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probate value vs insurance value

edited 30 November -1 at 1:00AM in Deaths, Funerals & Probate
9 replies 12.9K views
merlin51merlin51 Forumite
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edited 30 November -1 at 1:00AM in Deaths, Funerals & Probate
Does anyone know, as a general ready reckoner, what sort of uplift there is between probate value of jewellery and insurance value? We've got various pieces that have been valued for probate purposes but don't really know if any of them should be insured under our household policy. The probate value is so low it's difficult to assess what their replacement value might be.

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  • da_ruleda_rule Forumite
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    Probate is what it is worth, whereas insurance is often the cost to replace.
    Therefore if it is unique/handmade the cost of replacing it/having it remade may exceed the retail value of the item.

    It would also depend on your insurance. On our policy we can have unlimited items worth £1000 or less and a certain number worth between £1000-£5000 then have to declare items over that if we want them to be covered.
  • Yorkshireman99Yorkshireman99 Forumite
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    merlin51 wrote: »
    Does anyone know, as a general ready reckoner, what sort of uplift there is between probate value of jewellery and insurance value? We've got various pieces that have been valued for probate purposes but don't really know if any of them should be insured under our household policy. The probate value is so low it's difficult to assess what their replacement value might be.
    There is no standard! The value for probate needs to be the open market value. However unless the estate is going to attracts IHT then it is academic. Having said that the seems to be a culture of grossly undervaluing for probate.
  • edited 20 January 2017 at 12:18AM
    securityguysecurityguy Forumite
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    edited 20 January 2017 at 12:18AM
    Probate value is supposed to be what you could sell it for, on the open market, quickly and without travelling too far.

    For anything one-off, that is going to be far lower than replacement value, or the price you could get if you spent a long time finding, and waiting for, and then sweet-talking and selling to, a specialised buyer. There are endless stories of people taking jewellery (or paintings, or musical instruments, or books) to a local dealer and their missing the obscure, high-value item worth a fortune to the right buyer: the probate value is what a local shop which deals in such objects would buy it from you for, cash on the nail (ie, not on consignment), tomorrow morning. The point being that yes, _if_ you knew what an object was, and _if_ you took it to the right place and _if_ you waited for long enough, it might be worth a lot more. But in an estate of a thousand objects, it might not be remotely easy to know which of the objects need that treatment.

    Obviously, if the original owner has something marked out as a special object, on a special insurance policy, the executors have an obligation to check. Although again, the price for which you can sell handmade objects with great sentimental value may be a lot less than the cost of paying a specialist to make you a replica, and there is also the problem of family legends of paintings being by Lowry and violins by Stradivarius, when in fact they are nothing of the sort (most of the people on that strange "is this what my dad said it was?" painting programme with Fiona Bruce end up disappointed).

    But if the executors are handed a box of jewellery with no provenance, the value is the greater of what a local shop will give you and the melt value, and if in the process a long-lost obscure piece by a top maker is missed, then that is unfortunate, but not unreasonable. And even if they do, eventually, happen to spot the value of an item and get it dealt with by a specialist, the valuation starts with a layman's "is this worth enough to be worth taking to someone who know what it is?" and that is an entirely legitimate probate valuation position at the point of applying for probate (which may happen before the executors have physical access to all the assets).

    Houses are usually reckoned to be, ultimately, worth what you can sell them for at auction tomorrow, not what you can get by holding out for two years waiting for a buyer who falls in love, and then waiting a further year while they build and see the collapse of a succession of chains before they finally complete. Executors are obligated to get best value for things they know or should reasonably expect to be valuable, and to make reasonable efforts to establish the value of objects (by, for example, taking jewellery to a jeweller). That's a long way from expecting people to take everything to the appropriate national specialist.
  • FreeBearFreeBear Forumite
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    There is no standard! The value for probate needs to be the open market value. However unless the estate is going to attracts IHT then it is academic. Having said that the seems to be a culture of grossly undervaluing for probate.

    I think I gave an answer on this exact same question fairly recently. Had some jewelery valued for probate, and they basically gave me the scrap value of the metal plus a bit for the stones. For insurance purposes, the value was considerably higher.

