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Probate Valuation of Estate

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Probate Valuation of Estate
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When someone dies, their estate must go through probate – the legal process for dealing with the deceased person’s property, finances and possessions. A probate valuation clarifies the estate’s total worth of assets and liabilities. This establishes whether inheritance tax is payable, ensures any tax obligations are fulfilled, and allows the distribution of assets to beneficiaries once probate is granted.

This blog will take you through the key things you need to know about probate valuations: why estates need to be valued, who carries them out, how long they take, what happens for smaller estates, and how to ensure tax regulations are correctly followed.

Why does a deceased person’s estate need to be valued?

An estate valuation serves several vital purposes. Most significantly, it establishes if any inheritance tax needs to be paid before assets can be distributed to beneficiaries.

In the UK, an inheritance tax is 40% on estates valued over £325,000. So, if the estate’s total value exceeds this threshold, you must pay a portion to HMRC. Therefore, knowing the estate’s precise worth is critical for ensuring the right amount of tax is calculated and paid.

Additionally, the probate valuation clarifies the estate’s assets and liabilities for executors and beneficiaries. It accounts for all property, money, investments, insurance policies, pensions, cars and other assets the deceased person owned. It also factors any debts like mortgages, loans, or unpaid bills you must repay from the estate.

A clear picture of these assets and debts allows for adequately executing the person’s will, ensuring beneficiaries receive what they are entitled to. It also provides certainty for executors or administrators acting on behalf of the estate.

Who carries out a probate estate valuation?

A grant of probate cannot be issued until a complete inventory and valuation of the estate has been conducted. Who carries this out depends on the size and complexity of the estate.

For smaller, more straightforward estates, the nominated executors may choose to value the assets themselves. But for anything above £325,000 or involving substantial property or share portfolios, professional help is advisable.

Using professional probate valuers provides an impartial, independent assessment. Licensed probate practitioners like solicitors and accountants, and some banks or fiduciary services offer specialist probate valuation services. They can accurately value all components of the estate.

If HMRC determines that assets have been deliberately undervalued, they can impose penalties on executors. So, for estates where inheritance tax applies, using professionals to undertake valuations provides helpful evidence about due diligence.

How long does it take to value an estate?

The time it takes to value an estate can vary significantly depending on its size and complexity.

If acting as an executor, thoroughly locating and recording all assets and liabilities is essential not only for the valuation but also for probate and distribution of the estate. Rushing through this process risks undervaluing assets or failing to disclose relevant gifts made before death.

For straightforward estates worth under £325,000, a DIY valuation by executors may take between 1 and 2 months. But it’s important not to underestimate costs and the scope of assets – if using professionals later becomes necessary, this will add time and expense.

Estates above the inheritance tax threshold that require professional valuations often take 6-12 months to complete. Larger or more complex estates with a mix of domestic and overseas assets, extensive property portfolios, trusts or estates spread across multiple countries can take over a year to value accurately.

Using professionals from the outset helps maximise efficiency. However, estimating the total value will require meticulous asset location, legal documentation reviews, property surveys, contact with companies to value investments, pensions and insurance policies, and discussions with accountants regarding any outstanding taxes owed.

This comprehensive process ensures assets are accurately valued, legally owned by the deceased and distributed appropriately according to the will or laws of intestacy. Rushing valuations risk assets being missed or incorrectly assigned, creating complex disputes later between beneficiaries over asset ownership. It is best to put a flexible timeframe on completion where possible.

What happens if the estate’s value is less than £5,000?  

The probate process provides necessary legal safeguards around asset distribution and creditor protection for beneficiaries. However, seeking a grant of probate can take time and effort.

Suppose an estate has a total net value below £5,000. In that case, the probate rules are simplified, allowing assets to be distributed without going through the courts.

To take advantage of this, whoever administers the estate must send a statutory declaration to organisations holding assets, like banks or housing associations. This allows assets under £5,000 to be released and distributed according to the person’s will or intestacy rules without requiring a full grant of probate. Foregoing probate also means avoiding legal fees for valuations or applications.

However, liability remains with administrators if debts emerge later, so caution should be applied when using this small estate process. Any disputed ownership of assets should still go through probate for legal protection, even if below £5,000 total.

But for straightforward estates with clearly assigned assets under £5,000 net value, using the small estates procedure can save significant time and money compared to formal probate.

Why is an estate’s value so important?

The bottom line is that the value of an estate has implications across taxation, distribution entitlements, asset ownership claims, and creditor repayments. So, accurately determining total worth is vital.

If inheritance tax is owed but not calculated and paid correctly due to asset undervaluation, outstanding tax plus interest and penalties will still be claimed by HMRC before probate can be granted. This delays asset release and creates preventable financial damage for beneficiaries.

Likewise, the probate process confirms legal ownership and entitlements before distribution. Valid beneficiaries can contest the will if they believe assets have been incorrectly assigned or deliberately undervalued to limit their inheritance.

A clearly established and accepted valuation from the outset provides a definitive reference point if any disputes arise between executors or beneficiaries over asset distribution later on.

You must also repay the estate’s debts from asset sales to finalise probate. These take priority over distribution to beneficiaries. So, understating debts risks insufficient funds being available later to cover what is legally owed to creditors.

Carefully valuing the full scope of an estate’s worth and having this accepted as accurate by all stakeholders minimises these kinds of disputes arising down the track. It also correctly establishes any tax liabilities due so HMRC processes don’t get held up.

Getting the estate valuation right from day one is essential for smoothly executing the person’s will and allowing beneficiaries to receive entitlements without unnecessary delays.

How do I make sure any tax obligations are met?

What taxes apply, how much is owed, deadlines for payment and where funds will come from to meet liabilities will all depend on the total value of assets after deducting debts. So, ensuring any inheritance, income or capital gains tax rules are appropriately followed is central to valuations and probate.

With inheritance tax, in particular, complete disclosure to HMRC is vital. Deliberate undervaluation of assets, not accounting for relevant lifetime gifts, concealing assets offshore, or transferring ownership before death to limit tax can incur serious tax evasion consequences if then uncovered during probate.

Any assets gifted or transferred within seven years of death may still attract inheritance tax, depending on timing and the extent to which assets have been appreciated. So, not declaring these, even if probate is not required for their specific distribution, risks regulatory penalties being imposed on the estate executors or administrators.

Full, truthful disclosure to HMRC and ensuring all tax obligations are met on the total asset values avoid creating further legacy problems for beneficiaries. Depending on the estate’s complexity, engaging expert help like solicitors, accountants, and tax specialists may be prudent for accurate valuations and navigating relevant taxation rules.

With estates above £325,000, getting inheritance tax calculations right is critical, so professional tax guidance is advisable. Taking the right advice and providing the necessary evidential documentation ensures you will complete the probate process smoothly.

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