Valuing assets and debts for probate - importance and risks of getting it wrong

Probate Valuation guide

Probate valuation can be complex. Consider seeking assistance from a probate solicitor who can guide you through the process and ensure accurate valuations.

Probate valuation is a crucial step in settling an estate. It involves determining the total value of everything the deceased owned (assets) minus what they owed (debts) at the time of death. This value is used for several reasons, including:

• Applying for Probate – you will need the estate value to obtain a grant of probate, which allows you to distribute assets to beneficiaries.

• Calculating Inheritance Tax - the estate's value determines if Inheritance Tax is due and how much.

• Distributing estate proceeds accurately - knowing the value ensures debts are paid and assets are distributed accurately according to the will or intestacy rules.

Gathering information is key first step

The first and crucial step is to gather information about assets and debts. In some cases, the deceased may have left very accurate and complete records but in others the position is not clear. Rushing or making assumptions about what assets or liabilities the deceased may have had creates risks for executors.

So, the first practical step is to give yourself some time, often a few months not just weeks. This is important because it allows you, as executor to :-

• Set up mail redirection – A very good way of ensuring you receive correspondence which may include monthly, quarterly or annual statements associated with accounts the deceased had

• Search - the deceased’s property thoroughly and speak with family members and advisors

• Contact Financial Institutions - contact all the banks, building societies, and other financial institutions the deceased might have dealt with and keep records.

• Search asset databases – use resources like the Unclaimed Asset Register and Landmark Financial Assets. A quick search might just uncover forgotten accounts or investments the deceased might have overlooked. Keep in mind that using these services usually involves a fee.

• Get credit reports – getting a credit report from organisations like Equifax will help to identify whether the deceased may have had debts such as credit cards, personal loans and his or her credit score might alert you to the possibility of other potential outstanding debts

• Notify beneficiaries – to avoid frustration and potential pressure from beneficiaries who often assume everything is quick and straightforward, explain the process and need for patience to beneficiaries. Keep them regularly informed.

Certain assets are generally not considered part of the estate for probate purposes. These may include assets held jointly with another person with "right of survivorship" (ownership automatically passes to the surviving joint owner upon death),  life insurance policies that name a specific beneficiary (the beneficiary receives the payout directly, not through probate) or assets held in a trust (governed by the trust's terms, not probate).

Valuing assets

To avoid or minimise the chance of a dispute or allegations being made at a later date, it’s important to seek independent valuations of higher value or unusual assets. Remember that as executor, if you do not adopt a thorough, transparent approach, you may find yourself under attack from HMRC and/or beneficiaries.

The main asset is often the deceased’s property or share in a property - consider a valuation from a chartered surveyor, especially for large estates or potential Inheritance Tax liability. Local estate agents can also be an option. Be prepared for potential scrutiny from HMRC regarding the valuation. Getting at least 2 and possibly more estate agent valuations, in writing, is always advisable.

For other valuable items such as cars, jewellery, or furniture, research similar items online to estimate their current market value. Consider professional valuations for antiques or collectibles. Always keep full records of everything you do.

Risks for Executors

The key starting point is to understand that executors can be held personally liable, both by HMRC and beneficiaries. In the case of HMRC, this may be where IHT is underpaid and with beneficiaries, they may claim that assets have been sold for too low an amount.

Obtaining legal advice can help ensure accurate valuations and minimise risks.

What happens if assets are found after probate has been finalised?

If assets are discovered after probate has been granted, the following applies :-

• Reporting the Discovery: Executors have a legal obligation to inform HMRC and update the estate value if they discover new assets.

• Potential Additional IHT: The additional assets may be subject to IHT, requiring a recalculation and potential payment to HMRC.

• Distribution of Assets: Newly discovered assets should be distributed to beneficiaries according to the terms of the will or intestacy rules. In some cases, depending on the nature of the asset and the time elapsed, legal advice might be necessary to determine the proper distribution method.

We can help

We have 1 of the UK’s largest teams of specialist probate lawyers, with over 40 lawyers in more than 15 locations, with 10 in London alone. If you need legal advice, as an executor, you can rest assured that we have the experience and offer the necessary cost/benefit approach you need. Please do get in contact.