6 - Administration: Personal Representatives & Post-Grant Practice Flashcards
What is the role of a PR (Personal Representative)?
Under s.25 Administration of Estates Act 1925 (AEA), a PR must “collect and get in the real and personal estate of the deceased and administer it according to law.”
The role of a PR includes:
- Collecting the deceased’s assets.
- Paying the deceased’s debts.
- Meeting tax liabilities and other estate expenses.
- Distributing the assets to the beneficiaries (under a will or intestacy).
A PR may also (but not always) be a beneficiary, but their role is fiduciary in nature, and all duties must be performed in accordance with their duty of care, which depends on the complexity of the estate.
To act as a PR, a person must be appointed by the will or by statutory rules (Non-Contentious Probate Rules 1987 (NCPR)).
Who can act as a PR and where does their power come from?
A person must be appointed to act as a PR either by:
Will: A PR appointed by will is called an executor, and their authority to act comes directly from the will itself. The grant of representation serves as confirmation of this authority.
Statutory rules under the Non-Contentious Probate Rules 1987 (NCPR): If there is no executor appointed or willing to act, or if the deceased died intestate, a PR will be appointed as an administrator, whose authority is derived from the grant.
What is the role of a PR concerning legal title to the estate?
Legal title to the deceased’s estate lies with the PRs due to their appointment.
PRs may choose to formally transfer the deceased’s assets into their own names before distributing them to the beneficiaries.
The grant of representation is confirmation of the PRs’ authority to deal with the deceased’s assets.
Some assets may be administered without a grant, but many institutions, such as banks, may refuse to release funds until the PRs provide a grant. The Land Registry requires a grant before transferring legal title to land into the PRs’ names.
Are PR’s also trustees to the estate?
A PR is not automatically a trustee of the estate being administered, although the roles of PR and trustee are similar, and both are fiduciary in nature.
When the estate administration is complete, the role of PR ends, but their duties may continue if any continuing trusts are created.
The PR becomes a trustee if:
- The will expressly appoints executors to act as trustees of any trust arising.
- There is intestacy, and the PRs hold the estate on trust with a power to sell (s.33 AEA).
- A statutory trust arises under intestacy, and the PRs hold the estate on trust for a minor beneficiary (s.46 AEA).
What is the statutory duty of care for PRs?
Many statutory powers and duties of a trustee apply equally to PRs, including the statutory duty of care.
Under s.68 Trustee Act 1925, the expressions “trust” and “trustee” extend to include the duties of a PR.
According to s.35(1) Trustee Act 2000, a PR administering an estate must carry out their duties in the same way as a trustee carrying out a trust for beneficiaries.
What is the role of a solicitor in the administration of an estate?
A solicitor may become involved in the administration of an estate in three main ways:
Instructed by the PRs: This may happen if PRs need advice on the administration process due to lack of time, technical knowledge, or confidence.
Appointed as executor: A solicitor may be named as an executor in the will.
Instructed in contentious matters: A solicitor may act on behalf of a party involved in a contentious probate issue.
What is the role of a solicitor when instructed by PRs?
A solicitor may be instructed by lay PRs if they are unable to carry out the administration due to time constraints or lack of technical knowledge or confidence.
The solicitor must act on the PRs’ instructions, not those of the beneficiaries.
The cost of the legal advice is an administration expense, and the solicitor’s fees may be paid using the estate’s assets rather than the PRs’ personal funds.
What is the role of a solicitor when appointed as executor?
A solicitor can be appointed as an executor under the deceased’s will. In this capacity, the solicitor acts as a professional PR, and their duties are owed to the estate’s creditors and beneficiaries.
The solicitor may be appointed alone or alongside another executor, who is often a family member. In either case, the solicitor will charge the estate for their services.
If a solicitor is appointed, it is important that the testator has been given sufficient information about the appointment and any related costs.
How can a solicitor be involved in contentious wills matters?
A solicitor may be involved in contentious probate work if:
- The terms or validity of the will are challenged.
- A disappointed beneficiary seeks to make a claim under the Inheritance (Provision for Family and Dependants) Act 1975.
In contentious probate, the solicitor may act for the PRs or beneficiaries to either bring or defend a claim.
They owe a duty to their client in the usual way, and while they are not responsible for the estate’s administration, they need knowledge of the administration process to advise their client effectively.
Provide a summary of the role of a PR.
The role of a PR is to administer the estate of a deceased.
