How Is Estate Administration Money Treated Under the SRA Client Account Regime?

Estate Administration Money Is Client Money: The Short Answer

When your firm is instructed by personal representatives to administer an estate, the money you collect in as the deceased's assets are realised, the proceeds of any property sale, and the funds you hold pending distribution to beneficiaries are all client money under Rule 2.1 of the SRA Accounts Rules 2019. That single fact drives everything that follows: the money must sit in a separate client account, run through one ledger per estate, be reconciled at least every five weeks, attract a fair sum of interest where appropriate, and never be used to provide banking facilities to the personal representatives. The firm's own fee is a separate matter (a standard-rated supply of legal services), distinct from the estate money it controls.

Probate is, on the SRA's own evidence, the highest-risk client-money area in legal practice. This guide is written for the probate or private-client fee earner, the COFA and the practice manager who need the estate-specific mechanics laid out precisely: the Rule 2.1 status analysis, the acute banking-facility trap, ledgering, interest, distribution timed against the s.27 Trustee Act 1925 notice period, and closing the matter to nil without leaving a residual balance behind. Rates and thresholds in this guide are current at 3 June 2026.

Why Probate Money Is the SRA's Highest-Risk Client Money

Estate administration moves more money through the client account, for longer, than almost any other everyday matter. A typical estate realises bank and building society balances, redeems investments, sells a property and collects debts, then pays the deceased's liabilities, settles inheritance tax with HMRC, discharges the firm's costs and distributes the residue. Six-figure balances are routine, and they can sit in client account for many months while the grant is obtained, assets are gathered and the s.27 notice period runs.

The SRA's thematic review of probate and estate administration identified the area as high risk, noting that probate has generated some of the largest Compensation Fund payouts. The combination of large sums, long holding periods, clients who are often bereaved and unfamiliar with the process, and the temptation to use the firm's client account as an estate bank account, is exactly where the Accounts Rules bite hardest. Getting the client-account mechanics right is therefore not a back-office detail; it is the core of running a compliant probate practice.

Is Estate Money Client Money? The Rule 2.1 Analysis

Rule 2.1 of the SRA Accounts Rules 2019 (in force 25 November 2019) defines client money as money you hold or receive: relating to regulated services delivered to a client; on behalf of a third party in relation to regulated services (such as money held as agent, stakeholder or to the sender's order); as a trustee or as the holder of a specified office or appointment; or in respect of your fees and unpaid disbursements before delivery of a bill.

Where the firm is instructed by the personal representatives to administer the estate (the common case), the money you hold falls within the first two limbs: it relates to the regulated services you deliver to the personal representatives, and it is held on their behalf and ultimately for the beneficiaries. It is, in substance, the personal representatives' money in their capacity as personal representatives, held by the firm for the estate.

The position differs where the firm itself is appointed executor or trustee. Then the firm holds the money as a fiduciary, within Rule 2.1(c) (money held as a trustee or as the holder of a specified office or appointment, such as a donee of a power of attorney or a Court of Protection deputy). The client-account discipline is identical, but the remuneration and tax analysis is different and is covered in our guide to a solicitor acting as executor or trustee. For the broader definition, see what counts as client money for UK solicitors.

The Client Account and the Banking-Facility Trap (Rule 3.3)

Estate money goes into the firm's general client account, or, for a large or long-held estate, into a separate designated deposit account so that interest reaches the estate (see interest, below). Rule 3 requires that client money sit in a separate client account at a bank or building society branch in England and Wales, named to include the firm's name and the word client, and kept apart from the firm's own money.

The Rule 3.3 banking-facility prohibition is acute in probate. A personal representative may, entirely innocently, ask the firm to keep the estate's cash in client account and pay the deceased's ongoing bills, standing orders and the personal representatives' own expenses from it over many months. That turns the client account into a bank account. Rule 3.3 requires that every payment in, transfer and withdrawal relate to the delivery of regulated services. Once payments stop relating to administering the estate, or funds linger long after the legal work is done, you are providing banking facilities and in breach.

The fix is straightforward: hold in client account only what the regulated work requires, and have the personal representatives open a dedicated executor's bank account for ongoing cash flow. For the general principles, see our solicitor trust accounting guide.

One Ledger Per Estate: The Ledgering Discipline

Open a dedicated client ledger for each estate, in the name of the estate (for example, Estate of A B, deceased). Record every receipt and payment with the date, amount, source or payee and purpose. Sub-analysis within the ledger is helpful (asset realisations, liabilities and tax paid, legacies, residue) but the principle is one ledger per estate.

That estate ledger feeds the five-weekly three-way reconciliation under Rule 8.3, which requires you to reconcile ledger totals to the cash book to the bank statement at least every five weeks, signed off by the COFA or a manager. Two rules are absolute: never let an estate ledger go into debit (a debit balance on client account is a serious breach, because you would be spending one client's money on another), and never net one estate against another. For the cadence, see our note on SRA client account reconciliation frequency and the wider client money accounting for solicitors.

