, the four years is the four full years prior the part year of the year of death. Again for elderly deaths this will be relatively straightforward as most person’s income in their latter years will be their State pension and private pension.
The question arises as to how you will know this? How do we as solicitors know the income of a client? I would suggest four methods:-
- Interview of the executor/beneficiaries close to the deceased;
- pulling up the bank statements and social welfare statements of the deceased. Getting these are relatively straight forward. Just write to the bank or social welfare for these. I attach a sample letter for social welfare;
- Obtaining payslips or income statements from private occupational or State pension schemes.
- Other investigations. Where a deceased had other sources of income, the investigative work becomes more cumbersome. For example, did the deceased have dividend income, rental income, income from farm subsidies, interest on savings/investments or other sources of income?
On balance, I feel the exercise should be relatively straight forward, in that the income of the individual will be so low that it will be easily collected from bank and social welfare statements and interviews with relatives or it will be so advanced that the individual will have a professional assisting them in any event with their income tax returns. Despite perceptions to the contrary, the self assessment system works, in that the majority of tax payers delcare income beyond the PAYE system. It should be relatively straight forward to collate this information from professional advisors or historic income tax returns. Many clients of any degree of sophistication will have a tax advisor who will have an agent link access to be able to pull up historic income tax returns.
However, there are going to be a wide range of outliers which will make this task difficult. For example what of the deceased who had numerous share investments (even though small in value). Collating the income tax picture from dividends in this case will be a challenge. Further, what of the farmer who has let ground out on grazing agreements. This may be “under the radar” of income tax returns. What of the person with rental income? Will we know to what extent it was declared? What happens if there is a mis-match between what was declared and rent actually paid. What of business owners taking a dividend from the businesss etc. The permutations are countless. So obviously difficulties are going to arise.
It should be noted however, before we run away with ourselves, that all the form is requiring us to find out at this juncture is income sources over the last four years. Section A is not requiring, as part of due diligence to confirm whether the deceased was tax compliant in relation to such income sources. This comes later in section B. More of which in future blogs.
Then of course there are foreign cases. So you may be dealing with a UK deceased who had property in Ireland. In that case the income sources may be all UK. It appears these are not included. So in that case, it would appear that the income source is nil.
We will deal with other aspects of the clearance procedure next week. In the meantime if you have any queries on tax, probate or will drafting pleae email me at email@example.com.
Here is the link to the precedent letter to the Department of Social Welfare.