When someone dies their executors must ascertain the value of the estate before an application for Confirmation (the Scottish equivalent of Probate) can be made. Confirmation is the document granted by the court which gives the executors the legal authority to ingather and distribute the deceased’s estate. Valuing an estate may appear to be straightforward but there are some important factors to consider.

Why does the value of an estate need to be established?

There are a number of reasons why the executors need to establish the value of the estate. One of the main reasons is to work out if any Inheritance Tax (IHT) is due by the estate. If the net estate exceeds the IHT threshold or nil rate band (the first £325,000 which is free from IHT) there may be IHT to pay. IHT is calculated on the net estate which is made up of the value of the property (land and buildings) and other assets including bank accounts, life policies and investments, less funeral expenses and any liabilities due by the deceased at the date of their death. Another reason is to enable the executors to calculate how the estate is to be distributed, in accordance with the Will (including any Legal Rights claims by a spouse/civil partner or children not included in the Will) or, if there is no Will, in line with the rules of intestacy. Finally, it enables the executors and beneficiaries to determine whether there are any tax or other advantages to be considered by varying the distribution of the estate.

How are the assets of the estate valued?

Where the deceased’s estate is made up of a house, furniture and personal effects, cash, bank accounts and life insurance policies, it is usually relatively straightforward to ascertain the value. The executors can engage a chartered surveyor to provide a valuation of the house and an auctioneer/valuer to value its contents. For bank accounts and life insurance policies a letter from the bank or insurance company will suffice. If the deceased owned stocks and shares these will require to be professionally valued. If the shares are publicly held a stockbroker can be instructed to provide a valuation at the date of death.

For shares held in a private limited company the company secretary or accountant should be able to assist with providing a valuation. The deceased may have owned a business or had an interest in a partnership. The executors require to ascertain the nature and value of the deceased’s interest. Normally annual accounts will have been prepared and again the accountant who deals with this can be asked to prepare an account up to the date of death. If the business or partnership includes land and buildings these will require to be valued separately by a chartered surveyor. It should be noted that any land or buildings owned by a partnership are treated as moveable property rather than heritable property for the purposes of calculating Legal Rights.

If the deceased owned any antiques or works of art, the executors may need to engage a professional auctioneer/valuer to value these items. The executors should also take care when valuing any watches, jewellery or personal items owned by the deceased. A professional valuation may be necessary for IHT purposes but is also helpful if the items are to be distributed equally among the beneficiaries. Often these items have considerable sentimental value. For IHT purposes the value is what the items might achieve if sold, which is generally much lower than the replacement value for insurance purposes.

What about jointly owned assets?

Assets such as property and bank accounts can be jointly owned. If the deceased owned a property with another person the executors should check the title deeds to establish exactly how the property is held, as it can be held in one of two ways in Scotland. The property can be held in joint names with a “survivorship destination” clause in the title deeds. This means the property automatically passes to the survivor without any other formalities. In that situation the property does not need to be included in the application for Confirmation and is outwith the estate for distribution purposes. However the deceased’s interest in the property may still need to be valued and reported to HM Revenue & Customs (HMRC) for IHT purposes. Otherwise the property is held in joint names “pro indiviso” which means the deceased’s interest is included in the application for Confirmation and, if necessary, the value reported to HMRC. The deceased’s interest is also relevant for distribution purposes.

Where bank accounts are held in joint names control of these usually passes automatically to the surviving account holder. In Scotland if the joint holders are married or in a civil partnership and both parties contributed to the account, the balance is considered to held equally and the deceased’s share belongs to their estate. If the deceased had added a child or other person to the account for ease of access but all of the funds were contributed by the deceased then the whole balance in the account belongs to the deceased’s estate.

Any other jointly owned property, assets or investments must be identified and valued as required.

Ascertaining the funeral expenses and liabilities of the estate

It is necessary to ascertain the funeral expenses and liabilities which are allowable as deductions for IHT purposes and relevant when calculating the net estate available for distribution. Liabilities include mortgages, personal loans, HP, car finance, credit agreements and credit card accounts. The executors should check the deceased’s bank statements for regular payments. It is also necessary to establish if the deceased owed any money to utility companies or if there are any pension overpayments which require to be repaid. The deceased’s income tax position should also be checked to ascertain if there are any sums due to or by HMRC. If the deceased owned a business or had an interest in a partnership the executors should also investigate if they had any loans.

What about lifetime gifts?

The executors need to make enquiries about lifetime gifts made by the deceased in the 7 years before their death and ascertain the availability of exemptions and reliefs. Again the executors should check the deceased’s bank statements for any cash gifts. Gifts can also include assets such as an interest in a property, cars, paintings, jewellery etc.

Any gifts not covered by exemptions and reliefs use up the IHT threshold or nil rate band and could increase the estate’s IHT liability. There is usually no IHT to pay on the gifts themselves, unless they exceed £325,000.

The executors should also take care where the deceased gifted an asset but continued to enjoy a benefit from it e.g. transferred their interest in a property but continued to live in it and did not pay a market rent.

Specialist Estate Planning Lawyers, Edinburgh

Jennifer Gray is a Senior Executry Paralegal and deals with all aspects of executry administration and related tax matters. If this article has raised any questions or you would like to discuss your affairs, then please complete our contact form or call us on 0131 225 1200.

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