Take it step by step

How to avoid the probate pitfalls

A look at the steps to take in England and Wales (the process differs in Scotland and Northern Ireland).

Step 1 – Value the estate to see if you need a grant of representation.
When you might not need a grant of representation

A grant may not be needed if the estate:

is a low-value estate – generally worth less than £5,000 (though this figure can vary) – and doesnít include land, property or shares
passes to the surviving spouse/civil partner because it was held in joint names

When you contact the deceasedís bank or other financial institutions, they will either release the funds or tell you to get a grant of representation (or confirmation) first.

Some banks and financial institutions may insist on a grant before giving you access to even a small amount of money.

When a grant of representation is usually needed

You will almost certainly need a grant if the estate includes:

assets generally worth more than £5,000 in total (though again this figure varies)
land or property in the sole name of the deceased, or held as tenants in common with someone else
stocks or shares
some insurance policies

Step 2 – Applying for a grant of representation
Youíll have to fill in an Inheritance Tax form in addition to the PA1 Probate Application form, even if the estate doesnít owe Inheritance Tax. The estate will only owe Inheritance Tax if itís over the threshold currently £325,000 (frozen until April 2014).

The Inheritance Tax forms you need depend on the following:

where the deceased lived – England and Wales, Scotland, Northern Ireland or abroad
the size of the estate
whether it is an excepted estate (i.e. you donít need to fill in a full Inheritance Tax account – form IHT400)

Usually, if an estate has no Inheritance Tax to pay, it will be an excepted estate. However, this is not always the case. Some estates that donít owe Inheritance Tax still require a full Inheritance Tax account.

If youíre not sure whether the estate is an excepted estate, youíll need to start filling in a Return of Estate Information form (form IHT205 in England and Wales).

Depending on your answers to certain questions, the form will make clear when you should stop filling in that form and switch to form IHT400 (a full Inheritance Tax account) instead.

Step 3 – Send the forms to the relevant government bodies
Send completed IHT205 forms and the PA1 Probate Application form to your nearest Probate Registry.

Youíll also have to include the original will (if there is one), the death certificate, and the probate fee. If youíve filled in form IHT400, follow the instructions on page 55 of the IHT400 guidance notes.

The process is different in Scotland and Northern Ireland.

Step 4 – Pay any Inheritance Tax due
If the estate owes Inheritance Tax, you wonít receive the grant of representation (or confirmation) unless you pay some or all of the Inheritance Tax first. The due date is six months after the date of death.

Steps 5 to 7 – What happens next?
Once youíve paid any Inheritance Tax and sent off the forms to the Probate Registry, the process takes about eight weeks if there are no problems. There are three stages:

examination of forms and documents – Probate Registry staff check the forms and documents and prepare the papers for your interview

swear the oath – all the personal representatives who have applied for a grant of representation will need to swear an oath, either at the Probate Registry or local probate office

probate is granted – the grant of representation is sent to you by post from the Probate Registry

After you get the grant of representation (or confirmation) and have paid any Inheritance Tax due, you can collect in the money from the estate. You can then pay any debts owed by the estate and distribute the estate according to the will or the rules of intestacy.

The probate process

Getting started: what you need to know

Probate (or confirmation in Scotland) is the system you go through if youíre handling the estate of someone whoís died. It gives you the legal right to distribute the estate according to the deceasedís wishes. Inheritance Tax forms are part of the process even if the estate doesnít owe Inheritance Tax.

If the deceased left a will, it usually names one or more executors who can apply for the grant of probate. If the named executor doesnít want to act, someone else named in the will can apply (depending on a strict order of priority). This person is called the administrator and they apply for a grant of letters of administration with will.

If the deceased died without leaving a will, a blood relative can apply for a grant of letters of administration. This is based on a strict next-of-kin order of priority defined in the rules of intestacy. The person who applies is also called the administrator.