The administration process requires the PRs to collect in the deceased’s assets, pay the deceased’s debts and the estate expenses and then distribute the estate funds to the correct beneficiaries (who are entitled under the will or intestacy).
The role of PR is fiduciary in nature.
A PR may also act in the capacity of a trustee of any trust arising following the deceased’s death.
Many of the statutory duties and powers that apply to trustees under the Trustee Act 1925 / 2000 apply equally to PRs.
A testator may appoint a solicitor or firm to act as executor under their will.
Where lay executors are appointed under a will, or administrators are appointed under an intestacy, the PRs may instruct solicitors to assist them.
Solicitors may be instructed to assist with contentious probate matters.
Provide an overview of the obligations that PRs are subject to and the powers available to them.
- The duties of a PR include key statutory and common law obligations to carry out the administration of the estate.
- PRs must carry out their duties in accordance with the powers conferred on them - it is therefore important to understand the scope of their powers to know whether a breach of duty has occurred.
- The role of PR is fiduciary in nature and PRs are also subject to fiduciary duties.
- A PR is personally liable for loss caused by a breach of duty.
What are the duties of the PR before the issue of a grant?
Dispose of the deceased’s body:
Common law duty to dispose of the deceased’s body (Williams v Williams). This is usually arranged by surviving family members and will have already taken place before a solicitor becomes involved.
Statutory duty to provide information about the estate to HMRC and pay inheritance tax (IHT) due:
(Ss 216 and 226 Inheritance Tax Act 1984 (‘IHTA’)). A grant will not be issued unless information required to be reported to HMRC has been delivered and any IHT due has been paid.
Duty to inform HRMC and pay IHT:
The PRs must notify HMRC about the assets and liabilities of the estate (s 216 IHTA).
They do so by completing form IHT 400. An IHT 400 will be completed for any estate that is not excepted. You will consider the difference between excepted and non-excepted estate in another part of this module.
The PRs must also pay any inheritance tax due in relation to the estate assets within their control i.e. the succession estate (s226 IHTA). The PRs may use estate funds and are not required to use personal assets to meet this liability.
These duties must be complied with before the grant of representation is obtained.
What are the duties of the PR under the grant?
- Duty to collect in and administer the estate:
- Duty to provide inventory & account:
- Duty of due diligence.
- Determine the power available to them.
- Statutory duty of care
- Fiduciary duties.
How do PRs comply with the duty to “collect in” the real and personal estate of the deceased.
To comply with this duty PRs must:
- Identify and locate the deceased’s assets (including sums owed to the deceased)
- Identify the deceased’s liabilities and creditors
- Obtain control, possession, or legal ownership of the assets
The PRs will already have identified and valued the assets and liabilities as part of reporting to HMRC prior to obtaining the grant - creating a schedule of assets and liabilities. The method of obtaining control over the assets will depend on the nature of the asset.
How do PRs comply with the duty to “administer” the real and personal estate of the deceased.
Once assets have been collected in, the PRs must ‘administer’ the estate in full by:
- Keeping the assets secure
- Paying the deceased’s debts and liabilities.
- Meeting administration expenses.
- Paying legacies
- Distributing the residue to those legally entitled.
The duty relates only to assets which devolve on the PRs i.e. the succession estate. Assets which pass outside of the succession estate do not vest in the PRs e.g. joint tenant property.
How do PRs comply with the duty to provide “inventory and account”?
The PRs must keep a list of assets and values (inventory) and a record of the steps they have taken in the administration (account). This information is usually recorded in the** ‘Estate Accounts’.**
A beneficiary or creditor may ask to see the estate accounts. If the PRs refuse, or have not maintained adequate records, an application to court (in accordance with the NCPR) for an order to produce an inventory and account may be made.
While it is usually the beneficiaries who have an interest in seeing the estate accounts, a creditor with a claim against the estate may want to find out more information.
How do PRs comply with the duty of due diligence?
Personal representatives (PRs) have the freedom to make decisions regarding how to carry out their duties but must always act within the scope of powers conferred by the will and/or statute.
They have a general duty to carry out the administration of the estate with due diligence and within a reasonable time.
What constitutes due diligence varies based on the facts of each case; if a court finds a breach of this duty, it can declare the breach and direct an inquiry into damages.
PRs should aim to complete the administration within 12 months of the date of death, known as the ‘executor’s year’ (this also applies to administrators).
If the administration exceeds 12 months, it does not automatically indicate a breach, but PRs must justify any delays after this period.
While PRs are obliged to complete the administration within a reasonable time and their role ends when the administration is finalised, their appointment is for life:
- If additional assets are discovered post-administration, PRs are duty-bound to administer these assets.
