The Probate Process: What Farming Families Need To Look Out For.

Most farming families will encounter the probate process following the death of someone involved in the business.

Understanding the process is important for anyone passing on the assets of a farming business as it involves applying for valuable Inheritance Tax (IHT) reliefs, such as Agricultural Property Relief (APR) and Business Property Relief (BPR).

Usually, executors will need a grant of probate before they are legally allowed to distribute or transfer any assets to the beneficiaries in accordance with the deceased’s will or intestacy.

What is Probate?

Probate is the legal and financial process of proving a will is valid and then dealing with the property and possessions of a deceased individual.

The grant of probate is the document produced by the Probate Registry at the end of that process and is effectively confirmation that the executors have the authority to deal with the estate and pass on the assets to the beneficiaries.

Most assets and bank accounts will be frozen at the point of death until the executors have a grant of probate.

Who Applies for Probate?

Assuming the deceased has left a will, then it will be the responsibility of the executors appointed in the will to apply for probate.

Where a farming business is involved, most people will ask their solicitor and/or accountant to assist them in dealing with the process.

If there is no will in place, the same “probate” process is followed, but rather than applying for a grant of probate, the intestacy rules set out who will inherit the estate and therefore who will be entitled to apply for grant of letters of administration, rather than the grant of probate.

This person will become the administrator of the estate (as opposed to an executor) and is usually the closest living relative entitled to the estate through the rules of intestacy.

Cost of Probate

The Probate Registry’s application fee is £273.00 plus £1.50 per additional copy of the grant.

The total cost of the probate process will vary depending on the professional input required by solicitors, accountants and surveyors. This will also depend on the size of the estate and the nature of the assets comprising the estate. 

How Long Does the Probate Process Take?

How long the process takes will depend entirely on the size and complexity of the estate.

It is advised to act promptly when dealing with an estate, as any IHT due must be paid by the end of the sixth month after the individual’s death.

To claim APR and BPR, a full inheritance tax account is required which reports the total value of the estate to HMRC and whether there is any IHT due. The full inheritance tax account must be submitted before 12 months after the date of death.

It can take anywhere between two weeks to six months for the Probate Registry to turn around an application. This depends on the complexity of the estate and whether HMRC need to raise any enquiries about the availability of any of the reliefs. 

Keys Steps When Applying for Probate 

• Registering the death - the first step for family members will be to make sure the death has been registered and to obtain the official death certificate. The registry office will usually provide a useful information pack that gives the details of the “Tell Us Once” notification service. This service allows a death to be reported to most government organisations including the DVLA, HRMC, the Department for Work and Pensions, Passport Office and the local council.
• Gathering information - the executors will need to know the composition and value of the estate and any liabilities to apply for the grant of probate. The solicitor and accountant are likely to want to see as much information as possible about the deceased’s affairs including bank statements, savings, investments, details of any life assurance policies and mortgages. Details of any gifts made by the deceased in the seven years prior to the date of death will also be required. The executors will need full details of the land and property within the estate and anything that could affect eligibility for APR. This could be the occupation of land/properties, whether/how the land is farmed and whether there are any tenancies or licences in place. HMRC can request further information before providing clearance, so the more information the solicitor has at their disposal, the quicker their questions can be dealt with. 
• Valuation of land/property - a full formal valuation is advisable for all land or property in an estate and essential where inheritance tax is due. A solicitor will instruct a qualified surveyor to carry out the valuation, which forms the basis of the information submitted to HMRC. A copy of the valuation will also be submitted. The valuation will be taken as at the date of death. A full formal valuation will help to establish whether APR needs to be applied for, and if so, whether it would be successful.

Avoiding Common Pitfalls 

• Check the will -executors should ensure that they have the most up to date will by making enquiries with the deceased’s solicitor. 
• Failure to report assets or undervaluing assets - it is important that executors identify all assets within the estate. It is also important that the correct valuations are submitted. Having to re-submit information will cause delays. 
• Tracing beneficiaries - where there is no will, and the estate falls to intestacy, it could take some time to identify potential beneficiaries. This depends on the deceased and their family. A genealogist would need to be instructed to complete a family tree which can take some months if limited information is presented. 
• No partnership agreement - where there is a partnership and no written partnership agreement in place, on the death of one of the partners, the Partnership Act 1890 would prevail. Unfortunately, the act dictates that the partnership would have to be dissolved. This can cause issues for farming families who want to continue to farm in partnership. It is therefore highly recommended that all partnerships have a written partnership agreement to explain exactly what would happen on the death of a partner.  

Deed of Variation

A deed of variation can be entered into within two years of an individual’s death to change the terms of a will. The assets will be treated for IHT and CGT purposes as though they were left by the deceased to the new beneficiary. Any beneficiary giving up their benefit would need to sign the document. 

A deed of variation can be entered into even if the deceased did not leave a will.

Beneficiaries may decide to enter into a deed of variation for various reasons, including:

• To reduce the amount of inheritance tax (IHT) or capital gains tax (CGT) payable;
• To provide for someone who was not included in the will;
• To divert inheritance into a trust for a group of beneficiaries.