How to carry out an inventory of an estate as part of the probate process
This is one of a series of articles about wills and probate. You can find an overview of the probate process and an explanation of terms in the first article of this series.
This article aims to guide you in what to consider when creating an inventory of the assets and debts of the estate of a deceased person within your role as an executor of the will.
Carrying out an inventory of the estate
When you apply for a grant of probate, you need to pay inheritance tax due on the estate at the same time. Until you know the value of the estate, you can’t calculate how much tax is due. So one of the main tasks for the executors is to produce a list of all the property, possessions and debts of the deceased at the time of his or her death, and a valuation for each.
Where to start
Most executors start by making an inventory of physical possessions in the home of the deceased. If family still live in the property, this obviously needs to be done sensitively. It also needs to be done thoroughly and ideally before people with access to the property remove items which they think they were given.
Even if an asset has no obvious value and has been left to a beneficiary, it should be recorded on the inventory.
Additionally, the value of the deceased’s share of jointly held assets should be recorded. So if a car was jointly owned, the half ownership and the half value should be listed. That applies for assets passed by survivorship, such as homes owned in a joint tenancy.
Contact financial institutions
An executor should also send notice to the advisors (solicitors, accountants) and financial organisations (insurance companies, banks, building societies, shareholding organisations) requesting information about assets held with each (account balances, life policies, deeds, shares on account), and instructing them to stop all unpaid cheques and standing orders.
Because executors won’t have grant of probate at the time when this happens, a death certificate and a copy of the will is usually sufficient to obtain a statement of account. But note that institutions are unlikely to release assets until probate has been granted.
Find out what debts the deceased had
The following may be a useful checklist when working out what debts outstanding the deceased had at the time of death. You may need to write to cancel service provision for some of these providers.
- Utilities: water, gas and electricity – take a meter reading for each on the date of death and ask for a bill at that date.
- Telephone: land line, mobile, Internet provision and TV – ask for a bill to the date of death.
- Loans and overdrafts, including credit cards – write to the lender for confirmation of the balance outstanding at the date of death.
- Rent arrears – write to the landlord or housing association.
- Consumer credit: there may be items bought on hire purchase or on credit from retailers. Find out whether items on hire purchase need to be returned to the retailer, or whether the deceased owns them.
- Debts owed to individuals
- Outstanding taxes
Reasonable funeral expenses are also considered a liability of the estate, including the cost of a gravestone. If the person arranging (and paying for the funeral) is in receipt of benefits, he or she may be able to apply to a social fund for a payment to cover funeral expenses until the estate can repay them.
Advertising for creditors
If the estate is distributed incorrectly, the executors are personally liable to the beneficiaries and creditors about whom they should have known.
To protect themselves from unknown creditors and beneficiaries, the executors can follow a statutory procedure of placing an advert in the London Gazette (www.london-gazette.co.uk) for creditors, and advertising the death in a local newspaper circulated in the area the testator lived. If the testator owned land and property, or a business adverts should also be placed in the local newspapers for those areas as well.
The advert should state that anyone with a claim against the estate, or an interest in it, should inform the executors within a stated time (not less than two months) after the advert has been placed. After that time, executors may distribute the estate only needing to take account of the known creditors and beneficiaries.
Anyone who has not identified himself or herself as a claimant or beneficiary could later make a claim, but against the beneficiaries to whom the estate has been divided, not against the executors.
Placing adverts may not be necessary if the testator is unlikely to have had any debts, or if the beneficiaries are known.
An executor can place an advert at any time, but an administrator can only do so once he has become an administrator, i.e. after the grant of letters of administration.
Valuing the assets in the estate
There is no such thing as the true value of an asset. What one person may think is worthless, another may think priceless. Moreover, there are many common ways of valuing property that would result in different valuations. An executor should assess the value fairly, both for beneficiaries and for HMRC, but bear in mind that your task is not to find the highest valuations.
Check the will, or letter of intent if there is one. The deceased might have left directions as to how to value certain assets.
If you ask a third party for an opinion on value (such as an estate agent on a house, or an accountant for a business, or an antiques seller for furniture) you may want to instruct him or her to value the assets under certain circumstances (such as if you had to sell the property quickly).
Valuations for insurance purposes are generally higher than the value fetched at auction. It may be flattering to be told by an expert while you are alive that a painting you picked up in a junk shop is worth millions (it is certainly worthwhile for the insurance company as you will pay much more insurance), but the actual value is unknown until the item is sold. Another expert might think that it is worthless. Either valuation would be valid for the executor provided it could be argued to be reasonable.