    Why the difference ?
    Presumably, the scrap value is what I could obtain on demand, where as getting replacements in the event of an insurance claim would be nigh on impossible.
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  • edited 20 January 2017 at 1:32PM
    securityguysecurityguy Forumite
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    edited 20 January 2017 at 1:32PM
    The full insurance valuation for a one-off piece of jewellery might be the price of buying all the materials and then paying someone with skill and equipment to make a perfect copy. Or it might be the value you could realise if you kept it as an investment and then sold it as part of a planned project to fund your retirement, in which you gather a full set of provenance documentation and wait for the right buyer in the right venue. Or it might be (particularly if it's something with a "name" on it) the price including margin you would pay a dealer to source, verify and sell you an equivalent item, where equivalent it a matter between you and a loss adjustor.

    All of those are almost certainly higher than the probate value which is somewhere between "value as scrap" and "value as an object to someone who doesn't know what it is in particular." A probate valuation is basically what you could realise the assets for at a general auction at your local auction house, tomorrow, no reserve. That's a harsh spotlight but a legally valid one, in the same way as it is an agreed basis for valuing houses; if a repossession is sold at auction, that is legally sound as "best value" even though it may be hugely below what an estate agent could sell it for given twelve months, ample fresh bread and roasting coffee and a following wind.

    YM has in the past cited examples where it is more complex because items are part of a value split between residual beneficiaries, and in that case it's for the executors and the beneficiaries to agree the valuation basis for the split; aside from anything else, that is fraught with risk of unfairness (even if it's legally OK) if one beneficiary knows what an object is but keeps quiet about it. But probate valuation is the equivalent of valuing business as "gone concerns", which can be very much lower than other bases.
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  • Yorkshireman99Yorkshireman99 Forumite
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    The full insurance valuation for a one-off piece of jewellery might be the price of buying all the materials and then paying someone with skill and equipment to make a perfect copy. Or it might be the value you could realise if you kept it as an investment and then sold it as part of a planned project to fund your retirement, in which you gather a full set of provenance documentation and wait for the right buyer in the right venue. Or it might be (particularly if it's something with a "name" on it) the price including margin you would pay a dealer to source, verify and sell you an equivalent item, where equivalent it a matter between you and a loss adjustor.

    All of those are almost certainly higher than the probate value which is somewhere between "value as scrap" and "value as an object to someone who doesn't know what it is in particular." A probate valuation is basically what you could realise the assets for at a general auction at your local auction house, tomorrow, no reserve. That's a harsh spotlight but a legally valid one, in the same way as it is an agreed basis for valuing houses; if a repossession is sold at auction, that is legally sound as "best value" even though it may be hugely below what an estate agent could sell it for given twelve months, ample fresh bread and roasting coffee and a following wind.

    YM has in the past cited examples where it is more complex because items are part of a value split between residual beneficiaries, and in that case it's for the executors and the beneficiaries to agree the valuation basis for the split; aside from anything else, that is fraught with risk of unfairness (even if it's legally OK) if one beneficiary knows what an object is but keeps quiet about it. But probate valuation is the equivalent of valuing business as "gone concerns", which can be very much lower than other bases.
    Just for the point of accuracy in the example I quoted the recipient had no idea of the true worth of the ring she selected. SG takes the view that executors should just sell things as cheaply and as quickly as they can. SG misses the point that executorship is a position of trust and that means they need to cartry it out with reasonable care. A reasonable balance needs to be struck between what can be done and what is just too expensive or time consuming. The value of anything for probate is the open market value. SG is suggesting that this is equivalent to what might be called fire sale values which is very different. It is quite reasonable for executors to delay selling for a reasonable period of time with a view to obtaining a better price. To effectively the first offer is not a responsible way to behave. In the case of property there is no excuse for not getting a professional valuation by a qualified valuer and subsequently selling it via an agent. An auction should not be chosen until other reasonable options have been tried. .
  • edited 20 January 2017 at 5:50PM
    securityguysecurityguy Forumite
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    edited 20 January 2017 at 5:50PM
    "The value of anything for probate is the open market value. SG is suggesting that this is equivalent to what might be called fire sale values which is very different."

