How Do You Value an Estate for Probate?

Probate is the act of dealing with and managing a person’s estate upon their death. The party responsible for this will be named in the estate plan as the executor. The executor is then responsible for collecting, assessing, and distributing the deceased’s estate in accordance with the wishes outlined in their will. 

In order to gain the authority to do so, the executor must apply for the Grant of Probate. The next job upon receiving this is to begin the often difficult and time-consuming process of valuing the estate. 

However, exactly how do you value an estate for probate? This stage in the probate process is highly intricate, complex, and important. Failure to accurately value the estate can lead to serious repercussions. 

This blog will explain the meaning of probate value, how to work out probate value, and more.

What Does Probate Value Mean? 

Probate value refers to the estimated worth of an asset. This value is outlined as per a set of guidelines from HMRC. The purpose of getting an assets probate value is to get a clear understanding of how much a beneficiary may need to pay in inheritance tax when they are left a high-value asset. 

Often a difficult task, probate valuation is generally undertaken and arranged by the executors of the will or by the deceased’s closest family. Regardless of how upsetting the situation may be, it is absolutely vital that the probate amount is calculated correctly or the beneficiaries will not pay the correct amount of tax, and as a result, would likely be contacted by HMRC. 

Probate value is essentially an indicator of the asset’s value with regards to taxation and taxation only — this value cannot be used for any other purpose as it may differ to, for example, the asset’s market value.

An estate’s probate value factors in the deceased’s outstanding debts before then removing this amount from the total value of each item. This amount can then be used to estimate how much tax the estate currently owes. Assets below a £325,000 threshold set out by HMRC are exempt from any inheritance taxation. However, if the inheritance value is above this amount then it will likely be subject to taxation.

What is the Difference Between Probate Value and Market Value?

Probate value is an indicator of what the assets in an estate are worth according to HMRC. Market value refers instead to the amount an asset can be expected to sell for on the open market. These amounts could — and in some cases will — be the same. However, this amount will not be considered by HMRC.

Therefore, if a party has passed away and the task of valuing an estate for probate falls to you, even if they happened to have mentioned that they had recently obtained a market valuation for their house, this valuation should not be considered. When it comes to taxes, cutting corners never ends well. 

Working out the Value of an Estate for Probate

If you’re responsible for working out the value of an estate for probate, you must first identify any ongoing and outstanding debts the deceased may have had. After this you should undertake the actual act of calculating the value of the estate for probate, before finally contacting HMRC to report your findings. 

The process to work out the value of an estate for probate should include the following: 

Locate and Value the Deceased’s Assets 

The first step to valuing an estate for probate should be to assess the deceased’s assets, debts, gifts, etc. This information is unlikely to be freely available immediately, so some diligence may be necessary. Alternatively, if this level of work doesn’t sound appealing, perhaps consider contacting an expert to undertake this process for you. 

When looking to find all of the deceased’s assets, there are a number of options open to you. Your first port of call should be family and close friends. After that, consider speaking to people like accountants or solicitors. Other parties you may wish to contact in order to track down any and all assets could include: 

• Banks/building societies used by the deceased 
• Their pension provider 
• Employers 
• Life insurance providers 
• Any companies you know the deceased held investments with

Additionally, you will need to speak to friends and family members who may have received a gift (within the last seven years) and get a value on any other possessions they may have owned such as any property, furniture, jewellery, family heirlooms, etc. 

Identify Current Debts

Once assets have all been traced and valued, the next step in the probate valuation process should entail you finding the deceased’s outstanding debts. 

When looking to find debts, it can be difficult to know where to start. However, first ports of calls should include the following: 

• Speaking to loved ones to see what they know 
• Utility providers 
• Mortgage lenders
• Loan/credit agencies 
• The funeral home used 
• Care home if relevant 

Calculate the Value of the Estate 

The process of accurately calculating the value of a deceased person’s estate is important due to these calculations resulting in the amount of inheritance tax charged. Everybody has a set IHT allowance of up to £325,000. An additional residential allowance of up to £175,000 may also be available to relevant parties. However, this allowance is by no means a given, is calculated on the value of the property, and may not be viable for some larger estates. 

