Probate practice (2)

having established the main points to note when taking instructions from clients and disposing of their personal chattels (see the first article in this series: SJ, 08.12.06), the next step is the twin questions of valuation and distribution of those chattels.

As soon as possible after the executors have been informed of the testator's death, they should take steps to preserve the estate assets. They should immediately visit the property and take control of the possessions they find there. Where the executors are not members of the family, there is always the temptation to allow the family to assist them in making an inventory of the assets that need to be dealt with, valued and preserved. However, executors should act with caution. They would be unwise to allow into the property anyone who has different interests to those of either the testator or other beneficiaries. In the days following a death, it is well known that items 'disappear' and trying to account for these becomes a logistical nightmare.

Types of valuation

For the purposes of obtaining a grant of probate, the executors must consider what type of valuation they will need to obtain for the Capital Taxes Office (CTO). Firstly, determine the types of chattels in the estate. Consider:

• General household contents '“ can an insurance valuation or estimate be sufficient?
• Paintings '“ what do you know of their history, have they been valued before, are they by a well-known artist.
• Books '“ what type of books, any first editions? Take advice from a reputable second-hand book dealer.
• Family photographs '“ do these have any value other than sentimental for the family; do they have any historic interest?
• Wine collection '“ is a formal valuation of the deceased's stock of wine required? If so, this will be referred to the shares valuation (wine).
• Stamp collection '“ is this collection simply the fruits of a hobby or is it worth asking, for example, Stanley Gibbons to value it?
• Where the form IHT200 includes a collection of pictures or an individual picture of a chattel valued at a substantial amount for which exemption is not claimed, you will be referred to shares valuation for advice as to any enquiries to be raised. If it appears a collection of pictures may have a substantial valuation but no valuation is filed, or the only valuation is one giving an overall figure, shares valuation will request a schedule of the main items.
• Sotheby's or Christie's auctions: if shares valuation become aware of items in sale catalogues of these firms and they are described as the property of a deceased person - they will notify the CTO of the 'hammer price'. Where shares valuation suspects the non disclosure or under valuation of an asset that might have been sold at auction, the CTO can obtain details of chattels sold.
• Medals and coins '“ are these fairly standard issues or are there some medals for gallantry? Remember certain medals awarded for bravery are covered by the extra statutory concession ESCF19, dated 21 August 2000, which states that 'the decoration awarded for valour or gallant conduct is by concession excluded property it is shown never to have been transferred for consideration in monies worth'. Consider contacting Spink or check www.spink.com for details of past auctions.
• Classic car '“ any car more than 25 years old is designated a 'classic' and should be valued as such. All such valuations are referred to the shares valuation division of the CTO. They will also expect to receive full details of the make, exact model, year of registration and registration number. Where a registration number has a separate value, this must be included separately.
• Literary works '“ find out whether the deceased had a literary agent? If so, obtain details of all royalties received over, say, the last five years to obtain an average value.
• Boats and planes '“ where are they located, and is there a dealer or broker who can value these for you? Please note that the CTO can access the shipping registry, which holds details of owners of boats, the respective shares of owners and any mortgages charged against those vessels. They can also access the Civil Aviation Authority database, which has information about the ownership of light aircraft, helicopters, microlites and hot air balloons.

The second step is to determine how detailed the valuation should be. Do you need the valuation for distribution purposes? Many personal chattels clauses leave an overriding discretion to the trustees to make an equal distribution between the beneficiaries according to value. You should therefore consider whether a detailed room-by-room valuation of the house contents is required. You should certainly ensure that, when the estate is taxable, all items worth over £500 are included in the valuation. The CTO can see that if the chattels are simply passing to the surviving spouse, then no detailed valuation is required.

Open market value

You must remember to instruct the valuer to prepare a valuation on the basis of an open market value. Nothing else will be acceptable for tax purposes. You should be aware that any items specifically mentioned in the will should be separately valued. It is also acceptable to use schedule to a current contents insurance policy as the basis for the value. The rule used to be that the Revenue would permit two-thirds of this insurance figure to be used for the probate papers. However, you may find yourself overstating the value by doing so. If items have been mentioned in the will, consider giving the valuer a copy of the relevant sections so that they can properly identify the items in question. Make sure the valuer includes descriptions of items that show the items are readily identifiable in the house. Where a valuation is qualified as being made for 'probate purposes' or for IHT purposes, the CTO will ask you to confirm the correct basis has been used.