The catch-all term for a grant of probate, letters of administration with will or letters of administration is a grant of representation. The catch-all term for an executor or administrator is personal representative.

Different terms in Scotland and Northern Ireland
Scotland and Northern Ireland have different legal systems, processes and terms. The terminology is generally the same in Northern Ireland. However, in Scotland the process is called confirmation and the personal representative applies for a grant of confirmation. Different forms are required in Scotland and Northern Ireland too.

Financial prudence

Financial prudence

It’ll take longer to sort out your affairs if you don’t have a will

Itís easy to put off making a will. But if you die without one, your assets may be distributed according to the law rather than your wishes. This could mean that your spouse receives less, or that the money goes to family members who may not need it.

If you and your spouse or registered civil partner owns your home as joint tenants, then the surviving spouse or civil partner automatically inherits all of the property.

If you are tenants in common you each own a proportion (normally half) of the property and can pass that half on as you want.

Planning to give your home away to your children while youíre still alive

You also need to bear in mind, if you are planning to give your home away to your children while youíre still alive, that:

gifts to your children, unlike gifts to your spouse or registered civil partner, arenít exempt from Inheritance Tax unless you live for seven years after making them

if you keep living in your home without paying a full market rent (which your children pay tax on) itís not an outright gift but a gift with reservation, so itís still treated as part of your estate, and so liable for Inheritance Tax

following a change of rules on 6 April 2005, you may be liable to pay an Income Tax charge on the benefit you receive from having free or low cost use of property you formerly owned (or provided the funds to purchase)

once you have given your home away, your children own it and it becomes part of their assets. So if they are bankrupted or divorced, your home may have to be sold to pay creditors or to fund part of a divorce settlement

if your children sell your home, and it is not their main home, they will have to pay Capital Gains Tax on any increase in its value

If you donít have a will there are rules for deciding who inherits your assets, depending on your personal circumstances.

Combining predictability with clever planning

Make sure everything you own goes where you want it to tax-efficiently

Planning your finances in advance should help you ensure that when you die everything you own goes where you want it to. Making a will is the first step in ensuring that your estate is shared out exactly as you want it to be.

If you don’t make a will, there are rules for sharing out your estate called the Law of Intestacy, which could mean your money going to family members who may not need it, or your unmarried partner or a partner with whom you are not in a registered civil partnership receiving nothing at all.

If you leave everything to your spouse or registered civil partner there’ll be no Inheritance Tax to pay because they are classed as an exempt beneficiary. Or you may decide to use your tax-free allowance to give some of your estate to someone else or to a family trust.

Good reasons to make a will
A will sets out who is to benefit from your property and possessions (your estate) after your death. There are many good reasons to make a will:

you can decide how your assets are shared ñ if you don’t have a will, the law says who gets what
if you’re an unmarried couple (whether or not it’s a same-sex relationship), you can make sure your partner is provided for
if you’re divorced, you can decide whether to leave anything to your former partner
you can make sure you don’t pay more Inheritance Tax than necessary

Before you write your will, it’s a good idea to think about what you want included in it. You should consider:

how much money and what property and possessions you have
who you want to benefit from your will
who should look after any children under 18 years of age
who is going to sort out your estate and carry out your wishes after your death, your executor

Passing on your estate
An executor is the person responsible for passing on your estate. You can appoint an executor by naming them in your will. The courts can also appoint other people to be responsible for doing this job.

Once you’ve made your will, it is important to keep it in a safe place and tell your executor, close friend or relative where it is.

It is advisable to review your will every five years and after any major change in your life, such as getting separated, married or divorced, having a child, or moving house. Any change must be by codicil (an addition, amendment or supplement to a will) or by making a new will.

Scottish law on inheritance differs from
English law.

Inheriting a property

Could you be liable to pay Inheritance Tax?

If you owned property jointly as joint tenants with the deceased and you werenít their spouse or registered civil partner, youíll have to pay any Inheritance Tax due on the property when you inherit it.

