Inheritance tax data released by HMRC last month showed that the government received a record £4.6bn for the period between April to December 2021, a £600m increase on the same period a year earlier. This significant rise is driven largely by surging property values which saw a rise of 10.8% during 2021, according to ONS. This is steadily continuing to climb in 2022 as data from Rightmove notes that the average asking price for homes in February was up £7,785 (2.3%) in comparison to the month before. Further data showed that, on average, prices increased by almost £40,000 in the two years since the start of the pandemic.
Often, the largest value of an estate is in property and, as house prices continue to sky-rocket beyond the “frozen” relief provided by tax free allowance, clients are likely to face not only higher IHT bills, but also associated “upkeeping” costs on their properties.
The responsibility of administering an estate, typically under the guidance of a professional probate practitioner, rests with the executor. These responsibilities can be overwhelming and often underestimated, especially when the burden of discharging liabilities, such as IHT and the financial challenge of preparing an estate for distribution, can be significant.
An executor is accountable for all costs on behalf of the estate during the probate process. The range of costs faced by the executor is dependent on estate planning that has taken place prior to the bereavement, but it typically includes funeral costs, professional fees, probate fees, IHT, as well as asset validation and valuation costs.
A big aspect of the costs will also go towards the management of the property that’s part of the estate. This may include utility bills, local authority taxes, insurance premiums, security costs, maintenance/renovation costs, clearance costs, and conveyancing fees.
Furthermore, with this month’s announcement that energy costs are going to see a dramatic rise – as energy regulator Ofgem announced a 54% increase in the price cap from 1 April 2022 – executors may be at risk of facing even more unprecedented pressure to cover estate fees.
Whilst many of these areas may have been considered “in-life” with preparations put in place through prudent wealth management and legacy planning, the stark reality is that such preparations often fall short of what is required to cover all costs that may arise. The wealth of an estate could be substantial, but this may not necessarily translate into cash liquidity to finance costs. Bank accounts and other cash resources can typically be accessed legally by the executor but, given the investment performance that property currently represents, it is likely that wealth has been placed in the safe haven of private homes. This means that estate value is all too frequently “locked” until the end of the probate process and therefore cannot be relied upon to pay the numerous bills that arise early in the probate process.
Executors face the challenge of overcoming these financial barriers by either using personal finance options in lieu of being reimbursed by the estate later in the process, or by finding willing beneficiaries to step forward and provide the necessary support. In lower value estates, this may be all that’s required, but with estate value rocketing as a result of property prices, so in turn are the costs and liabilities. This means that, even for the most affluent of executors and/or beneficiaries, the level of “cash” needed may be insurmountable in the time frames required.
Probate bridging loans are an innovative solution that can help relieve clients of financial burdens, and ensure a smooth transition from the moment of bereavement through to the final distribution of the estate. Such specialist loans are an effective means for clients to cover not only the ever-growing IHT bills, but also the pressing upkeeping costs associated with properties, whilst avoiding any personal risk as loans of this nature are secured on the estate itself. Submitting a free quote could be really useful in helping executors evaluate all their options.
It is vital that probate practitioners are alive to their clients’ needs and are well-versed on ways they can help them “unlock” value in an estate.