4. PR Duties, Administrative Powers, and Protection, and Collecting and Realising Assets

Question 1

What must be true of PR conduct before they will be liable for loss caused by it?

Answer 1

It must be unreasonable

Question 2

What is the duty of care under the Trustee Act 2000 which applies to PRs in addition to trustees, and what is this in addition to?

Answer 2

PRs must act with reasonable care and skill taking into account any specialist knowledge, in addition to the fundamental duties to act in the best interest of beneficiaries

Question 3

The PRs’ liability for what will typically be excluded in a will?

Answer 3

Breach of duty of care

Question 4

Is a PR liable for loss from a fellow PR’s breach of duty?

Answer 4

Not unless negligence is an issue, i.e. PR was negligent in allowing the breaching PR to engage in the conduct which led to the breach

Question 5

What must the court be satisfied of before it can, at its discretion, relieve a PR from liability for breach of any duty?

Answer 5

That the PR acted honestly and reasonably and ought fairly to be excused

Same as with trustees

Question 6

On to Administrative powers of personal representatives:

What are the nine powers a PR has?

Answer 6

Power to:

1. Sell, mortgage, or lease estate property
2. Appropriate
3. Accept receipt for a minor’s property
4. Insure
5. Delegate
6. Reimburse themselves for expenses
7. Invest (same as with trusts)
8. Maintain a minor (same as with trusts)
9. Advance capital (same as with trusts)

Question 7

What is appropriation?

Answer 7

The use of an asset to satisfy a legacy/interest in the estate, provided the beneficiary consents (unless consent expressly not required in will) and no specific beneficiary is affected

Question 8

Is a PR allowed to make an appropriation in their own favour to satisfy a pecuniary legacy?

Answer 8

Not unless the asset used to do so is cash or cash equivalent, e.g. government bonds or quoted shares

This can be overridden by the will, allowing PRs to appropriate any asset in their favour, subject to the general rules.

Question 9

In what circumstance only is a PR liable for the act or omission of an agent to whom they have delegated?

Answer 9

Only if they failed to adhere with their statutory duty of care in appointing or reviewing the agent

Question 10

What are the two exceptions to the general rule that a PR, like a trustee, is free to make any kind of investment they would be able to make if they were acting on their own account?

Answer 10

Cannot purchase:

1. Land abroad, or
2. An interest in any land with someone else, e.g. a beneficiary

Question 11

Can investment powers be restricted or directed by the will?

Answer 11

Yes

Question 12

What are the two standard investment criteria applicable to PRs, same as trustees, when they invest?

Answer 12

1. Suitability of the investment to the estate
2. Need for diversification

Question 13

What is required to override the provisions regarding maintaining a minor under the Trustee Act?

Answer 13

An express provision in the will

Question 14

Other than likely breach of duty concerns, what is the consequence of advancing capital to a contingent beneficiary?

Answer 14

The amount advanced is not recoverable

Question 15

Whilst a sole PR has the same powers as two or more and thus can give valid receipt for the proceeds of sale of land, what is required for the actual transfer of land (and shares)?

Answer 15

All PRs must join together

Question 16

On to Protection of personal representatives:

What is the liability of PRs to any unpaid beneficiary or creditor, and how can this be avoided?

Answer 16

PRs are personally liable, even if the beneficiary or creditor was unknown at the time of distribution, unless they comply with section 27 of the Trustee Act

Question 17

What are the steps that must be taken under section 27 of the Trustee Act for a PR to protect themselves from liability in the case of an unpaid beneficiary or creditor?

Answer 17

Place adverts in the London Gazette, a paper local to the trust or relevant property, and any other appropriate publication, and request any interested person contact the PRs’ solicitor.

PRs must give at least two months.

Question 18

Under section 27, what is the minimum amount of time which must be given for interested parties to come forward?

Answer 18

A minimum of two months

Question 19

What are the PRs’ four options when a known beneficiary or creditor cannot be found?

Answer 19

1. Pay their entitlement into court and distribute the rest
2. Distribute everything with an indemnity from the beneficiaries (risky because indemnity is worthless if beneficiary has no funds)
3. Seek a Benjamin order
4. Purchase insurance against the risk

Question 20

What is a Benjamin order, and what is the extent of the protection it affords to PRs?

Answer 20

A court order which gives the PRs permission to distribute the estate based on an assumption set out in the order, e.g. that the missing beneficiary is presumed dead. This gives full protection to the PRs.

Question 21

On to Collecting and realising assets:

What is a solvent estate?

Answer 21

Where there are enough funds to pay reasonable funeral, testamentary, and administrative expenses, as well as debts and other liabilities only, irrespective of whether there is enough funds to satisfy legacies.

(Beware of wrong answer choice suggesting an estate is insolvent because it cannot pay legacies. It is not.)

Question 22

If the will provides they should not be paid from the residue, what are the three sources that debts owed to unsecured creditors are paid from?

Answer 22

1. Property specifically charged with the payment of debts
2. Pecuniary legacy funds
3. Property specifically devised or bequeathed

Question 23

What is the doctrine of marshalling, and who can it be invoked by?

Answer 23

Doctrine of marshalling is invoked by a disappointed beneficiary (one whose legacy has been used to satisfy a debt even though the legacy was not within a category to be used to pay the debt), and it allows them to be compensated for the loss.

Question 24

Where an estate is insolvent, what is the prescribed order that creditors should be paid, and if followed, protects the PRs from liability?

Answer 24

1. Funeral and administration expenses
2. Preferred debts, i.e. wages, salary, and holiday pay of deceased’s employees for prior four months, to a maximum of £800 each
3. Ordinary debts, i.e. money owed to HMRC, and balance of preferred debts
4. Interest on 2 and 3
5. Deferred debts, i.e. loans from deceased’s spouse

Question 25

What implied warranty do the PRs give when the pay a category of debt knowing that there are higher ranking debts?

Answer 25

They give an implied warranty that there are sufficient assets to meet all higher level debts

Question 26

Where this implied warranty is given, and there aren’t sufficient assets to cover higher level debts, what is the situation?

Answer 26

The PRs are personally liable

Question 27

When will a PR not be liable for paying off an inferior debt when there are superior debts?

Answer 27

When they did not know, i.e. had no notice of the superior debts

Question 28

Although PRs must not prefer one creditor over another in an insolvency situation, when will a PR not be liable?

Answer 28

If they pay a creditor in one class in full, before the payment of others, and they later discover the estate to be insolvent, as long as PRs acted in good faith and had no reason to believe the estate was insolvent

Question 29

What are the two groups who make up the category of “personal representative”?

Answer 29

1. Executors (probate)
2. Administrators (administration)