A person’s estate is made up of all the assets they own or were responsible for at the time of their death, including but not limited to property, land, financial assets, cash, personal possessions and business interests.

Importantly, this can be a combination of things that the deceased person owns outright (like jewellery and art) and things that are still outstanding in payment (such as mortgage payments, car finance) because these will be taken out of the estate.

A person’s estate is typically calculated when they die and the assets are distributed by the executor to the different beneficiaries including children, spouses, friends etc. Of paramount importance is understanding the value of the total estate and how much inheritance tax is due to be paid. The first £325,000 is free of any inheritance tax (IHT) but any figure above this may be subject to 40% tax.

Understanding what is in the person’s estate and not in their estate is key to ensure a smooth probate process and release of assets amongst beneficiaries.

What is included in a person’s estate?

Property they own

This includes their primary residence and any additional properties such as second homes, land, properties abroad and rental properties.

Financial assets

At the forefront of financial assets is any cash held in banks and building societies. This area also covers any savings and investments they may have in the form of ISAs, stocks, shares and even cryptocurrencies. A life insurance policy will also be paid out to any spouses or beneficiaries, assuming that it is held in a trust.

Personal items and possessions

A person’s house is full of possessions both valuable and sentimental and this can include any vehicles such as cars, boats, caravans, to jewellery, art, furniture, heirlooms, stamp collections, clothes and other household items or electronics within the house.

Business interests

Within the estate are a person’s business interests, including any privately held companies in their name or any shares that they may have in a business. This too will be passed onto spouses, children or other beneficiaries.

Pension

Most pensions are held in trusts and these are exempt from inheritance and regular tax. So any money left over in the deceased’s pension will be passed onto beneficiaries. Depending on its state, it may not be classed as an asset but is considered inheritance.

Who decides which assets of the estate are distributed?

The distribution of assets are arranged in the will and are distributed by the executor or administrator. 

Where there is no will in place, the rules of intestacy apply. These state that their spouse or civil partner inherits all assets and, if they are not alive, the assets are divided equally among the deceased’s children.

What assets are not included in a person’s estate?

Importantly, there are some valuable assets that are not included in an individual’s estate. For example, life insurance policies are passed directly to the spouse of the individual and are designed to pay for living costs such as mortgages and utility bills, they are therefore not taxable.

If the individual owns jointly owned assets, including as a joint tenant, their share is automatically passed onto the co-owner. Similarly, for property held as tenants in common, the individual’s share forms part of the estate.

Furthermore, some pension funds have direct beneficiaries, so will not be included in an estate.

What fees and payments come out of the estate?

There are various things that the estate pays for including funeral expenses, solicitors, legal fees and also any outstanding payments on the deceased’s estate such as mortgages, credit card balances, debt and more.

It is key to seek professional advice from a solicitor to ensure a smooth valuation and distribution of the estate and to make sure that inheritance tax is well-planned and paid accordingly.