Sales

As a general statement, post-death sales, particularly those at auction, provide the best evidence of open market value at the date of sale. The taxpayer may be content to substitute the sale prices for the original valuations or may argue for an adjustment due to market movement between the dates of death and of sale.

Costs of sales

You will occasionally find that the taxpayer will deduct either the cost of obtaining the valuation or the costs incurred in sales from the gross value. Please bear in mind that any costs incurred after the date of death are administration expenses and therefore not deductible. The auction sale price is the gross proceeds of sale (or hammer price) before deduction of commission, insurance etc. without addition of any buyer's premium.

Jointly owned property

You can seek a discount against the value of the deceased's share. However, you will need to provide evidence and purpose of the joint ownership together with details of any trust on which it is held. You will need to tell the CTO how the property was acquired and, if purchased, what proportion of the purchase price was provided by the deceased. For example, it would generally be more difficult to sell a valuable painting purchased by a syndicate of which the deceased was a member than to dispose of a share of a number of chattels left among siblings by a parent.

In making the choice of valuer, you should consider what will happen to the items after probate. If any are intended to be sold, consider who will be instructed to sell them and whether such firms can provide a valuation free of charge or at a discounted rate.

Post-valuation issues

Once the required valuation has taken place and the written valuation has been received, the executors need to consider these issues:

• Does the valuation cover everything that you expect?
• Have other items come to light since the valuer has been to the house?
• Should you increase the insurance cover for the contents in light of the valuation?
• Would early distributions be made so as to reduce the insurance premiums for the estate and reduce the security problems at the testator's unoccupied property?
• Consider circulating a copy of the valuation to all the interested beneficiaries, or whether you should only do so once beneficiaries have chosen the items that they want.
• Use the valuation as the basis for distribution and for accounting for each item in the estate accounts.
• Are all the beneficiaries in the same country and do they have homes in which they can safely fit the items left to them, or should the executors consider storage of items?

Scheme of distribution

If the will simply provides that the chattels are left equally to be divided between a class of beneficiaries, the executors will have to decide how to organise the distribution. The executors may have been given the role of ultimate arbiters should beneficiaries be unable to agree on the choice of chattels. If so, the executors must keep control of the choosing process. They could, for example, ask each beneficiary to choose items that they want in turn. If any two beneficiaries chose the same items, it would then be a matter for the executors to decide. If the testator has anticipated problems, the executors should take care to abide by the scheme proposed by the testator. However, if the will is silent on this, then the executors must organise the choosing process as fairly as possible and by value between the beneficiaries.

Sets and collections

If the will is silent on the choice of items that form a set, the executors need to consider whether beneficiaries should choose the set or whether you will permit them to break it up. Would it be acceptable for a beneficiary to choose one dining chair out of a set of six, or similarly where there is a canteen of silver, or a set of Dickens first editions? It would be sensible in such circumstances for the executors to explain the ground rules to the beneficiaries before they are allowed to make their choices. Clearly a set of Georgian dining chairs would be more valuable than an individual chair by itself. It would be unreasonable to allow beneficiaries to just take one such chair.

If the chattels are to be distributed in whole or part by reference to a note of the testator's wishes, to what extent should the executors abide by those wishes? Re Beatty [1990] 1 WLR 1503 dealt with the issue of precatory trusts of chattels and the court in that case upheld the note of wishes against the claims of the residuary beneficiaries. Although it is well known that the wishes are not generally legally binding on the executors, wherever possible they should try to carry out those wishes.

Once a choice has taken place, the executor must then consider what steps they need to take to ensure a valid transfer of the item has taken place. Some special transfer rules apply:

• Royalties '“ inform the literary agent who the new beneficiaries are and what share of the royalties to which they are entitled.
• Heritage property '“ undertakings and access requirements must be complied with.
• Cars '“ new owner must sign the vehicle registration document and send it to the DVLC.
• Boats '“ does the new owner comply with the ships registration rules? They should be an EU or EEA citizen established by Arts 48 or 52 of the EU treaty. If the ownership is joint '“ how many shares are being transferred?

Costs of transfer

The costs of transfer, delivery and insurance should usually be born by the residuary estate. However, there may be beneficiaries resident abroad and consideration should be given as to whether excessive costs are fairly payable out of the estate or by the beneficiary himself. A suitable provision in a will would provide:

'I declare that all expenses for the safe custody of and insurance incurred prior to giving effect to my wishes and for packing, transporting and insurance for the purposes of the delivery to the respective beneficiaries of their particular chattels shall be born by my residuary estate.'

• The final article will discuss whether any estate chattels are to be sold and the potential tax implications that may arise as a result.