Every person has a set IHT allowance of £325000. An additional residential allowance of up to £175,000 may also be available, however, this is not a given and is calculated on the value of the property and may not be viable for larger estates.

For additional information on what else can qualify you for Inheritance Tax Exemptions, get in touch with an expert today.

All assets need to be valued according to their open market value at the deceased’s time of death. This means that their value is linked to the price that they would likely be able to attract if sold on the open market at the time – not the cost it would take to replace the item, nor would it be based on an asset’s insurance value.

During the process of calculating asset value, it is important to never guess. It is always better to get an expert opinion, particularly when it comes to high value assets like property, vehicles, household items etc. to receive an accurate estimate. Inaccurate valuations could lead to the party being found personally liable for the penalties payable. 

Report Estate Value 

The extent to which you report the value of the estate in question will generally depend on the outcome of your valuation. If it is deemed that Inheritance Tax is due then a full report will be needed. 

Examples of other reasons that you would be required to compile a full report include if the person who passed: 

• Gave away £250,000+ seven years prior to death
• Left an estate worth over £3 million 
• Was living full time outside of the UK when they died 
• If the estate includes a trust 

If it is deemed that you do need to provide a full report, you must download and fill in form IHT400 of the UK Government website.  

Can you Give Gifts to Lower the Value of your Estate? 

You can give gifts to lower the value of your estate. However, in order for these gifts to not factor into inheritance tax, they must be made at least seven years prior to death. Beneficiaries will likely be forced to pay tax on any gifts received after this point.

When a person gives a gift it is referred to as a Potentially Exempt Transfer. This effectively means that the clock has started counting towards this seven year period. If the gift giver were to die in this time, the gift becomes a Chargeable Transfer. 

If you plan on giving gifts to loved ones in order to reduce future inheritance tax, it is recommended that you keep track of exactly what it is you’ve given, who you gifted to, when it was given, and its value.

There are some exemptions to this rule, scenarios where you can utilise gifts to lower the value of an estate with less worrying about inheritance tax issues down the road. This includes: 

• Gifts to a Spouse: Anything given to a married partner is unlikely to be taxable. 
• Charity Donations: Any money or assets left to a registered charitable organisation, either before or after death, is automatically exempt from Inheritance Tax.
• Utilising Annual Exemption: Prior to death, everybody is eligible for a £3,000 gift allowance known as an Annual Exemption. This means that any gifts up to a total of £3,000 in a single tax year would be exempt. Additionally, any Annual Exemption not used can be carried over to the following year. 
• Low Value Gifts: Gifts worth under £250 are exempt. You are, however, unable to give a gift of this type to anybody who has already received the £3,000 amount in your Annual Exemption. 
• Wedding Gifts: In order for a wedding gift to not qualify for Inheritance Tax it must be made prior to the wedding. This applies for gifts worth £5,000 or less to children, £2,500 or less for grandchildren, or £1,000 to other parties.

As you can see, while it is possible to give gifts to lower the value of your estate, it is also somewhat complicated. Falling foul of any one of the countless rules and regulations surrounding Inheritance Tax could put you or your loved ones in a difficult situation. Therefore, effective estate planning is vital. The sooner you contact an expert the better you will be able to utilise their expertise and lower the future impact of Inheritance Tax.

Prepare for Anything with Just Wills and Legal Services’ Probate Service

The role of acting as a person’s executor and overseeing the probate process to ensure that their beneficiaries are all able to receive what they are owed can be an honour — particularly if the deceased was a close friend or family member. 

However, it can also feel like a burden at times. And due to the relatively complicated process of valuing an estate for probate — and the possible personal risks it can bring if you fail to accurately value assets — it might be worthwhile considering getting a fresh pair of eyes to assist you. 

Just Wills and Legal Services’ expert team have decades of experience dealing with all aspects of the probate service so are perfectly placed to minimise stress and guarantee accuracy at all times. Our team are experts when it comes to all aspects of estate planning, from assisting you with your Last Will and Testament, Trusts, Powers of Attorney, and much more. Find out what we can do for you today