Understanding probate and planning for the future

Probate is a term that is commonly misunderstood; it is incorrectly used to refer to the wider process of dealing with the affairs of someone who has passed away, known as estate administration. However, obtaining a Grant of Probate is just one of the many tasks that may be required during the estate administration process.

Lesley McReynolds asks Nigel Merchant of Kings Court Trust to discuss what probate is and how it works.

A Grant of Probate, commonly referred to as probate, is a legal document that is often required in England and Wales by the Executor(s) of a deceased person’s estate (if a Will exists). In Scotland, the process is known as Confirmation.

When someone dies without a Will, known as dying intestate, the process of applying for probate is referred to differently. The person responsible is known as an Administrator, and they will need to apply for a Grant of Letters of Administration. The role and responsibilities of an Administrator mirror that of an Executor, and a Letters of Administration has the same purpose as a Grant of Probate.

The existence of a Will does not determine whether probate is required. Probate is usually required if the deceased owned any property in their sole name or if a financial institution needs to see a Grant to release funds; individual institutions set their own probate thresholds and these can vary considerably. Once granted, the Executor has the legal authority to administer the estate, allowing them to access bank accounts, settle any debts and sell assets.

Despite there being no official time limit for probate applications, it is best to start the process as soon as possible. This will enable you to begin estate administration.

Probate and Inheritance Tax

When an estate is taxable, probate is only granted after HM Revenue & Customs (HMRC) has been informed; a reference number is allocated to the estate and usually, some of the Inheritance Tax (IHT) must be paid upfront. IHT will rank in priority over debts other than the funeral bill. Any remaining IHT due should be paid within six months of death. If you do not pay it within this timeframe, HMRC can start to charge interest on the overdue sum. In many cases, this can be paid using money from the estate, but this may not always be possible.

IHT is levied at a rate of 40% on the net value of the estate. The estate’s net value is calculated by working out the gross value (the total worth of all assets) and then deducting any debts. Gifts of more than £3,000 made to anyone within seven  years of death need to be considered – these would exceed the tax-free gift allowance and would be included as part of the taxable estate.

Everyone has a Nil Rate Band (NRB) – a tax-free allowance – which is currently set at £325,000 until 2028. Essentially, this is the amount you can pass on to beneficiaries without being charged any IHT. There is also a Residence Nil Rate Band when a property forms part of an estate; this is presently set at £175,000. The NRB can be transferred between spouses and civil partners after the first death. This is referred to as the Transferable Nil Rate Band (TNRB), meaning IHT-free gifts can be made to beneficiaries by combining the NRB and remaining TNRB allowances.

IHT does not apply to all estates; any part of an estate that passes to a spouse/civil partner or a charity is exempt. There are also several organisations that are typically exempt from IHT, including community amateur sports clubs. An estate is referred to as an “excepted estate” when no IHT is payable. Although a completed IHT form is not required to obtain a Grant in these circumstances, date-of-death values for assets and liabilities still need to be established as part of the probate application process.

Probate within estate administration

After a Grant is acquired, the estate needs to be administered. Estate administration is the process of completing all legal and tax work on the estate, selling or transferring assets and property to beneficiaries, producing estate accounts, and much more. The time it takes to complete the estate administration process varies depending on the estate’s makeup, but it should be expected to take months rather than weeks.

The process can be extremely complex and time-consuming, adding further stress at an already difficult time. However, Executors can appoint a professional to help.

The importance of seeking financial advice

Leaving funds unmanaged or transferring wealth can have many complex tax implications. An Origen financial adviser can help you understand the potential risks involved in transferring wealth and can guide you through those all-important discussions with the beneficiaries of your estate. It’s important to be knowledgeable about these complexities early on to ensure a smooth wealth transfer process.

One challenge that is commonly faced is how to pass on wealth without impacting financial security during retirement, such as planning for care costs. Taking financial advice will allow you to feel more confident in your decisions and help you feel in control, placing more value on the personal support surrounding a financial decision rather than how much money any investments will make. If you need more information about probate, estate administration, or seeking financial advice regarding IHT, contact your Origen Financial Adviser to help you review your situation.


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