Prepare for Probate - What you need to know
For many of us, losing a loved one is not something we want to think about ahead of time, however when it comes to the formalities around someone’s estate when they have passed, forward planning is beneficial.
What is probate?
To have been granted probate means there is a legal document permitting you to access all assets and bank accounts of someone who is deceased, assuming the person had set up a will whilst still alive. Probate is usually granted to the person named as executor in the deceased’s will.
How long does probate take?
In normal circumstances, probate should take anywhere from six to twelve months. However, presently, we are seeing a massive backlog of applications and grants thanks largely to the COVID pandemic.
According to STEP (Society of Trust and Estate Practitioners), rising numbers of applications in England and Wales are hindering HM Courts and Tribunals’ (HMCTS) plans to reduce this backlog, with an almost 30% increase in applications from December 2021 to January 2022.
The Law Society reports that digital applications are being processed somewhat quicker than those submitted by post, however they also advise waiting the full eight weeks before contacting HMCTS for an application progress update.
For more detailed information on application processing times, visit their website here to read the July 2022 Probate service update, (due to be updated again in September).
Inheritance Tax (IHT) and Probate
In some cases, people may be aware of the need for a will and then subsequent grant of probate to manage the estate of someone who is deceased. The surprise may occur in not knowing or being prepared for the IHT bill which needs to be paid within the first six months and before any probate grant can be issued. The sum of these bills (dependent on the assets and estate left in question) can be in the tens, if not, hundreds of thousands.
A brief overview of Inheritance Tax
For help with how to value an estate for IHT visit How to value an estate for Inheritance Tax and report its value: What you need to do – GOV.UK (www.gov.uk)
Example of an IHT bill and scenario
Mary has assets totalling £1.6 million which comprise:
- House £1 million
- Cash £100,000
- Pension £300,000
- Stocks & Shares ISA £150,000
- Investment Account £50,000
Mary’s late husband left his entire estate to her, and she also inherited his full Nil Rate Band (£325k) and Residence Nil Rate Band (£175k). The Residence Nil Rate Band can only be used against the primary residence and if the house is passed to a direct descendant – in this case her daughter.
Total Nil Rate Band and Residence Nil Rate Band = £1 million (£325k + £175k + £325k + £175k).
This completely covers Mary’s house which will be passed down free from Inheritance Tax. Her pension worth £300,000 sits outside of her IHT taxable estate so no IHT is due on this asset.
This leaves the remaining £300,000 in cash, Stocks & Shares ISA and Investment Account which is liable to Inheritance Tax at 40% – £300,000 x 40% = £120,000 IHT liability.
This would need to be paid before probate is granted and it can be a significant sum to find.
There are various planning strategies which can be considered to mitigate this liability or assist with making the payment. i.e., Business Relief Investments, Gifting, Insuring the liability. It is completely dependent on the client and what is suitable for their circumstances and risk tolerances.
To discuss any of the above with a financial planner, please get in touch on 01676 523 550 or invest@brigroup.co.uk.