The Estate Cash Cycle Through Client Account

The practical flow of an estate through client account is:

• Money in, as assets are realised: bank and building society account closures, investment redemptions, the property sale proceeds, debts collected and any insurance or pension lump sums payable to the estate.
• Money out: paying the deceased's debts and liabilities, paying inheritance tax to HMRC, paying the probate application fee, transferring the firm's billed costs to office account (only after a bill is delivered), and making interim and final distributions to beneficiaries.

Two points matter for the accounts. First, inheritance tax and the probate application fee are paid from estate funds; they are not the firm's income and they are not the firm's supply. Second, the firm's professional fee is a separate, standard-rated VAT supply, and the treatment of estate outlays as disbursements or recharges is a discipline in its own right, covered in VAT on probate and estate administration fees.

Property Sale Proceeds Within an Estate

Where the firm also acts on the sale of the deceased's property, completion proceeds arrive in client account and feed the estate ledger. The mechanics mirror ordinary conveyancing client-money handling (the same Rule 3.3 prohibition and Rule 8.3 reconciliation), but the receipt belongs to the estate rather than to a living seller, so it is posted to the estate ledger, not a separate conveyancing matter for an individual.

The risk to watch is the estate that holds a property unsold for a long period, or that holds the net proceeds while the administration drags on. A large balance sitting for many months is exactly where the Rule 7 interest duty and the Rule 3.3 banking-facility questions both surface. If funds are simply parked with no live regulated work, ask why they remain in client account at all.

Interest on Estate Money (Rule 7)

Estates routinely hold material sums for months. Under Rule 7 the firm must account to the client or third party for a fair sum of interest on client money held, with fairness judged by the amount and the duration. A large or long-held estate balance is a clear candidate, and a firm that holds six figures for the better part of a year and pays nothing will struggle to defend that as fair.

There are two compliant routes. The firm can pay a fair sum of interest from its office account under a written interest policy, or it can place the estate funds in a separate designated deposit account so the account's actual interest accrues to the estate. For the policy mechanics and how to frame a fair-interest agreement, see handling client money interest under the SRA rules. Note that interest the firm retains as its own is exempt income for VAT purposes, which can engage partial exemption; the practical treatment is set out in our note on law firm partial exemption and client account interest.

Distribution Mechanics: Interim and Final

Clean distribution is where a well-run estate either closes neatly or leaves a problem behind. Interim distributions can be made during administration once you are confident the estate is solvent and the remaining liabilities and tax are provided for. The final distribution of residue follows once all debts, tax and costs are settled and the estate accounts are approved by the personal representatives.

Three habits keep distributions clean. Verify each beneficiary's identity and bank details before paying (estate distributions are a known fraud target). Obtain a receipt or acknowledgement for each payment. And time the distribution against the s.27 Trustee Act 1925 advertisement period, so the personal representatives are protected against unknown claimants. Under s.27, once the notice period (not less than two months) has expired, the personal representatives may distribute having regard only to claims of which they then had notice. Distributing before that period closes exposes the personal representatives, and potentially the firm.

Closing the Estate Ledger and Avoiding a Residual Balance

The objective is a nil estate ledger balance at close. To get there: account for every receipt and payment, settle all liabilities and tax, transfer the firm's billed costs out, distribute the residue against approved estate accounts, and reconcile the ledger to zero.

Where a small amount stubbornly remains (a residuary beneficiary who cannot be traced, a distribution cheque never cashed, or a rounding remnant), that is a residual client balance. It is still client money. You must not leave it on client account indefinitely, and you must never sweep it to office account as a windfall. It has its own disposal route under Rule 5.1: take reasonable tracing steps, then, for a balance of £500 or less per matter, pay it to a charity of your choice without SRA authorisation if every condition is met; over £500, obtain the SRA's prior written authorisation. The full procedure is in clearing residual and unclaimed client balances.

Withdrawals From an Estate Ledger: The Rule 5.1 Discipline

Every payment out of an estate ledger is a withdrawal of client money, so it must satisfy Rule 5.1. Client money may be withdrawn only for the purpose for which it is being held, on instructions from the client or the third party for whom it is held, or on the SRA's prior written authorisation or in prescribed circumstances. In an estate, almost all routine payments fall within the first two limbs: settling the deceased's debts, paying inheritance tax, paying the probate fee and distributing to beneficiaries are all withdrawals for the purpose for which the money is held, made on the personal representatives' authority.