    The definition of "open market value" is very difficult. For inheritance tax purposes the technical guidance is here, and requires things to be valued at the best price subject to the provision Therefore, the best price need not necessarily be the highest, remotely obtainable price, but should be an estimate of the price which could reasonably be expected in the competitive conditions of the open market..

    However, that's not probate value. Probate value is assessed before the grant of representation is obtained. The executors may not have access to all the facts, They also don't have a lot of time.

    "It is quite reasonable for executors to delay selling for a reasonable period of time with a view to obtaining a better price."

    Absolutely. But that's not probate value, is it? At the point of assessing the probate value you aren't selling anything, because you don't have a grant. You're just filling in a form which gives a rough estimate of what there is. They can't wait for a good offer, because they need to get on with being executors with a grant. Even if they did wait, they aren't in a position to sell. How do you value items which you can't sell until later?

    The probate value is not the value you might be able to sell if for with a following wind. It's the value you can sell it for right now. That doesn't mean executors have to actually sell it for that, because they don't sell anything until they have a grant. When the music stops, tax is assessed on what was realised: if you undervalue things at the front end, it is corrected at the back end, either as IHT or as CGT (the estate only has a small CGT allowance).

    "To effectively (accept, presumably) the first offer is not a responsible way to behave"

    No it isn't. But the probate value, for the purpose of obtaining a grant of representation, can't do much else. What does "waiting" mean in the context of getting a hypothetical value?
  • theoreticatheoretica Forumite
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    Would you replace it if it were stolen or damaged? If not, why insure it?
    But a banker, engaged at enormous expense,
    Had the whole of their cash in his care.
    Lewis Carroll
  • Yorkshireman99Yorkshireman99 Forumite
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    "The value of anything for probate is the open market value. SG is suggesting that this is equivalent to what might be called fire sale values which is very different."

    The definition of "open market value" is very difficult. For inheritance tax purposes the technical guidance is here, and requires things to be valued at the best price subject to the provision Therefore, the best price need not necessarily be the highest, remotely obtainable price, but should be an estimate of the price which could reasonably be expected in the competitive conditions of the open market..

    However, that's not probate value. Probate value is assessed before the grant of representation is obtained. The executors may not have access to all the facts, They also don't have a lot of time.

    "It is quite reasonable for executors to delay selling for a reasonable period of time with a view to obtaining a better price."

    Absolutely. But that's not probate value, is it? At the point of assessing the probate value you aren't selling anything, because you don't have a grant. You're just filling in a form which gives a rough estimate of what there is. They can't wait for a good offer, because they need to get on with being executors with a grant. Even if they did wait, they aren't in a position to sell. How do you value items which you can't sell until later?

    The probate value is not the value you might be able to sell if for with a following wind. It's the value you can sell it for right now. That doesn't mean executors have to actually sell it for that, because they don't sell anything until they have a grant. When the music stops, tax is assessed on what was realised: if you undervalue things at the front end, it is corrected at the back end, either as IHT or as CGT (the estate only has a small CGT allowance).

    "To effectively (accept, presumably) the first offer is not a responsible way to behave"

    No it isn't. But the probate value, for the purpose of obtaining a grant of representation, can't do much else. What does "waiting" mean in the context of getting a hypothetical value?
    Your whole argument is that the probate value should be rock bottom but you provide no credible precedent for this. The harsh reality is that being and executor is not an easy task, quite apart from the emotional aspect, and, as a position of trust, should not be taken lightly as you repeatedly suggest.Of course if the estate is likely to be well below the IHT threshold then it is more academic but if items are all to be sold beneficiaries have a right to expect more than the throwaway attitude you advocate. As you well know HMR&C give guidance that items over £500 should be valued professionally but it is just weasel words to say that this can be circumvented as it becomes a circular argument. The reality is that some of that rare commodity, common sense, needs to be applied. For example You have previously stated that secondhand furniture has no value. That might be true of mass produced items sold by Ikea and the like but there is a ready market for good quality hand made modern furniture, in good condition, such as Ercol. To suggest that this sort of item should be given no value is risible.As far as property value is concerned then HMR&C will accept a professional valuation by a RICS or similarly qualified person. That value is likely to be checked by the District valuer and will not be a fire sale value as you suggest. Neither is time nearly as critical as you suggest.
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