- If creditors or beneficiaries emerge after the estate has been fully administered and demand their entitlements, PRs may face personal liability.
How can PRs comply with the statutory duty of care under the TA 2000?
In addition to the general duty of due diligence, by virtue of s 35 TA 2000 PRs are subject to the same statutory duty of care as trustees when they exercise powers under the TA 2000 to which the duty applies.
- The s1 duty of care imposes a higher standard for professional PRs such as solicitors than lay trustees.
- A higher standard is also imposed upon those possessing special knowledge or experience, as well as those who hold themselves out as having such special knowledge or experience.
- The statutory duty of care will apply when PRs exercise their power to invest, delegate, insure and purchase land.
How can PRs comply with their fiduciary duties?
The role of a PR is fiduciary in nature so PRs are also subject to the wider fiduciary duties.
PRs must not, unless authorised by the court or fully informed beneficiaries:
- Place themselves in a position of conflict e.g. a PR may not purchase an asset from the estate even if this is for a fair value
- Profit from their position
Payment for services will not constitute a breach of the ‘no profit’ rule provided a PR acts in a professional capacity or the payments are authorised under the will.
Provide a summary of the duties of executors and administrators?
- PRs are subject to various statutory and common law duties, including a duty to report to HMRC and pay IHT, collect in and administer the deceased’s estate, and provide an inventory and account of the administration.
- PRs have a duty to administer the estate according to law and act with due diligence.
- PRs should complete the administration of an estate within the “executor’s year” (12 months from the date of death)
- PRs derive their powers to carry out their duties from statute and from a testator’s will / codicil and must act within those powers.
- The role of a PR is fiduciary in nature and a PR must comply with the ‘no conflict’ and ‘no profit’ duties.
How can PRs determine the power available to them?
To carry out their administrative duties PRs require the power to deal with the estate assets e.g. the power to sell.
- When PRs begin the administration, they must determine what powers they have available to them.
- PR powers derive from two sources: Statute – Will/Codicil
- Whatever the scope of the PRs powers, PRs must always act within them and an ultra vires act will be a breach of duty.
When will a PR rely on statute to determine their powers, and what does this entail?
Statute
- If the deceased died intestate only statutory powers will apply.
- f the deceased left a will, statutory powers apply to the extent these do not conflict with express provisions i.e. statutory powers apply in default of any alternative contained in the will.
When will a PR rely on a will/codicil to determine their powers, and what does this entail?
Will/Codicil:
- If the deceased left a will, it may (but does not have to) contain express administrative provisions dealing with PR powers.
- Express clauses may confer additional powers that go beyond statutory provisions or may exclude / modify statutory powers.
- Express provisions in a will take priority over statutory powers.
What statutory powers do PR’s have?
The Administration of Estates Act 1925 (‘AEA’) confers powers specifically on PRs.
The Trustee Acts 1925 and 2000 (‘TA 1925’ & ‘TA 2000’) and Trusts of Land Appointment of Trustees Act 1996 (‘TOLATA’) include powers for ‘trustees’ and these powers also apply to PRs.
Statutory powers include:
- Sell, charge, or lease.
- Appropriate.
- Insure.
- Invest.
- Charge for PR services.
- Delegate powers.
- Appoint trustees.
It is important to note that PRs are also often appointed as trustees of will trusts.
What are a PRs powers to sell, charge, or lease?
The PRs have wide powers to sell estate assets.
The PRs may need to do this soon after the grant is issued so they can repay the deceased’s debts and any loan taken out to meet the inheritance tax liability.
What are a PRs powers to appropriate?
PRs have the power to appropriate an asset in satisfaction of a beneficiary’s entitlement and PRs can decide which assets are used to meet this.
If a person is entitled to a legacy under a Will, it could be that they might prefer to have an alternative asset transferred to them either in full or partial satisfaction of that legacy. This is known as an appropriation of assets.
The power is subject to the following rules:
- A specific beneficiary must not be prejudiced.
- Consent of recipient beneficiary is required.
- The value of the asset must be considered at the date of transfer/appropriation rather than the date of death.
- If the value of an asset exceeds the beneficiary’s entitlement the PRs may not appropriate.
- If the value of the asset is less than the entitlement the PRs may appropriate and then make a balancing cash transfer.
It is common for a will to include an express clause removing the need to obtain the consents required by the section.
Example:
· A testator (T) left a will which gave £25,000 to his friend (F) and the rest of his estate to his sister (S).