Two practical disciplines follow. First, you cannot withdraw more than the estate ledger holds: a withdrawal that would overdraw the ledger means you would be using another client's money, which is the cardinal breach. Second, before transferring the firm's own costs out you must deliver a bill of costs (or other written notification of the costs incurred) and transfer only the specific sum identified in that bill. A request for payment on account of costs is not a bill for this purpose. Where a single receipt is part estate money and part the firm's costs (a mixed payment), allocate it promptly between client and office account rather than leaving the whole sum in either.

Estate Money and the Firm's Own Income

It is worth being explicit about what is, and is not, the firm's income, because it is the point clients and junior fee earners most often blur. The estate money flowing through the client account is never the firm's income; it is the estate's money held on trust-like terms. The firm's only income from the matter is its professional fee (a standard-rated supply of legal services) and, where it retains interest as its own rather than accounting for it to the estate, that retained interest (which is exempt income for VAT).

Inheritance tax, the probate application fee, office copies, s.27 notice costs and Land Registry fees are all the estate's outlays, not the firm's revenue, even where the firm pays them in the first instance and recharges them. Keeping this distinction crisp on the estate ledger and on the bill protects the firm against both an SRA finding (treating client money as office money) and a VAT error (mischaracterising the firm's recharges). The disbursement-versus-recharge analysis for those outlays is set out in VAT on probate and estate administration fees.

Records, Retention and the Accountant's Report

Keep the estate ledger and all supporting records for at least six years. A firm that has held client money at any time in the accounting period must obtain an accountant's report within six months of the period end, unless it qualifies for the Rule 12.2 exemption. That exemption applies only where all client money held was within an average not exceeding £10,000 and a maximum not exceeding £250,000 in the period (or all client money was held for the Legal Aid Agency).

Most probate-active firms run balances well above those limits, so the realistic plan is to expect an accountant's report and to keep the estate records in a state that supports it. For the exemption test in full, see SRA accountant's report exemption thresholds, and for the overall framework, the SRA Accounts Rules explained.

A Worked Example: The Standard Personal-Representative-Instructed Estate

The following is illustrative only and not advice. A firm is instructed by two personal representatives to administer an estate comprising a house, two bank accounts and an investment portfolio.

• Open the ledger. The cashier opens an Estate of A B, deceased client ledger. Every movement is posted here.
• Money in. As the grant is obtained and assets are gathered, the two bank accounts are closed, the investments redeemed and the house sold; each receipt lands in client account and is posted to the estate ledger with source and date. The property completion proceeds are a single large receipt.
• Money out. The firm pays the deceased's outstanding debts, settles inheritance tax with HMRC, and pays the probate application fee of £300 (for an estate over £5,000) plus £16 for each office copy of the grant. None of these is the firm's income.
• The firm's costs. Once the firm delivers a bill, it transfers the billed costs (with VAT accounted on its fee) from client account to office account, posting the transfer to the estate ledger.
• Interest. Because the property took several months to sell and a six-figure balance sat in client account, the firm accounts for a fair sum of interest under Rule 7.
• Distribution and close. After the s.27 notice period expires and the estate accounts are approved, the firm makes an interim distribution and then the final distribution of residue, verifying beneficiary details and obtaining receipts. The ledger is reconciled to nil and closed.

The discipline in one line: one ledger per estate, reconciled five-weekly, closed to nil. Compare the trap to avoid: a personal representative who asks the firm to keep paying the deceased's household bills from client account for a year after the legal work is finished is asking the firm to run a bank account, which breaches Rule 3.3. The answer is an executor's bank account, not the client account.

Where Estate Client-Money Compliance Goes Wrong

The recurring failure points in probate are predictable, and most are caught by a disciplined reconciliation. The first is the banking-facility breach already described: paying the deceased's ongoing bills or the personal representatives' expenses from client account long after the regulated work is done. The second is the overdrawn or wrongly netted estate ledger, where a payment is made before the matching receipt has cleared, momentarily spending another client's money. The third is leaving estate funds in client account with no live work, which raises both the Rule 7 interest duty and the question of why the money is still there at all.

The fourth, and the most common finding on an accountant's report, is the unreturned residual balance at the end of an estate: an uncashed legacy cheque or a beneficiary who cannot be traced, left sitting on client account for years because no one applied the disposal route. The fifth is taking the firm's costs before a bill is delivered, or taking more than the billed sum. None of these is exotic; they are the ordinary ways a busy probate desk drifts out of compliance, and a periodic dormant-balance and ledger review built into the five-weekly reconciliation cycle catches almost all of them before they become a report qualification.

Speak to a Specialist

Estate administration is the most scrutinised client-money area in legal practice, and the cost of getting the client-account mechanics wrong (a Rule 3.3 breach, an overdrawn estate ledger, an unaccounted residual balance) is high. If your firm wants its probate ledgering, interest policy, distribution discipline and matter-closing process reviewed against the SRA Accounts Rules 2019, our team works with private-client and probate practices on exactly this. Speak to a specialist who understands both the regulatory and the accounting side of estate money.