What are the stages of the probate process?
Step 1: Completing the Inheritance Tax (‘IHT’) account
Before the personal representatives (‘PRs’) can apply for the Grant of Probate (the ‘Grant’), they will need to report the deceased’s estate to HMRC by completing an IHT account within 12 months of the end of the month of the deceased’s death and paying any IHT that is due within 6 months to avoid incurring any late interest.
During this part of the process the PRs will have to ascertain the value of the deceased’s estate together with any available IHT exemptions or reliefs by:
- Gathering a comprehensive picture of the deceased’s assets (namely any bank accounts, digital assets, chattels, pensions and life insurance policies, tax affairs, property, investments and/or trust interests) as well as any liabilities (which will help reduce the IHT payable).
- Identifying any gifts or transfers into a trust made during the last 7 years of their life.
- Obtaining open market valuations for any properties and chattels belonging to the deceased.
- Completing the IHT account. There are two types of IHT accounts (the ‘IHT205’ and the ‘IHT400’) and which form should be used will depend on the value of the estate and certain other factors.
The completion of the IHT account, including (if applicable) calculating the IHT due, is arguably the most complicated part of the probate process so we would always suggest you ask for advice from an experienced professional to make absolutely sure you do this correctly.
Step 2: Collecting in assets and settling liabilities
Once the Grant has been issued, copies will need to be sent to each of the deceased’s asset holders with a request for the accounts to be closed and the proceeds paid to the PRs or the PRs’ solicitor’s account.
Instructions will also need to be obtained from the beneficiaries as to whether they’d prefer to have an asset (e.g. a property or shareholding) transferred into their own name rather than having it sold. The PRs should also settle any liabilities of the estate and consider paying any cash legacies at this stage.
Step 3: Distributing the estate
Once all the liabilities, tax, administration expenses and legacies have been paid (and once HMRC has confirmed that no further IHT is due), the PRs can then distribute the remainder of the estate before winding it up.
There are certain steps a PR may wish to take before distributing an estate to protect themselves from liability against claims from unknown creditors or beneficiaries and if you contact our Private Client Department we can advise you further.
In our next blog we will look at the benefits of using a solicitor to manage the probate process but if you have any questions relating to probate or your own Will or tax planning requirements, please contact Flora Nelmes at firstname.lastname@example.org or call 0207 412 0050.