Grants and Estates – Why to Apply and Why to Value 

There are so many aspects that one has to consider when dealing with the death of a loved one. From dealing with grief, to making funeral arrangements, to finally sorting out the administration of the estate.

Dealing with estate administration is in fact like taking someone’s “life admin” on. These matters are never easy, take time and can cause a lot of headaches for the executors or personal representatives.

The Government has introduced an electronic system of applying for Grants of Probate by executors or Letters of Administration by personal representatives (where there is no will) so that members of the public can directly apply via a website.

Sometimes one may ask themselves why to apply or why to even value assets accurately. This article gives examples as to why this should be done and how a professional can help.

For ease of reading the term “personal representative” has been used to describe both executors and personal representatives and the term “Grant” – to describe both “Grant of Probate” and “Grant of Letters of Administration”.  

Second death and Inheritance Tax

We use the term “second death” usually when the surviving spouse or civil partner passes away. If there is a hint that the value of the net assets at the time of the second death may be above the inheritance tax (IHT) threshold, then the solicitor’s role is to also investigate what had happened on the death of the spouse or civil partner who passed away first. And this is where the difficulties may start.

The classic scenario would be as follows: on the first death everything passed on to the survivor, there was no IHT to pay as the estate was spouse exempt but the value of the assets that passed on the first death was in fact more than the IHT threshold and no Grant was obtained.

Having the Grant and accurate valuations and estate accounts prepared on the first death can assist greatly in doing our investigatory work to ascertain whether there is IHT to pay on the second death. A married couple or a couple in civil partnership with direct descendants can in theory have a combined value of £1,000,000 free of IHT and the role of an estate specialist is to ascertain how much of the allowances we can use to minimise the impact of the IHT on the second death. It is not just a matter of filling in the IHT returns but also providing evidence in support, as well as sometimes drafting “essays” and chronology of events to HMRC to explain the outcome of solicitor’s fact finding exercise. The complexity of such matters must never be underestimated.

Capital Gains Tax

Another aspect is to observe the potential impact of Capital Gains Tax (CGT) legislation. Personal representatives are usually concerned about IHT but they must not forget that the CGT may also be applicable on disposal of an asset if it gains in its value.

For example, usually, the biggest asset in one’s estate is the deceased’s home and it may be left in the will as part of the, so called, residuary estate.  The property market has recently been, to say the least, volatile with house prices rocketing. If the property is sold for more than its value at the date of death, this may create potentially a CGT liability for the estate.

Personal representatives (for the period of estate administration; please also do not confuse it with trustee’s exemption) and individuals (per annum) can currently claim an exemption from CGT of £12,300. There are expenses that can also be offset against the potential CGT liability and maybe even some losses. From 6 April 2023 the CGT exemption will be much lower at £6,000 and then halved from 6 April 2024.

Whilst there are the exemptions for personal representatives, further advice should be sought before contracts are exchanged on a property or investments are sold as one may be able to lessen even more the CGT liability. This is a complex area and professional assistance should be sought by the personal representatives.

These two examples show how important it is to value assets in the estate accurately at the date of death because the decisions that the personal representatives take at the time of applying for a Grant, will have an impact when dealing with the estate during the, so called, administration period. And decisions taken at the time of the “first death” may impact the decisions on the “second death”.

To discuss your own circumstances and matters mentioned above, please contact our estate team on 0345 20 73 72 8 or email info@thursfields.co.uk

Please note that this article does not constitute legal advice.