Probate Valuation Explained

The period following the death of a friend or family member is obviously difficult. During this time, pragmatic matters such as the organising of the affairs of the deceased may not be at the forefront of the mind; indeed, this is why some individuals choose to appoint an independent executor in their will.

However, it is important that some issues are resolved quickly in order for the affairs of the estate to be settled and the intended beneficiaries to receive their financial provision. Probate valuation is one of the first steps that must be taken to achieve this.

Tax Implications

In essence, the process of probate valuation is simple; the purpose is to ascertain the total value of the assets held in the estate. There are a number of reasons why this is important. In the first instance, if it has not been previously worked out, a probate valuation will show whether or not Inheritance Tax (IHT) will be payable on the estate and, if so, how much will be charged. This can be hugely important as it may have a significant impact on the eventual sums passed to beneficiaries.

Furthermore, according to probate law executors are likely to find that their powers of administration are limited until a percentage of any IHT owing has been paid. As such, it is important that probate valuation occurs quickly in order to ensure that the rest of the probate process can continue.

Another frequently overlooked purpose of a probate valuation is to ascertain whether or not any capital gains tax (CGT) will be payable on disposals of assets by the executor. If the executor is required to sell part of the estate, it is likely that some CGT will arise. CGT is levied when assets have increased in value between the point at which they are acquired and the point at which they are disposed of.

This can often represent almost as significant an outlay as Inheritance Tax, and it is therefore important that the implications of this charge are understood. Furthermore, a probate valuation will ensure that the beneficiaries are aware of the value of the assets that they will inherit. This is important from the beneficiaries’ point of view, not least because it will allow them to plan for their own CGT liabilities if they choose to dispose of their inherited assets in the future.

Types of Asset

A probate valuation must consider the value of all and any assets to which the deceased individual held the legal title. Some assets are easy to identify, for example houses. The ‘moveable estate’, however, can be more difficult to locate and value; this includes assets such as money and some personal possessions. Finally, it is important to remember that joint ownership of property will have an impact on the probate valuation. If the deceased individual held joint title to any assets, for example a house, their share of the value must be considered.

Probate valuation can be a complex process and, while it is possible to do it yourself, many people choose to employ a professional. Professional probate valuation is generally charged as a percentage of the value of the estate. If you are considering using such a service, it is worth doing some research to ensure that you are getting an acceptable deal.