How To Manage Valuation Variations During Probate

Executors are responsible for distributing the estate of a deceased person – and one of the biggest challenges of this role is managing the fluctuations in valuations of assets between the time of death and the distribution to beneficiaries.

Probate Process

Probate involves the executor(s) administering the estate of the person who’s died. As part of the process, an executor must manage the changes in the valuations of the assets in the estate that can occur between the date of the individual’s death and the date when they are distributed to the beneficiaries.

This is because the value of assets can change as time passes. For example, property prices may go up or down, as could share or business values.

These changes in valuations can impact tax obligations and make it difficult to treat beneficiaries fairly.

If you’re an executor, we recommend you seek legal advice early to reduce the risk of disputes arising and any financial loss for beneficiaries.

Top Tips For Managing Asset Valuations During Probate

Timing & Revaluing Assets

When someone dies, their estate must be valued according to its worth on the date of death.

This valuation is used to work out how much inheritance tax (IHT) is owed, which then must be paid to HMRC within 6 months of the end of the month the person died. If not, interest added to the amount and penalties may be issued.

Probate is a long process, and it can take months or even years to complete after the date of death – which is why asset valuations need careful management. Assets such as property, shares, or businesses, can increase or decrease in value, affecting the tax liabilities and how much the beneficiaries receive when the estate is distributed.

This is why it’s often necessary to have assets revalued during probate. It’s important to have an up-to-date valuation of certain assets before distributing the estate. This helps to ensure that beneficiaries get a fair share of the estate and provides certainty on tax calculations for accuracy.

Tax & Assets Increasing In Value

As an executor of an estate, you are responsible for settling any taxes owed to HMRC.

What happens if the assets in the estate increase in value during probate?

If an estate increases in value, Capital Gains Tax (CGT) may be owed by the estate. This is because CGT is due on the difference between the value of the asset at the date of death and the sale price when the asset is sold, minus any expenses and the estate’s annual tax-free allowance.

Sometimes, the CGT owed can be reduced if you allocate the asset to the beneficiaries before it’s sold, using a deed of appointment or appropriation. This way, the asset is held on behalf of the beneficiaries instead of the estate, meaning it is sold outside of the estate and the personal tax allowances and tax rates of the beneficiaries can be applied at the point of sale.

For this to happen, the beneficiaries should agree and sign the deed of appointment or appropriation before the asset is sold.

This option works particularly well if more than one of the beneficiaries are entitled to the asset and can use their personal tax allowance.

Tax & Assets Decreasing In Value

If an estate decreases in value, you might be able to claim inheritance tax (IHT) loss relief.

This applies to assets including property and shares.

If shares are sold within 12 months of the date of death for less than the valuation given, then you can claim for IHT loss relief. This means you can use the sale price amount rather than the valuation at the date of death to calculate the IHT owed, which can reduce the estate’s IHT liability.

If property or land is sold within 4 years of the date of death and the sale price is less than the valuation at the date of death, you can claim for IHT loss relief. This helps to manage the market changes during the probate process and ensure the amount of IHT paid reflects the money received for the asset.

Applying for IHT loss relief can be complicated and it’s important to seek professional advice before making the application to ensure the application is successful.

Communication With Beneficiaries

Throughout the probate process, it’s important to communicate regularly with the beneficiaries and to keep them updated with regards to any variations in the valuations of the assets.

When asset values change, this can cause uncertainty and lead to disputes. Ensure you share milestones along the way such as revaluations and deeds of appropriation, as this will help reduce any potential conflict and enhance beneficiaries’ understanding that you’re acting in the best interests of the estate and beneficiaries.

It’s also important to include them in the decisions you make as an executor. For example, sometimes it’s beneficial to retain certain assets as they might increase in value or it’s better to sell them immediately. Speak to an independent financial adviser for their informed views and include the beneficiaries in this process too so they understand the reasons for your decisions.

Helping You With Your Estate Administration

If you’re an executor of an estate and responsible for distributing the estate, we can help you fulfil your responsibilities. We will provide you with the necessary support to ensure the process is as straightforward and efficient as possible.

We can help you with every aspect of estate administration, including asset valuations and revaluations, deeds of appropriations, and keeping beneficiaries informed during the process.

To speak to us about probate administration or for advice on variations in asset valuations during probate, you can contact us at our Chorlton office on 0161 860 7123 or email chorlton@hlfberry.com or at our Failsworth office on 0161 681 4005 or email failsworth@hlfberry.com and we will be happy to help.