Assessing the Estate and its Value
Once you have completed the initial steps after someone has died, the next step is to assess their Estate and its value.
The Estate is defined as everything the deceased owned, and this is worked out by identifying what assets and liabilities the deceased may have had. Assets are things such as money and property, whereas liabilities are things such as debt the deceased owed. So the deceased’s Estate will be the individual assets minus any liabilities.
Assessing the deceased’s Estate and its value is an important step as you will need to know the values when you are applying for probate, and to work out whether any Inheritance Tax is owed, and if so, how much. This step will also give the Executor a rough idea of how much the beneficiaries may be receiving out of the Estate, once any remaining debts and liabilities have been paid. It is also important to work out the Estate's value prior to making any payments or distributing the assets.
Jointly owned assets
It may be that the person who died had jointly owned assets, in which case it is important to firstly establish if they were owned as Joint Tenants or Tenants in Common.
Joint Tenants have equal rights to the whole property, they cannot pass on ownership of the property in their Will, and the property will automatically go to the other owner(s).
With Tenants in Common different shares of the property are owned, and the deceased's share of the property may be passed on in their will or through intestacy, as the property will not automatically go to the other owner(s)
If any assets were jointly owned, you must work out how the asset was held and then what proportion the deceased owned and so what should be included when valuing the Estate.
Valuing the Estate
Valuing the deceased’s Estate may take around 6 to 9 months, and even though there are deadlines in place to complete Inheritance Tax forms, and pay Inheritance Tax, it is also important to take care when valuing the deceased’s Estate.
When asking for valuations of assets, you do not want to over or under value the assets. So, when asking for valuations of assets, especially for certain items such as art work or jewellery, you should ask for a valuation for probate, not for insurance purposes. This is because valuation for insurance purposes may not be a correct valuation for reporting the value to HMRC. HMRC may dispute any valuations if they do not seem realistic in relation to the asset.
You will also need to keep a record of how much money is coming into and out of the Estate during the process of administration, because this will also affect the value of the Estate.
There are three key steps when assessing the Estate and its value: contacting organisations, estimating the Estate’s value, and reporting the value to HMRC.
You will need to contact organisations to identify assets and debts of the deceased’s Estate. Therefore, you will need to identify any organisations the deceased may have been linked to.
Some of these may include:
Pension provider, including state pension
National Savings and Investments
ISAs, companies they held shares in, trusts
Landlord or mortgage provider
At this point you will also want to ensure that any direct debits and standing orders are stopped and cancelled, so you should send a letter to the bank and other relevant organisations.
Valuing the Estate and specific items
Finances: You will need to get a statement of account. It is unlikely that the bank will release any assets until a Grant of Probate has been issued. For the deceased's individual accounts use the full value when valuing the Estate. If the deceased had joint bank accounts, which are typically held as ‘Joint Tenants’, you should work out the value for the deceased’s Estate by dividing the amount in the account by the number of owners. The joint account will then automatically pass to the survivor(s)
Stocks and Shares: Find the deceased’s share certificates, these may be with their stockbroker, bank or solicitor
Property: Obtain a valuation of any of the deceased’s property, ideally from a chartered surveyor who will have experience valuing properties for inheritance tax purposes, so the valuation will more likely be accepted by HMRC. If the property was owned jointly, work out the deceased's share in the property. If the property or land was shared with others, who were not a spouse or civil partner, you should divide the value by the number of owners, and then take 10% off the share of the person who died. If the deceased jointly owned property as a Tenant in Common, you should work out the value based on their share
Car(s): You can get an accurate valuation from a local garage, or there are websites that offer free valuations. You may want to sell the car, if there is no longer a need for it, use the sale price as the value at the date of death
Jewellery: The value of jewellery may be estimated, and you may have an overall valuation, rather than valuing every single item. However, if an individual piece is worth more than £500, it is important to get it valued separately
National Savings: You should write to National Savings to ask for confirmation of the value of the certificates that were held by the deceased at the date of their death
Premium Bonds: You will need to notify the Premium Bonds Office of the holder’s death, and ask for the value. You may decide to either cash out the bonds, or the bonds can remain in the prize draw for a further 12 months after the deceased’s death. If any prizes are won during these 12 months, they will belong to the deceased’s Estate.
Works of Art: Ask an art dealer to value the art works that the deceased owned. Ask for the price it would receive at auction at the date of death. It may also be worth looking to see if any of the art works are listed on the home contents insurance policy of the deceased.
Other items: Items should be valued at what they might fetch at auction or if sold at the date of the deceased’s death. With other items, you may make an estimate of the total value of these possessions. However, if there are any remaining items (other than those listed above) that are worth over £500, these should be given formal valuations.
Jointly owned possessions: Any items that are jointly owned should be given a total value, and then divided by two to work out the deceased’s share value.
Gifts: Gifts are assets the deceased has given away or offered for a lower value, in the seven years before the deceased died. Check bank statements and contact family members to identify the gifts. Gifts do not include those given to a spouse or civil partner. They also do not include things such as birthday or wedding gifts, or gifts that are valued at less than £250. There is a £3,000 annual exemption, which allows someone to give up to £3,000 worth of gifts in a tax year, without it needing to be considered for Inheritance Tax.
Life Insurance and death-in-service: Any life insurance pay-outs will typically not form part of the Estate, and if they are written in trust, they will go to the nominated recipient. This is the same for any death-in-service benefits, which may go directly to the nominated recipient from the deceased’s employer.
It is also important at this stage to work out what debts the deceased had. These may include:
Loans, overdrafts and credit cards
Rent arrears, care home fees
Debts owed to individuals
Reasonable funeral expenses
If there are debts that are owned jointly, such as mortgages, credit cards or loans, you should work out the deceased’s share of the outstanding amount.
You need to advertise for creditors, this is because an Executor may be personally liable if the Estate is not distributed correctly and any beneficiaries or creditors have been left out. Failure to take reasonable steps to place notices of the deceased's Estate may allow a creditor to enforce a debt against the Executor, even once they have distributed the Estate.
To protect against this:
Place an advert in the London Gazette
Advertise the death in local newspapers
If the deceased owned any land, property or businesses elsewhere, the death should also be advertised in these local newspapers
When placing the adverts, you should mention that anyone with a claim against the Estate must inform the Executors within a stated time once the advert has been placed. The time limit is usually two-months for creditors to contact the Executor to make a claim against the Estate. After this time, the Executor will not be personally liable, and may distribute the Estate to the beneficiaries and those who they have contacted the Executor to make a claim. A creditor will still be able to pursue the beneficiaries who receive the deceased’s Estate after the two-month period.
Calculating the overall value and reporting to HMRC
Once you have identified the assets and the liabilities/debts, you will know how much the Estate is worth. You will need to tell HMRC the net value of the Estate (the assets and gifts minus any debts). It may be that Inheritance Tax is owed, if the Estate has a value of over £325,000. However, if the Estate is worth less than £250,000 it is usually sufficient to estimate the Estate's value.
Changes due to Coronavirus
Valuing certain assets may be more difficult under the current circumstances with Coronavirus, however, estimated values may be provided on the Inheritance Tax return, until it is possible to get a formal valuation.
However, you must still pay/start to pay Inheritance Tax six months after the person has died, and interest may be charged on unpaid tax.