· F wants the PRs to give her T’s antique desk instead of giving her £25,000 in cash. The desk was worth £20,000 at T’s death but is now worth £18,000.
The PRs can do this:
- Because the desk was not specifically given to someone else by the will,
- Provided F consents (not an issue as F requested the appropriation); and
- Provided F receives a further £7,000 so the total value received is equal to the amount of the gift.
What are a PRs powers to insure?
PRs have the power to take out insurance to insure estate assets comprehensively and for full value.
PRs are authorised to pay the insurance premiums out of either estate income or capital.
What are a PRs powers to invest?
If PRs retain assets for a period of time they have a duty to preserve the estate and actively invest.
The general power of investment in s 3 TA 2000 applies to PRs just as it does to trustees. PRs are also permitted to acquire freehold or leasehold land in the UK in accordance with s8 TA 2000.
PRs must carry out regular reviews of investments (commonly annually).
When exercising the general power of investment or reviewing their investments the PRs must have regard to the standard investment criteria in s4 TA 2000.
The s 5 TA 2000 duty to obtain advice also applies unless the PRs reasonably conclude that in the circumstances it is unnecessary or inappropriate.
What are a PRs powers to charge for services?
Professional PRs e.g. solicitors may claim reasonable remuneration for their services (i.e. time spent carrying out the administration) provided:
- They are not acting alone, and
- That co-PRs give their written consent.
A lay PR or, a professional PR who is acting alone, needs to be given express power in the will to charge for their services.
S 28 TA 2000 makes it clear that payment as remuneration for services is not to be treated as a gift under s 15 Wills Act 1837.
Can a PR reimburse themselves for expenses properly incurred when acting on behalf of an estate?
All PRs (whether or not they are acting in a professional capacity) may reimburse themselves for expenses properly incurred when acting on behalf of an estate. For example, travel costs incurred in the course of carrying out estate administration.
This is not a power to charge the estate for time spent on the administration process, even if, for example, the PR has had to turn down work to carry out this role.
What are a PRs powers to delegate?
PRs are permitted to employ agents and delegate their powers, except for the following:
- How and whether assets should be distributed
- Whether fees or costs are payable from income or capital
- The appointment of trustees /nominees/custodians
PRs may not appoint a beneficiary as their agent but may appoint one of the PRs if they are sufficiently qualified.
If delegation is required, the PRs must:
- Do so in writing to the agent and
- Provide them with a written policy statement which the agent must agree to comply with (s15).
The use of an agent and the terms of the policy document need to be kept under review (s22).
It is common to delegate investment powers and law firms often have links with financial advisers to whom they refer work.
What are a PRs powers to appoint trustees (gifts to minors)?
Where a legacy is given absolutely to a minor there is no general power to pay the legacy to the beneficiary until they reach 18 because a minor cannot give valid receipt.
The PRs therefore need to hold the relevant assets on trust for the minor, investing these assets in accordance with the statutory powers and utilising their statutory powers of maintenance and advancement where appropriate, until the minor attains 18. (These powers are held in their capacity as trustee and, therefore, not considered in this element.)
However, under s 42 AEA PRs could instead appoint trustees (usually the minor’s parent/guardian) of the legacy and give the legacy to the trustees rather than retaining it.
What are a PRs powers to accept receipt from a parents?
It is thought that under s.3 Children Act 1989 a minor’s parent or guardian has the power to give a good receipt to the PRs on behalf of a minor. However, this power is commonly included expressly for clarity.
If the testator does not want the parent or guardian to receive the legacy on behalf of the minor, the will can be drafted expressly to give the legacy to trustees to hold until the child reaches majority.
Note that an express clause within a will which permits PRs to accept receipt from a minor beneficiary aged 16 or older is effective.
What are a PRs powers to run a business?
If a testator was a shareholder, the ‘company’ as an entity will survive the testator’s death. The company articles and / or shareholders agreement will often contain provisions that apply on the death of a key shareholder.
If the testator was a partner in a business partnership, the partnership agreement should contain terms which enable the partnership to continue after the death of a partner.
If a testator ran a business as a sole trader business, there is a limited common law power to enable PRs to sell the business as a going concern within a year of death.
PRs may only access assets in the business at the date of death (not other estate funds) and are personally liable to business creditors (but may indemnify themselves from the estate for liabilities incurred when running the business for realisation only).
As the default power is limited it is common to include an express power so PRs can run/manage a sole trader business in accordance with the testator’s wishes.
