Make sure your estate is shared out exactly as you want it to be
Planning your finances in advance should help you to ensure that when you die everything you own goes where you want it to. Making a will is the first step in ensuring that your estate is shared out exactly as you want it to be.

If you don’t make a will, there are rules for sharing out your estate called the Law of Intestacy, which could mean your money going to family members who may not need it, or your unmarried partner or a partner with whom you are not in a civil partnership receiving nothing at all.

If you leave everything to your spouse or civil partner there’ll be no Inheritance Tax to pay because they are classed as an exempt beneficiary. Or you may decide to use your tax-free allowance to give some of your estate to someone else or to a family trust.

Good reasons to make a will
A will sets out who is to benefit from your property and possessions (your estate) after your death. There are many good reasons to make a will:

– you can decide how your assets are shared – if you don’t have a will, the law says who gets what

– if you’re an unmarried couple (whether or not it’s a same-sex relationship), you can make sure your partner is provided for

– if you’re divorced, you can decide whether to leave anything to your former partner

– you can make sure you don’t pay more Inheritance Tax than necessary

Before you write your will, it’s a good idea to think about what you want included in it. You should consider:

– how much money and what property and possessions you have

– who you want to benefit from your will

– who should look after any children under 18 years of age

– who is going to sort out your estate and carry out your wishes after your death, your executor

Passing on your estate
An executor is the person responsible for passing on your estate. You can appoint an executor by naming them in your will. The courts can also appoint other people to be responsible for doing this job.

Once you’ve made your will, it is important to keep it in a safe place and tell your executor, close friend or relative where it is.

It is advisable to review your will every five years and after any major change in your life, such as getting separated, married or divorced, having a child or moving house. Any change must be by ‘codicil’ (an addition, amendment or supplement to a will) or by making a new will.

Scottish law on inheritance differs from English law.

Reflecting what those assets would reasonably receive in the open market

When valuing a deceased person’s estate, you need to include assets (property, possessions and money) they owned at their death and certain assets they gave away during the seven years before they died. The valuation must accurately reflect what those assets would reasonably receive in the open market at the date of death. Valuing the deceased person’s estate is one of the first things you need to do as the personal representative. You won’t normally be able to take over management of their estate (called ‘applying for probate’ or sometimes ‘applying for a grant of representation/confirmation’) until all or some of any Inheritance Tax that is due has been paid.

But bear in mind that Inheritance Tax is only payable on values above £325,000 (2010/11).

The valuation process
This initially involves taking the value of all the assets owned by the deceased person, together with the value of:

– their share of any assets that they own jointly with someone else

– any assets that are held in a trust, from which they had the right to benefit

– any assets which they had given away, but in which they kept an interest – for instance, if they gave a house to their children but still lived in it rent-free

– certain assets that they gave away within the last
seven years

Next, from the total value above, deduct everything that the deceased person owed, for example:

– any outstanding mortgages or other loans
– unpaid bills
– funeral expenses

(If the debts exceed the value of the assets owned by the person who has died, the difference cannot be set against the value of trust property included in the estate.)

The value of all the assets, less the deductible debts, gives you the estate value. The threshold above which the value of estates is taxed at 40 per cent is £325,000 (2010/11).

Use the information available
If you don’t know the exact amount or value of any item, such as an Income Tax refund or household bill, you can use an estimated figure. But rather than guessing at a value, try to work out an estimate based on the information available to you.

The forms on which you’ll need to record the valuation will differ, depending on the expected valuation amount. You complete a form IHT205 for estates where you don’t expect to have to pay Inheritance Tax (called ‘excepted estates’) and a form IHT400 where you do expect to have to pay. The forms vary for excepted estates in Scotland.

You should be able to value some of the estate assets quite easily, for example, money in bank accounts or stocks and shares. In other instances, you may need the help of a professional valuer (or chartered surveyor for valuing a property). If you do decide to employ a valuer, make sure you ask them to give you the ‘open market value’ of the asset. This represents the realistic selling price of an asset, not an insurance value or replacement value.

If the affairs of the estate are complicated, you may want to work with a solicitor to help you value the estate and pay any tax due. If you’re not using a solicitor you can ask HM Revenue & Customs to use form IHT400 to work out any Inheritance Tax due.

Once you’ve completed the relevant tax forms, you also need to complete the relevant probate form.