The point is that obtaining high valuations benefits no-one except the taxman who takes a larger amount of tax.
Valuing a house or flat
If the testator owned his home jointly with another person, then the value of the testator’s share of the property should be recorded. This will usually be a half share. A property owned as joint tenants is not included in the estate as an asset to be distributed (see later in this section for an explanation), but for inheritance tax purposes it should be declared.
If no inheritance tax is to be paid (for example, the house is to be passed on to a spouse), then an approximate valuation is sufficient. An executor may approximate the value himself based on the asking prices of similar properties in the area for example.
In an estate that is likely to be taxable, the District Valuer for HMRC is likely to check the valuation and challenge it if it seems too low. If the property is sold shortly after death, the District Valuer would use the sale price to calculate tax, not the valuation.
If there is a mortgage on the property, the mortgage lender should be notified of the death. The executor will need to know how much of the mortgage was outstanding at death, and whether there is life assurance or mortgage protection policy in place. If there is, it might be sufficient to cover repayment of the mortgage, and there may be surplus after repayment.
Property owned with someone else under a ‘joint tenancy’ should not be included in the estate, regardless of what is written in the will. Joint tenancy is equal joint ownership where the owners own the property wholly together. On the death of one of the owners, the property remains completely the property of the other owners and is not included in the estate of the deceased owner. As such, the executors do not need to consider this property within the estate. All that should be required after death is for the death certificate to be sent by the remaining owner to the relevant organisation (such as the Land Registry for property) with the request to remove the deceased from the register as an owner.
Joint tenancy is the default ownership arrangement for anyone buying residential property with someone else (such as a husband or wife), regardless of who contributed to the price or the mortgage. It can also be arrangement for joint bank and building society accounts. To break a joint tenancy, and to be able to leave ‘my share of the property’ within a will, the owners would have needed to sign a ‘tenancy in common’ agreement, changing their ownership relationship to that of ‘tenants in common’.
Statements of bank accounts
The executors should write to the deceased’s banks and building societies to instruct them to stop all unpaid cheques and standing orders. The executors will need to enclose a copy of the death certificate. Additionally, the executors should ask:
- For the balances of all accounts, including those held jointly
- The amount of interest earned to the date of death, but not credited to the accounts
- The amount of interest earned to the date of death for the tax year in which the testator died that has been credited to the accounts, and whether it was paid net or gross of tax
- For copies of all deeds, share certificates and other documents and certificates of instruments held by the bank
The executors will need to open a bank account into which to place the proceeds of the estate, and from which to pay expenses and discharge liabilities. For ease, this is usually done with the bank with whom the deceased used most commonly.
Cheques payable to the deceased, but not yet paid into the bank can be paid into the account (or the account of the executors if the cheque can be endorsed to be paid to the executors). Once probate has been granted, the bank can transfer the balance of the deceased’s accounts to the account of the executors.
If the testator owned any shares, share certificates may be at his home, or held by his bank, accountant or solicitor.
If they are at his home, it is best to remove them for safekeeping.
You should check with the registrar of each of the companies to make sure the holdings are correct. Contact details for each registrar can be found in the Register of Registrars.
Some shareholdings do not have certificates. For example, commonly, shareholdings traded online are in the nominee name of the stockbroker or share trading business – particularly if share trading was conducted online. In this case, you don’t need to contact the registrar of each company – just the stockbroker.
If certificates cannot be found for known shareholdings, before selling the shares or transferring them to a beneficiary, the executors might need to sign a statutory declaration that:
- the executors have searched but not found the certificates;
- that the certificates are presumed lost; and
- that the executors indemnify the company against loss if the certificate later is presented by someone who has better claim to the shares than the executors.
The registrar of the company is likely to charge a fee for this.
Either a stockbroker can value the shares, or the executors can do so.
The valuation is lower of the two prices quoted on the Stock Exchange Daily Official List on the day of death, plus a quarter of the difference between those two prices. For example, if the price range quoted was £0.50 to £0.54, then the probate valuation would be £0.51 per share held.
If any of the shares are quoted XD (Ex dividend), then a dividend has been announced but not paid. The dividend should be taken into account as it will be paid to the estate. The stockbroker or registrar should tell you the amount of the dividend. The dividend may be gross of tax – in which case, deduct tax at the rate for dividends to arrive at the net figure.
The value of unit trusts can be obtained from the fund manager of the trust.
If the testator owns shares in any unquoted (private company), you should write to the company secretary asking for a valuation of those shares. You should also ask for a copy of any shareholders agreement because other shareholders may have rights to acquire the shares at prices other than the current value. Private company valuation can be difficult. You may need to seek help from an accountant.