If you owned property jointly as tenants in common with the deceased and werenít their spouse or registered civil partner, but inherited their share under the will, the deceasedís executor or personal representative must pay any Inheritance Tax or debts before distributing the estate among the beneficiaries.

Theyíll usually try to do this by using funds from other parts of the estate. However, if thereís a shortfall, you as the remaining owner are responsible for that shortfall and HM Revenue & Customs (HMRC) and other creditors have the right to approach you.

If there isnít enough money in the rest of the estate to pay the outstanding tax or other debts, you may need to sell the property.

Valuing a deceased person’s estate

Responsibility for paying Inheritance Tax

To arrive at the amount payable when valuing a deceased personís estate, you need to include assets (property, possessions and money) they owned at their death and certain assets they gave away during the seven years before they died. The valuation must accurately reflect what those assets would reasonably receive in the open market at the date of death.

Inheritance Tax is payable by different people in different circumstances. Typically, the executor or personal representative pays it using funds from the deceasedís estate. The trustees are usually responsible for paying Inheritance Tax on assets in, or transferred into, a trust. Sometimes people who have received gifts, or who inherit from the deceased, have to pay Inheritance Tax – but this is not common.

Valuing the deceased personís estate is one of the first things you need to do as the personal representative. You wonít normally be able to take over management of their estate (called applying for probate or sometimes, applying for a grant of representation/confirmation) until all or some of any Inheritance Tax that is due has been paid.

The valuation process
This initially involves taking the value of all the assets owned by the deceased person, together with the value of:

their share of any assets that they own jointly with someone else
any assets that are held in a trust, from which they had the right to benefit
any assets which they had given away, but in which they kept an interest ñ for instance, if they gave a house to their children but still lived in it rent-free
certain assets that they gave away within the last seven years

Next, from the total value above, deduct everything that the deceased person owed, for example:

any outstanding mortgages or other loans
unpaid bills
funeral expenses

(If the debts exceed the value of the assets owned by the person who has died, the difference cannot be set against the value of trust property included in the estate.)

The value of all the assets, less the deductible debts, gives you the estate value. The threshold above which the value of estates is taxed at 40 per cent is currently £325,000 (frozen until April 2014).

When the executor pays Inheritance Tax
Usually, the executor, personal representative or administrator (for estates where thereís no will) pays Inheritance Tax on any assets in the deceasedís estate that are not held in trust.

The money generally comes from the deceased personís estate. However, because the tax must be paid within six months of the death and before the grant of probate can be issued (or grant of confirmation in Scotland), sometimes the executor has to borrow the money or pay it from their own funds. This can happen if it hasnít been possible to get the money from the estate in time because itís tied up in assets that have to be sold.

In these cases, the executor or the people who have advanced the money can be reimbursed from the estate before itís distributed among the beneficiaries.

When a trustee pays Inheritance Tax
Inheritance Tax on transfers into trust is only necessary if the total transfer amount is above the Inheritance Tax threshold. Itís usually payable by the person making the transfer(s) – known as the settlor – not the trustees.

The trustees must pay any Inheritance Tax due on land or assets already held in trust. The occasions for this include:

a transfer out of trust (known as the exit charge)
every ten years after the original transfer into trust (known as the ten-year anniversary charge)
when the beneficiary of the trust (known as the life tenant) dies – interest in possession trusts only

When a beneficiary or a donee has to pay Inheritance Tax
If the executor or the trustees canít pay the Inheritance Tax, the beneficiaries or donees (recipients of gifts made during a personís lifetime) may have to pay it. A beneficiary or donee only has to pay Inheritance Tax in this case if:

they receive a share of an estate after a death
they receive a gift from someone who dies within seven years of making the gift
they benefit from assets in a trust at the time of death or receive income from those assets
they are the joint owner – other than a spouse or a registered civil partner – of a property