Probate – dealing with variations in valuations between death and distribution

As an executor, you bear significant responsibility for administering the estate of the deceased person. A key challenge during this process is managing any variations in asset valuations that can occur between the date of death and the eventual distribution to beneficiaries. These fluctuations can arise due to changes in market conditions, the nature of the assets themselves, or simply the passage of time.

‘If not handled carefully, variations in valuations during the probate process can impact the entire distribution process, tax liabilities, and your duty to treat beneficiaries fairly and according to the law,’ says Susan Owens head of the wills and probate team with Borneo Martell Turner Coulston ‘Proactively managing asset valuations and seeking expert advice early on can significantly reduce the risk of a dispute and financial loss for beneficiaries.’

Susan Owens delves into the key challenges when managing asset valuations during probate.

Timing issues: death, HMRC payment dates, and distributions
When an individual dies, the estate must be valued as of the date of death. This valuation is then used for calculating inheritance tax (IHT) liabilities, which must be paid to HMRC within six months of the end of the month in which the death occurred. If inheritance tax is not paid on time, penalties and interest can accrue.

However, the final distribution to beneficiaries may not occur until months, or sometimes even years, after the date of death. During this period, assets such as property, shares, or business interests may fluctuate in value. This can affect not only the value of the estate but also the fairness of distributions to beneficiaries.

Revaluing assets
Throughout the probate process, it is often necessary to obtain an up-to-date valuation of certain assets. For example, if you are managing a portfolio of shares, their market value may rise or fall significantly between the date of death and the final distribution. Similarly, property values can fluctuate based on market conditions.

Tax implications – when assets increase in value
Fluctuations in asset valuations directly affect the estate’s tax liabilities. If an estate asset is sold which has increased in value since the date of death, Capital Gains Tax (CGT) may be payable by the estate. As executor, you are responsible for settling any taxes payable.

CGT is due on the difference between the date of death value (sometimes called probate value) and the sale price, less any expenses and less the estate’s annual tax-free allowance.

A deed of appropriation can sometimes reduce the CGT liability by allocating the asset to the beneficiaries before it is sold, so that the asset is held on their behalf instead of in the estate. The beneficiary should agree to the appropriation and sign the deed before the asset is sold. The asset would then be sold on their behalf and not through the estate.

This means that the beneficiaries’ personal tax allowances and their individual tax rate (which can be lower than the estate’s) can be applied when the asset is sold, as shown in the example below. This can be advantageous where there is more than one beneficiary entitled to the residuary estate, as there would be more than one annual tax-free allowance to apply against the gain (as long as the beneficiaries had not made any other chargeable gains in that tax year).

It is highly advisable to seek legal advice before proceeding with a deed of appropriation.

Making informed decisions with financial advice
As an executor, one of the key decisions you may face is whether to retain certain assets, such as shares, as part of the estate rather than selling them immediately. Retaining assets can be beneficial in some cases, especially if their value is expected to appreciate, but it can also expose the estate to the risk of market fluctuations. To avoid any potential loss during the administration of the estate, it is highly advisable to seek independent financial advice and to obtain the views of beneficiaries on the treatment of estate assets.

How can we help?
Our team can assist you with advice on valuations, revaluations, appropriations and ensuring that all beneficiaries are treated fairly. Contact us today to discuss how we can help make the probate process smoother and more efficient for you.

For further information, please contact Susan Owens in the wills and probate team on: 01604 622101 or email susan.owens@bmtclw.co.uk

Borneo Martell Turner Coulston has offices in both Northampton and Kettering.