If the testator had a personal equity plan (PEP) or an Individual Savings Account (ISA) the provider can give a valuation at the date of death.
If the testator owned a business, then an accountant will need to value the business. The executors will need to submit the last three years of accounts. If the business is a partnership, the partnership agreement will also need to be submitted.
A local garage can give an estimation of the value of a car, or you could use an online resource to look up the forecourt price.
Alternatively, you could sell the car and take the proceeds.
Jewellery, art, furniture and other possessions
An overall value of jewellery is usually acceptable. Pieces valued individually over £500 should be valued and listed separately. A jeweller can give a valuation, for which a fee is usually charged. Make sure you tell him the valuation is for probate purposes as that may be lower than the replacement value.
An art dealer can give valuations of artwork. Ask for the value it would fetch at a local auction, not for insurance purposes. One way of identifying possessions of value is to see whether they are listed separately on the home content’s insurance policy (insurance policies will give you a rough indication of value as well).
There is no need to make a detailed list of other possessions. The executors’ reasonable assessment of second hand value is sufficient. Note though that items over £500 should be listed separately.
How you describe items can increase awareness of value. The valuation of a “vase probably Chinese from the Ming Dynasty period” at £100 might be challenged by HMRC. But that of a “blue and white china pot” at the same valuation might not be. Of course, this is an extreme example used to make a point - you shouldn’t aim to understate valuations to reduce the tax payable – but don’t over embellish what objects are.
There is a special procedure for National Savings accounts. The executor must complete and send Form NSA 904 to the address on the form. For National Savings Certificates, an executor should write to National Savings asking for confirmation of the value of the certificates in writing at the date of death. The Probate Registry will need to see the reply from National Savings.
The Premium Bonds Office must be notified of the testator’s death.
Bonds can either be cashed out, or remain in the prize draw for 12 months after the date of death. If a prize is won, then the executor should claim it in the usual way and it will belong to the estate. As long as the value of the bonds and prize money does not exceed £5,000, the Premium Bonds Office does not need to see a Grant of Probate to receive payment. Premium bonds are valued at face value.
Salary and pension
If the deceased was employed at the time of death, salary and benefits might be outstanding. The employer should be notified of the death.
If the deceased was a member of a union or trade association, there may be a death benefit payable to his family.
Outstanding pension payments should be claimed. The pension provider will probably need to see a copy of the grant of probate before authorising transfer to the executors. If there was an occupational pension scheme, a lump sum may be payable on death. You will need to enquire to find out.
Some employment benefits or payments may be discretionary and not form part of the estate. That means that they don’t pass under the will, and that they are not subject to inheritance tax.
Outstanding salary and pension payments should be declared on Form IHT 400.
Life insurance and pension policies
The executor should write to the insurance company or pension provider and notify them of the death. They will need to give the date of death, policy numbers and enclose a registrar’s copy of the death certificate. The executors should ask what sum is payable, and whether it was written in trust for anyone. If it was, the sum passes directly to those people. If not, then the sum and any bonuses should be included as part of the estate. The policy may be linked to a loan or a mortgage, in which case, the proceeds should be paid to the creditor, with excess being paid to the estate.
There may be tax due or an overpayment that should be refunded. These might include both income taxes and capital gains taxes. HMRC requires the executors to produce a tax return to the time of death.
Council tax might also be refunded. If the death leaves one person living in the home, a discount for single occupation should be claimed (by the person remaining, not by the estate). The home should be exempt from council tax until after 6 months after the date of the grant of probate.
Social security payments
The local Department for Work and Pensions office should be notified of the death and the pensions book of the deceased should be sent with a letter asking whether there is any unpaid pension due. If so, it should form part of the estate.
If benefits were being received, these should be stopped from the date of death.
Property and debts outside the UK
These should be treated in the same way as property and debts in the UK. Inheritance tax is payable on foreign assets if the deceased was a UK tax resident. The values should be converted to Pounds Sterling, and recorded in the same way as other assets and debts.
We have a number of articles on probate that you should find useful to read. We also have another series on wills that provides much background information for anyone interested in probate.
As a reminder, if you don’t currently have a will yourself, or if it is a long time since you did, you might like to make one that reflects your current position in life. To help, we provide a number of straightforward and free will templates (likely to be suitable for most people) with no catches or conditions. There is no need to visit a solicitor, or buy inflexible forms from the corner shop that may be difficult to customise. Just visit our library and choose the most suitable last will and testament template. If you need any help choosing, just contact us.
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