How do I determine which liabilities and debts need to be considered during the probate estate valuation process?

The liabilities to consider are those legally enforceable against the deceased or the estate at the date of death, together with properly attributable costs arising during the administration of the estate. The personal representative should establish who is owed money, why it is owed, whether the deceased was solely or jointly responsible, and whether the amount can be deducted for the purpose being considered.

A practical review should begin with the deceased’s papers and financial records, rather than relying only on information supplied by family members. Relevant evidence may include loan agreements, credit statements, tenancy documents, care-fee correspondence, court orders, insurance schedules, tax returns, business records and letters from creditors. Bank transactions can reveal regular repayments or unpaid bills that are not obvious from the estate papers.

Each potential liability should be assessed under separate categories:

• Secured borrowing: a charge over a property or another asset may need to be considered alongside the asset’s value. The security does not automatically mean the whole balance is deducted from every part of the estate; the legal and economic connection between the borrowing and the secured asset matters.
• Unsecured borrowing: credit balances, personal loans and other contractual obligations should be checked against the agreement and the lender’s statement. Interest or charges added after death should be examined to establish whether they are contractually and legally recoverable.
• Joint liabilities: a surviving borrower may remain responsible for all or part of a joint debt. The estate should not automatically be treated as owing the entire balance. Review the contract, the account arrangement and any indemnity between the parties.
• Contingent or disputed claims: a possible claim, guarantee or pending legal action may not have a settled value. It should still be reported to the probate adviser or tax adviser, with the uncertainty recorded. A reasonable estimate may be needed, but an uncertain claim should not be presented as a confirmed debt without supporting analysis.
• Business and partnership obligations: if the deceased operated a business, check whether the estate is exposed to unpaid supplier accounts, employee entitlements, partnership commitments, guarantees or liabilities arising from contracts.
• Overpayments and recoverable sums: a payment received before death may later be reclaimed by a public authority, pension provider, insurer or other organisation. Whether it is a debt of the estate depends on the relevant rules and the date on which entitlement ended.

The date of death is central. A valuation should distinguish an obligation that already existed at that date from a cost created later by the administration. For example, an unpaid contractual amount existing at death is different from a professional fee incurred by the personal representative while dealing with the estate. Both may affect the estate’s finances, but they may be treated differently for probate reporting, inheritance tax and the final estate accounts.

Administration expenses should therefore be recorded in their own section. These can include appropriate professional charges, valuation costs, property insurance, necessary repairs, storage, clearance, sale costs and other expenses incurred in preserving or realising estate assets. Whether an expense is deductible, and against which asset or fund, depends on its purpose, the terms of the will, the administration circumstances and the tax rules that apply. Keep invoices and explain the reason for each payment.

Not every outgoing is an estate liability. Personal spending by a beneficiary, voluntary payments made by relatives, debts belonging solely to a surviving spouse or partner, and costs that arise from a beneficiary’s own decision should not be entered as deductions without a legal basis. The same caution applies to informal family loans: obtain written evidence of the arrangement, the balance outstanding and whether repayment was actually expected.

Where a property is being valued, separate the property’s market value from the amount secured against it. The valuation records the value of the asset; the mortgage or other charge is dealt with as a liability or encumbrance in the appropriate estate calculations. This distinction is important when comparing an estate agent’s or surveyor’s valuation with the equity available to the estate and when preparing sale or transfer documents.

After identifying the liabilities, prepare a schedule showing the creditor, account or reference, nature of the obligation, balance at the relevant date, subsequent payments, evidence held and any issue requiring advice. Mark entries as confirmed, estimated, disputed or awaiting information. Reconcile the schedule to the deceased’s bank accounts and to creditor statements, and update it when claims are settled or revised.

Before submitting figures for probate or inheritance tax, obtain advice where the estate includes insolvency, overseas assets, trusts, a business, guarantees, litigation, jointly owned borrowing or a disagreement about responsibility. A probate solicitor or suitably qualified tax adviser can determine whether a liability is legally enforceable and whether the proposed deduction is permitted for the specific return. Retain the underlying documents with the estate accounts so that the figures can be explained to beneficiaries, HM Revenue & Customs or the probate registry if queried.