Do I need to value an estate when someone dies?
To value an estate, when administering it, there are two sets of values that you need to consider; the gross and net values for Inheritance Tax (IHT) purposes and the gross and net values for Probate purposes. Depending on how the deceased’s assets are owned, and whether there are any lifetime gifts to consider, these values may be the same or different, sometimes significantly.
Gross and net values for IHT
These are the values that the IHT calculation will be based upon and determine how much tax is paid, if any. This calculation will include the value of all of the assets that are held in the deceased’s sole name as well as a proportion (usually half, but not necessarily) of any jointly owned assets.
The calculation will also include the value of any gifts that were made by the deceased in the seven years before their death, after deducting any applicable exemptions such as annual or small gift exemptions.
The value of the gross estate for IHT purposes will also include the value of some trusts that the deceased had the benefit of during their lifetime to the date of their death (or any interest that they disposed of in the seven years before their death).
Once the values of all of the sole assets, the share of any joint assets, and any applicable gifts and trusts has been established, this is added up and the total is known as the gross estate for IHT.
From the gross estate, you can then deduct any liabilities (or share of liabilities from joint assets) that the deceased may have had at the date of death. This will include things such as outstanding credit card balances, mortgages on properties, and outstanding care fees.
When you have established the extent of the liabilities, this figure is deducted from the gross estate to give the net estate for IHT purposes, which will then enable you to calculate whether any IHT is due from the estate. This may also result in IHT being paid by any trusts that have been taken into consideration.
Gross and net values for Probate purposes
These totals differ from gross and net values for IHT as they do not include any joint assets, gifts or trusts. This is because joint assets do not pass in accordance with the deceased’s will or the intestacy rules but by survivorship (i.e. to the surviving joint owner). Gifts and trusts are not owned by the deceased at the date of their death and so also do not follow the deceased’s will or the intestacy rules.
Therefore, to value the gross estate for Probate purposes, you simply add up the value of all of the assets held in the deceased’s sole name at the date of their death and deduct the value of any liabilities in their sole name. If a mortgage is held in joint names, the liability passes to the surviving joint holder and so this is not deducted for Probate purposes.
The gross and net values for Probate purposes will appear on the Grant of Representation when it is issued by the Court, but the IHT values will not appear.
Obtaining the values
This usually involves getting in touch with any financial institutions that the deceased had dealings with in order to obtain the balances on the date of death. Other assets, such as shareholdings and properties, will need to be valued to be included in the paperwork.
If you are a personal representative of an estate (either an executor or administrator), it is very important that you ensure that you give the correct financial information to the best of your knowledge to the Court and, if applicable, to HMRC as both require that you make a declaration that you have done so. Whilst honest mistakes are accepted, you are expected to have made every effort to ensure that the information that you provide is correct. When you ask Tollers to administer an estate on your behalf, we will ask you for details of the assets that you are aware of and we will contact the financial institutions on your behalf to establish the values in the estate. We will also advise you as to how properties and other assets should be valued and assist you with this.
Talk to Tollers
If you need advice or guidance…Talk to Tollers on 01604 258558. Our experienced team is sensitive and supportive and always have your best interests at heart