5. Administration: Dealing with the Assets

Question 1

What are some standard powers which would commonly be included in wills, in addition to statutory powers?

Answer 1

Power to charge (i.e. for time)

Extended power to appropriate assets without consent of legatee (i.e. removing consent from statutory power under s 41 AEA)

Power to insure assets

Power to accept receipts for or on behalf of minors

Self-dealing

Question 2

What is self-dealing?

Answer 2

When a PR transfers from the estate they are administering to themselves - to avoid this, consent must be obtained by all beneficiaries (and those under 18 cannot provide consent)

Question 3

What is excluded under trustee’s power to invest under s 3 TA?

Answer 3

Investment in land

Question 4

What is excluded in a trustee’s statutory power to purchase land with trust assets?

Answer 4

Purchasing land abroad

Question 5

What does s 31 TA permit the trustee do to?

Answer 5

To use income received under the trust for the minor’s maintenance, education or benefit

Question 6

When a trustee turns 18, what do trustees have to do in relation to the income from a trust?

Answer 6

They have a duty to pay the beneficiary their share of the income

Question 7

What does s 32 TA permit the trustee do to?

Answer 7

Allows trustees in certain circumstances to give a beneficiary payment of trust capital for their benefit sooner than they would receive it under the basic provisions of the trust

Question 8

When does the administration period for a will begin?

Answer 8

At moment immediately following death

Question 9

What is a devastavit claim?

Answer 9

When trustees are personally liable for any loss caused to the estate by maladministration ornegligence

Question 10

What does s 61 TA give the courts the power to do in relation to trustees?

Answer 10

To relieve them from liability for a breach of duty if it is satisfies that the PR has “acted honestly and reasonably and ought fairly to be excused for the breach”

Question 11

What are the three main issues a PR will face in the administration of an estate?

Answer 11

1. Unknown beneficiaries and creditors
2. Missing beneficiaries and creditors
3. Inheritance (Provision for Family and Dependants) Act 1975

Question 12

What is the risk if a trustee distributes and estate and then someone subsequently makes a successful claim?

Answer 12

They would be personally liable for resolving the mistake

Question 13

How can a trustee protect themselves against unknown beneficiaries and creditors?

Answer 13

By advertising for claimants in compliance with s 27 requirements, and wait for 2 months before distributing the estate

Question 14

What are the options for a PR if there are missing beneficiaries?

Answer 14

• Keeping back assets (advantage: protects from personal liability; disadvantage: beneficiaries may not agree)
• Taking indemnity from other beneficiaries (advantage: theoretically protects from personal liability; disadvantage: worthless is beneficiaries do not have means to satisfy claim)
• Taking out insurance (advantage: gives some protections; disadvantage: expensive and client liable for shortfall)
• Apply to the court for a Benjamin order -authorises the PRs to distribute the estate on the basis that the claimant is dead (advantage: offers full protection from personal liability; disadvantage: expensive and the beneficiaries are still liable)

Question 15

How can a trustee protect themselves against an applicant under the Inheritance (Provision for Family and Dependants) Act 1975?

Answer 15

Wait 6 months from grant of representation before distributing the assets

Then applicant cannot apply

Question 16

If the trustees have waited 6 months and therefore discharged their responsibilities under Inheritance (Provision for Family and Dependants) Act, can someone still bring a claim?

Answer 16

Yes - the PRs would not longer be personally liable but the claimant could recover from the beneficiaries if the court orders this

Question 17

In a solvent estate, under ss 35 and 34(3), what is the order of payment?

Answer 17

Secured debts

Unsecured debts and expenses, paid in following order
1. Property undisposed of by will
2. Property included in a residuary gift
3. Property given for payment of debts
4. Property charged with payment of debts
5. Fund retained to meet pecuniary legacies
6. Property specifically devised / bequeathed, rateably according to value
7. Property appointed by will

Question 18

If a pecuniary legacy has been left with no provision by will for payment, which assets will be used?

Answer 18

PRs will decide

Question 19

What is the time frame for the payment of pecuniary legacies?

Answer 19

Payable at the end of the “executor’s year”, i.e. one year following testator’s death

Question 20

In what four events, as an exception to the general rule, is interest payable on a pecuniary legacy from date of death?

Answer 20

1. Payable in satisfaction of a debt owed by the testator to a creditor
2. Charged on land owned by the testator
3. Payable to the testator’s minor child
4. Payable to any minor (not necessarily their child) when intention is to provide for maintenance of the minor

Question 21

In what event would PRs become liable for tax?

Answer 21

If it remains unpaid by donees 12 months following end of month of donor’s death

Question 22

How can a PR obtain confirmation from HMRC that there is no further claim to IHT on the estate?

Answer 22

Apply to HMRC using form IHT30 for a clearance certificate

Question 23

When does liability occur for IHT and CGT following the death of the deceased, and what must be done?

Answer 23

Immediately following the death

PRs must make return to HMRC of income / capital gains - 6 April up until death

Question 24

What rates of income tax are PRs subject to?

Answer 24

Dividends - 8.75%

Other income - 20%

Question 25

What amount of interest on the estate is income-tax free for PRs?

Answer 25

£500 (however will be included in gross amount for beneficiary)

Question 26

What happens if a beneficiary is in a higher rate income tax bracket?

Answer 26

PRs pay the basic rate
Beneficiary pay excess

Question 27

For CGT purposes, what point in time is relevant for when the PRs acquire the deceased’s assets?

Answer 27

Probate value at death

Question 28

What CGT are PRs liable for?

Answer 28

20%
28% - residential property

Question 29

What are the CGT implications if a beneficiary is a higher rate tax payer?

Answer 29

Have to pay an additional 20% on top of that paid when they receive the property

Question 30

What annual exemption are PRs entitled to?

Answer 30

£6,000 for tax year of death, and following 2 years

Question 31

What is available if an assets are sold for less than value at death?

Answer 31

Loss may be relieved by setting it against any gains within same or future tax year

Question 32

What value is an asset considered at when transferred to beneficaries?

Answer 32

Value at date of death

Question 33

What formalities are required for the transfer of freehold / leasehold land?

Answer 33

PR must vest the legal estate in land by means of an assent, which must be in writing, signed by the PRs, and name recipient

Question 34

What is the final task a PR will complete when administering an estate?

Answer 34

Produce estate accounts for residuary beneficiaries - to be signed by residuary beneficiaries to indicate approval