Deceased Sole Trader - beneficiaries liable?
Discussion
My late father-in-law worked as a self-employed account, doing things like tax returns for local small businesses. When he passed away unexpectedly about 18 months ago, we notified his existing customers, asked them to settle any outstanding invoices, and asked them if we had anything of theirs (e.g. bank statements etc.) which they’d like returned.
We had a fair amount of people requesting information, either straight away, or at the end of their tax year, so we returned everything they asked for, and helped them as best we could with any missing information. However, now it’s been over a year, things have gone quiet as expected.
Now, sadly my mother-in-law has died too. On investigation it turned out she was a sole trader running the accountancy business and employing her late husband. She knew nothing about accountancy or the business, so I assume this arrangement was related to minimizing tax or liability for the pair of them.
So, we’re now in the situation where we have a house we need to sell, with a double garage rammed full of decades old paperwork relating to a business that no longer exists. The question is, can we legally securely destroy it all, or do we have to retain any of it? By my understanding when a sole trader dies, the business ceases to exist, but in theory creditors could claim against the estate.
Once the house has been sold and the estate’s been dissolved to the beneficiaries however, could any old customers still legally demand their paperwork, or even attempt any sort of legal claim against any of the beneficiaries? Google AI seems to suggest that beneficiaries are generally not legally responsible for the sole trading activities of the deceased, but I’m less sure about the situation with all the old paperwork.
Any advice gratefully received, thanks.
We had a fair amount of people requesting information, either straight away, or at the end of their tax year, so we returned everything they asked for, and helped them as best we could with any missing information. However, now it’s been over a year, things have gone quiet as expected.
Now, sadly my mother-in-law has died too. On investigation it turned out she was a sole trader running the accountancy business and employing her late husband. She knew nothing about accountancy or the business, so I assume this arrangement was related to minimizing tax or liability for the pair of them.
So, we’re now in the situation where we have a house we need to sell, with a double garage rammed full of decades old paperwork relating to a business that no longer exists. The question is, can we legally securely destroy it all, or do we have to retain any of it? By my understanding when a sole trader dies, the business ceases to exist, but in theory creditors could claim against the estate.
Once the house has been sold and the estate’s been dissolved to the beneficiaries however, could any old customers still legally demand their paperwork, or even attempt any sort of legal claim against any of the beneficiaries? Google AI seems to suggest that beneficiaries are generally not legally responsible for the sole trading activities of the deceased, but I’m less sure about the situation with all the old paperwork.
Any advice gratefully received, thanks.
Speaking as an accountant, there is a duty to ensure client records are not disposed of too early (or possibly without authorisation). The period of time is different depending on the type of client. You need to make sure you have contacted all the old clients and act accordingly. I would recommend using a secure shredding service.
I would also consider whether there was/is any need for run-off insurance cover for the sole trade.
Responsibility will lie with the executor(s) and they could be personally liable for any mistakes:
https://finalduties.co.uk/duties-of-an-executor/
Whilst the risks are probably minimal now, you may want to consider executor insurance or employing an professional. This might sound like overkill, but I've seen what happens when an executor doesn't cover everything off.
I would also consider whether there was/is any need for run-off insurance cover for the sole trade.
Responsibility will lie with the executor(s) and they could be personally liable for any mistakes:
https://finalduties.co.uk/duties-of-an-executor/
Whilst the risks are probably minimal now, you may want to consider executor insurance or employing an professional. This might sound like overkill, but I've seen what happens when an executor doesn't cover everything off.
robl499 said:
My late father-in-law worked as a self-employed account(ant)...
Now, sadly my mother-in-law has died too. On investigation it turned out she was a sole trader running the accountancy business and employing her late husband.
I doubt it changes anything but noticed that he was self-employed at the start of the post, and appears to be an employee further down.Now, sadly my mother-in-law has died too. On investigation it turned out she was a sole trader running the accountancy business and employing her late husband.
Thanks all, that website looks like a useful resource, I'll dig into it further.
Yes, the father-in-law was essentially running the business - he was the one doing all the work, but the structure was that the mother-in-law was a sole trader trading as e.g. "Aardvark accounts" (not its real name), who was then paying the father-in-law. The customers assumed it was the father-in-laws business, as did we, but it turns out it was the mother-in-law's.
