‘Probate’ is the name generally given to the process of administering someone’s estate when they die. When someone dies owning significant assets, a formal ‘grant’ must be obtained from a court to enable their estate to be collected in and divided between their beneficiaries.
Probate is used to describe both the Grant of Probate and the process involved in obtaining it. It includes making an inheritance tax return to HMRC and paying the tax due; finalising income tax affairs and pensions; collecting in the estate from banks, building societies and selling assets; paying money due to beneficiaries; making any gifts of items to beneficiaries; preparing accounts for the estate.
Types of probate
There are actually two types of grant: probate and letters of administration. Probate is granted when the deceased left a valid Will, and is granted in favour of one or all of the executors named in that will.
Letters of administration are granted where the deceased did not leave a Will but most people still refer to it as ‘probate’ because, for all practical purposes, the two types of grant are identical. There are some differences in the process before the grant is issued.
Whoever is entitled to obtain a grant (there may be more than one person) can apply to a local Probate Registry – a part of the court system. Once the grant is issued, anyone else is entitled to take it as proof that the named executors or administrators are the people entitled to deal with the deceased’s assets.
The Probate Process
When someone leaves assets over £5,000, one of the types of grant is usually required before those assets can be obtained and distributed. Some assets, for instance bank accounts, can be closed where the cash within them is around £5,000 (sometimes more, depending on the bank), though administrators should note that where a person dies intestate, the administrator obtains their authority from the actual grant. A grant is required to deal with other assets, like shares in a company or a house.
Do I need probate?
There are circumstances where a grant is not needed. Where the estate is less than £5,000, for instance, and only includes cash funds held in deposit accounts, you would not normally need to obtain a grant in order to obtain the money. However, where the estate includes certain assets – like land or shares – you will always need to obtain a grant.
Who obtains probate?
Anyone who needs to sort out the affairs of someone who has died and needs to access their bank accounts, investments and other assets in order to pay their debts, inheritance tax and distribute their estate. They cannot do so without a grant of probate or (where there is no Will) letters of administration.
If there is a Will, those persons must be the will executors unless the executors do not want to act in the estate. Where there is no will, usually the next of kin are entitled to administer the estate and there are statutory rules about who those people are. No one who has an interest in the estate of someone who has died can receive their inheritance until such a grant has been obtained.
What is the Probate Process?
There are three main stages to obtaining the grant:
Investigating the extent of the estate.
- This includes all information about the assets and liabilities even relatively insignificant ones.
- This involves contacting the relevant banks, building societies, insurance companies and any other relevant organisations to obtain proper valuations of the other assets, including stocks and shares, the deceased’s home and any liabilities
Completing tax returns and applying to the probate registry for the grant.
- The form which must be completed depends on different circumstances, including the size of the estate.
- The longer probate form requires a detailed breakdown of the valuation of the estate.
- At this stage the executors will need to work out any allowable deductions, tax reliefs and, if that value exceeds £325,000, calculating the amount of inheritance tax due.
- Once the tax return has been completed in full and filed, the application to the probate registry should be made. Both HMRC and the probate registry may raise issues with the return or the application for probate.
Collecting in the assets, paying the debts of the person who has died and distributing the remaining estate.
- This distribution should be made to the appropriate beneficiaries in accordance with the terms of the Will or the statutory order of distribution if there is no Will, and producing final estate accounts for the beneficiaries and a final tax return for the deceased.
Rules of Intestacy
When a person dies without leaving a valid will, their property (the estate) must be shared out according to certain rules. These are called the rules of intestacy. Only married or civil partners and some other close relatives can inherit under the rules of intestacy.
If someone makes a will but it is not legally valid, the rules of intestacy decide how the estate will be shared out, not the wishes expressed in the will.
Under the rules of inheritance , if the estate is likely to be worth more than £250,000, the husband, wife or civil partner keeps all the assets (including property), up to £250,000, and all the personal possessions, whatever their value. The remainder of the estate will be shared as follows: the husband, wife or civil partner gets an absolute interest in half of the remainder; and the other half is then divided equally between the surviving children (or grandchildren if a child has predeceased their parent).
If the estate is likely to be worth less than £250,000, the husband, wife, or civil partner gets all of the estate. However, a surviving partner who wasn’t married or in a civil partnership with the deceased has no automatic right to inherit.
Further details on intestacy rules can be found at www.direct.gov.uk but the underlying message is simple – to retain control of your own assets, have the opportunity for tax planning, and minimise the potential stress for loved ones – your mum or dad should ensure that they have a valid Will at all times.
Discussing probate with finance expert Jason Butler
You may find our Age Space Podcast episode on probate very useful if you are trying to get to grips with it all. In discussion with Age Space founder Annabel James, our resident finance guru Jason Butler clearly explains what probate is, its process, inheritance tax and what you can do to prepare for probate.