When someone dies, their estate needs to be divided up and distributed to their beneficiaries as part of the probate process. To do this, the executor or administrator of the estate will need an accurate valuation of every asset and liability that is contained within it.
If you are the executor or administrator, it is crucial that your estate valuation is accurate for both probate and Inheritance Tax purposes. If you make a mistake with your valuation, your application to the probate registry could be significantly delayed and you could be held financially liable. This article will explain how to go about valuing the different assets and liabilities commonly found in an estate.
First, you should make a list of every asset owned by the deceased at the time of their death that might hold value. This may include property, bank accounts, savings accounts, life insurance, pension funds, shares, Premium Bonds, vehicles, expensive artwork, antiques, collectibles, expensive jewellery, and possibly even furniture and appliances depending on their newness and condition.
Locating these assets can take a lot of time and digging. You will need to find the relevant paperwork, which might be stored in the deceased’s property or with their bank or Solicitor. For physical items such as antiques and jewellery, you will need to conduct a thorough search of the property. To speed up the process, you might consider hiring a specialist to help you.
After listing all assets, you will need to list any liabilities on the estate. This includes any outstanding payments owed by the deceased at the time of their death. For example, mortgages, credit card bills, loans, care fees, utility bills, tax bills, and more. Again, there will be some research required here; you will need to locate every organisation and individual that the deceased owed money to and ask for a valuation of the debt.
Moreover, you should consider placing a Statutory Advertisement in the Gazette and in a newspaper local to the deceased. This way, any person or organisation who was owed money by the deceased is given notice to come forward and claim their liability. This offers the executor or administrator some protection against anyone who comes forward to make a late claim after the funds have been distributed.
You should now have a full list of all assets and liabilities in the estate. This will be a huge help when you come to the next step, which is to value them.
Monetary assets are often the most straightforward assets to value provided you know which organisations to contact. This includes bank accounts, savings accounts, stocks, shares, Premium Bonds, pension funds and life insurance.
To figure out which organisations your loved one held money with, you can search their home for paperwork, speak to their friends and relatives, or contact their Solicitor or Accountant (if they have one).
You should contact each organisation to notify them of the death and ask them to freeze any active accounts. This will prevent any further payments from being made such as direct debits. You should then ask for a valuation. The bank or organisation will be able to tell you how much money there is in each account, but they may not be able to release the funds to you if you do not yet have a grant of probate. Every bank is different, but all have a limit on how much money they can release without needing to see a grant of probate which proves you have legal authority to administer the deceased’s estate. This is usually a limit of £5,000 - £50,000. Don’t worry if you are not allowed to access the funds yet, the bank will keep them safe until you have the right documents.
Valuing property is slightly more complicated than valuing bank accounts because it is a physical possession that can appreciate or depreciate over time.
To get an estimation for the value of a property, you can search for similar houses in the area on Zoopla, for example, to see how much they are selling for. If your property might be valued at only slightly below the current Inheritance Tax threshold of £325,000, HM Revenue & Customs (HMRC) might suspect that you are trying to avoid taxation and may therefore challenge your valuation. Under these circumstances, you should hire a RICS qualified surveyor or an estate agent to value your property.
The safest option is to hire a RICS qualified chartered surveyor. This will give you an official valuation that builds a much stronger case against potential challenges from HMRC than a valuation from an estate agent. Chartered surveyors can also consider any repairs or renovations that need doing before the house can be put on sale. Furthermore, they can advise on any potential development opportunities that might increase the value of the property.
There might be several costs that need to be paid to maintain the property before it can be sold, such as estate agent fees, cleaning and clearing fees, repair and renovation fees and more. These fees can all be charged back to the estate and the executor will never be expected to pay out of pocket during probate. However, the amount of money spent by the executor during probate will have a direct impact on how much is left for the residuary beneficiaries to inherit. As the executor has a responsibility to act in the best interests of the beneficiaries, they should communicate with them about these costs before they commit to spending the money.
Valuing the personal possessions of the deceased can be confusing, as it is sometimes hard to know which possessions hold value and which do not. Personal possessions can include vehicles, antiques, artwork, collectibles, expensive jewellery and watches, new furniture and appliances, and even expensive clothing or bags. However, in most estates in the UK, there will be very few personal possessions that hold significant value.
For items such as vehicles, jewellery, watches, furniture, appliances, and expensive clothing and bags, you can search online marketplaces for similar items to see how much they are selling for. Remember to consider the newness and condition of these possessions; a piece of furniture will sell for a lot more brand new than it will after years of use. Moreover, sometimes jewellery that was expensive when new is worth more now as scrap gold or silver.
For more unusual items such as artwork, collectibles, and antiques, you should consider hiring a specialist to give you a professional valuation and possibly even arrange a sale for you if the item is valuable enough.
You should have a value written down for all assets contained in the estate. Now, it is time to calculate the liabilities. This includes any outstanding payments due from the deceased at the time of the death, such as mortgages, credit card bills, utility bills, loans, care fees, tax bills, and more.
As with monetary assets, you need to know the organisation or individual that each debt is owed to. You should contact each one, notify them of the death and ask for a valuation. You will need to pay these liabilities off before you can begin distributing funds to the beneficiaries.
To calculate the net value of the estate for probate and Inheritance Tax purposes, you should subtract the value of all liabilities from the value of all assets. This will give you the information you need to apply for a grant of probate and pay off any Inheritance Tax due as soon as possible.
If you are the executor of an estate for someone who has recently died, you might feel overwhelmed with information and instructions. It is usually recommended that you seek legal advice if you are unfamiliar with the process. At Kwil, we offer a full estate administration service whereby we will complete the estate valuation and Inheritance Tax calculations for you. We will also fill out the forms necessary to obtain a grant of probate and handle the entire estate administration after that, from selling or transferring property, to paying off debts and distributing funds to the beneficiaries. This service is offered based on a fixed fee that depends on the size of your loved one’s estate. There are no hidden costs or nasty surprises when you come to pay.