There is run-off insurance in place, which has been going since the FIL died. They don't really seem to be able to provide a definitive answer on what should be kept though (e.g. just things companies have provided to him like P60s etc., all the FIL's working, or both), and for how long (we're assuming seven years?), or if we're liable for the business' affairs in any one once the estate's been distributed.
I guess we need to balance the risk of some disgruntled former customer turning up against the cost and hassle of securely storing a mountain of paperwork going back several decades.
Yes, the father-in-law was essentially running the business - he was the one doing all the work, but the structure was that the mother-in-law was a sole trader trading as e.g. "Aardvark accounts" (not its real name), who was then paying the father-in-law. The customers assumed it was the father-in-laws business, as did we, but it turns out it was the mother-in-law's.
There is run-off insurance in place, which has been going since the FIL died. They don't really seem to be able to provide a definitive answer on what should be kept though (e.g. just things companies have provided to him like P60s etc., all the FIL's working, or both), and for how long (we're assuming seven years?), or if we're liable for the business' affairs in any one once the estate's been distributed.
I guess we need to balance the risk of some disgruntled former customer turning up against the cost and hassle of securely storing a mountain of paperwork going back several decades.
With a question like that you should be asking the probate solicitor who's dealing with the Estate. If there isn't one, you need one.
First up, you need to read what "terms of engagement" were being used with clients. If they said papers would be kept for a particular period then they should be kept for that period.
Moving on to liability, you need to know what requirements the professional indemnity insurance had/has for retention of records. This means somebody reading the policy. It would would be unfortunate to lose the benefit of insurance by destroying stuff the policy requires you to keep. It's not complicated to get stuff stored by one of the off-site document storage companies.
Also,
"One of the more common pitfalls that Executors can make during Probate is becoming personally liable for debts from creditors or Beneficiaries after the Estate has been distributed.
"Placing Statutory Advertisements for Creditors is not a legal requirement. However, by placing the advertisements the Executors protect themselves against being held personally liable for any claims from creditors or Beneficiaries in the future.
"Once the advertisements have been placed for the minimum period the Executor may distribute the Estate to the Beneficiaries, safe in the knowledge that they will not be held personally liable should any claims or debts subsequently come to light."
First up, you need to read what "terms of engagement" were being used with clients. If they said papers would be kept for a particular period then they should be kept for that period.
Moving on to liability, you need to know what requirements the professional indemnity insurance had/has for retention of records. This means somebody reading the policy. It would would be unfortunate to lose the benefit of insurance by destroying stuff the policy requires you to keep. It's not complicated to get stuff stored by one of the off-site document storage companies.
Also,
"One of the more common pitfalls that Executors can make during Probate is becoming personally liable for debts from creditors or Beneficiaries after the Estate has been distributed.
"Placing Statutory Advertisements for Creditors is not a legal requirement. However, by placing the advertisements the Executors protect themselves against being held personally liable for any claims from creditors or Beneficiaries in the future.
"Once the advertisements have been placed for the minimum period the Executor may distribute the Estate to the Beneficiaries, safe in the knowledge that they will not be held personally liable should any claims or debts subsequently come to light."
Panamax said:
"Placing Statutory Advertisements for Creditors is not a legal requirement. However, by placing the advertisements the Executors protect themselves against being held personally liable for any claims from creditors or Beneficiaries in the future.
"Once the advertisements have been placed for the minimum period the Executor may distribute the Estate to the Beneficiaries, safe in the knowledge that they will not be held personally liable should any claims or debts subsequently come to light."
That sounds like a bloody good idea. London Gazette? https://www.thegazette.co.uk/"Once the advertisements have been placed for the minimum period the Executor may distribute the Estate to the Beneficiaries, safe in the knowledge that they will not be held personally liable should any claims or debts subsequently come to light."
There is a probate solicitor, so we'll give him a further nudge about this. In terms of the FILs terms of engagement with his clients, we're talking about a chap in his 70s in a shed on farm doing things by hand for a bunch of farmers and other local businessmen he'd known for decades. The chance of him having any kind of formal Ts & Cs with clients is pretty minimal I imagine, although I'll investigate.
We'll also chase up the insurers to see what they require us to keep - excellent advice, thank you.
Finally, the information about the Statutory Advertisements is also extremely useful. We'll talk to the solicitor about this, thanks again.
We'll also chase up the insurers to see what they require us to keep - excellent advice, thank you.
Finally, the information about the Statutory Advertisements is also extremely useful. We'll talk to the solicitor about this, thanks again.
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