Probate can be a complex and stressful process, especially after the loss of a loved one.
It is a word that is often thrown around, but it is important to understand what it means so you are prepared if the time comes to take part in the process.
What is probate?
Essentially, probate is the financial and legal process for dealing with the assets of someone who has died.
Assets include cash in the bank, investments, property, business, vehicles and life insurance payouts, minus any debts.
Probate is usually needed if the deceased owned significant assets in their sole name, which are usually valued at more than £5,000.
A grant of probate is a legal document that is needed to access the assets of the deceased. It gives a named individual the legal authority to deal with the estate.
Who can apply for probate?
If a person died with a Will, it is the responsibility of the named executor to apply for probate.
If the person died without a Will, the rules of intestacy will outline whose responsibility it is.
How long does the process take?
Depending on how complex an estate is, the length of the process can vary from months to even years.
The probate process concludes when all inheritance has been passed on to the beneficiaries and debts and taxes have been paid.
This includes completing an Inheritance Tax return and paying any tax due.
Inheritance Tax is often the biggest headache for people going through the probate process.
An estate is taxed at 40 per cent on anything over the £325,000 nil rate threshold.
In addition to a deceased’s own nil rate band, if they have survived their spouse or civil partner, the estate may take advantage of the unused percentage of the previously deceased spouse’s or civil partner’s nil rate band.
This combined allowance can total up to £650,000 across both estates.
Where the deceased leaves their home to their children, stepchildren, or direct descendants, their estate can also benefit from an additional residence nil rate band (RNRB) of £175,000.
This allowance can also be transferred to a surviving spouse or civil partner, meaning that a couple can pass on up to £1 million tax-free.
However, the RNRB starts to be withdrawn where the value of the estate, immediately before death, exceeds the £2 million taper threshold.
The allowance is then withdrawn by £1 for every £2 of value, by which the estate exceeds the taper threshold. This means that there will no allowance left on a joint estate worth £2.7 million.
On top of these allowances, if the deceased leaves at least 10 per cent of their net estate to charity, a reduced rate of 36 per cent rather than 40 per cent applies, which could help to save their family money.
An annual gift allowance is another way to help mitigate an Inheritance Tax bill. You can give away a total of £3,000 worth of gifts, per person each tax year without them being added to the value of your estate.
An Inheritance Tax return must be completed and submitted to HMRC, even if you believe no tax is owed. Sending inaccurate information on the form can lead to a penalty of 100 per cent of the potential lost revenue. There are also fines for late tax returns.
If an estate has a potential Inheritance Tax liability, make sure you ask for professional help so you can be sure not to run the risk of hefty fines.
How Ashford and Partners can help
We are on hand to help with every stage of the probate process through our Inheritance Tax and estate planning services. If you are looking for advice on probate, inheritance tax or estate planning, get in touch with our expert team today or request a call back.