6.1. Administration - role of a PR, duties, powers, liabilities Flashcards
PR’s fiduciary duties
duties relating to mgmt of money or property on behalf of another
how can a person become a PR?
- appt by will - executor
- valid will but executors unable/unwilling to act - NCPR 20 (PA1P) - administrator
- invalid will or partial intestacy - NCPR 22 (PA1A) - administrator
Are PRs also trustees of the estate?
A PR is not automatically the ‘trustee’ of the estate being administered, although the role of PR and role of trustee are similar, and both are fiduciary in nature
If any continuing trusts are created, the property which makes up the trust fund should be transferred to the trustees as part of the administration process. The PRs should record the date on which estate assets are transferred from the PRs to the trustees, even if the executors and
trustees are the same people
in what situations are PRs always trustees?
- express appointment by will
- intestacy - PRs hold the estate “on trust with a power to sell” (s33 AEA)
- statutory trust arises under an intestacy (s46 AEA)
role of a solicitor in administration
- instructed by PRs for advice (= PR is the client and PR signs most docs; solicitors’ costs are payable from the estate)
- appointed as executor under will (can charge the estate; LLP, trust corp or partners appointed)
- instructed to act in contentious probate (will terms, will validity, IPFDA claims)
key steps in the administration: before issue of the grant
- common law duty to dispose of the deceased’s body - usually arranged by family, often before a solicitor becomes involved
- inform HMRC about assets and liabilities of estate (HT 400 for non-excepted estates) and pay IHT (funds need to be raised)
what happens if a PR breaches their duties?
- personally liable for loss, and/or
- removal by s50 AJA appt of replacement by court order, or court takes over administration
key steps in the administration: after issue of the grant
- Collect in the real and personal estate of the deceased and administer it according to
law - Provide an inventory and account of the estate assets
- Duty to due diligence
- Statutory duty of care (s35 TA 2000 / s1 TA 2000)
to whom are the duties to (3) collect in, and to administer estate owed?
estate beneficiaries and creditors
duty to collect in
- identify and locate the deceased’s assets (incl. sums owed to the deceased)
- identify the deceased’s liabilities and creditors
- obtain control, possession or legal ownership of the assets
duty to administer estate
- securing the succession estate assets
- paying debts and liabilities (in accordance with statutory order)
- meeting admin expenses
- paying legacies
- distributing residue to those legally entitled
duty to provide inventory and account
- list of assets and values (inventory)
- record of the steps taken in administration (account)
usually recorded in Estate Accounts
a beneficiary or creditor may ask to see the estate accounts. what can they do if the PRs refuse or had not maintained adequate records?
application pursuant to NCPR for an order
s1 statutory duty of care applies to?
power to
- invest
- insure
- delegate
- purchase land
difference in standard of care under s1 TA 2000
higher standard for:
- professional PRs such as solicitors
- those having special knowledge/experience
- those holding themselves out as having special knowledge/experience
fiduciary duties - no-conflict rule
a PR may not purchase an asset from the estate, even if for fair value
fiduciary duties - no-profit rule
payment for services is a breach of this rule unless:
- a PR acts in a professional capacity; or
- payments are authorised under the will.
PR powers - statute
- intestacy: only statutory powers will apply
- only to the extent these do not conflict with express provisions
PR powers - will/codicil
- will may (but does not have to) contain express administrative provisions re PR powers
- express clauses may confer additional powers, exclude/modify statute and take priority over statute
list of statutory powers
- sell, charge or lease
- appropriate
- insure
- invest
- charge for PR services
- delegate powers
- appoint trustees
power to sell, charge or lease
may need to use this power soon after grant is issued so they can repay deceased’s debts and loan taken out for IHT liability
power to appropriate in satisfaction of a beneficiary’s entitlement - what are the rules?
- specific B must not be prejudiced
- consent of the recipient B is required (but a will commonly includes an express clause removing the need for this)
- value of asset must be considered at date of transfer/appropriation
power to insure
to insure estate assets comprehensively and for full value.
PRs are authorised to pay the insurance premiums out of either estate income or capital.
power to invest (s3 TA 2000) and to acquire freehold or leasehold land in the UK (s8 TA 2000)
preserve the estate and actively invest.
- PRs must carry out regular reviews of investments (commonly annually).
- consider standard investment criteria - s4 TA 2000
- duty to obtain advice, unless PRs reasonably conclude that in the circumstances it is unnecessary or inappropriate - s5 TA 2000
power to charge for services
professional PRs can claim reasonable remuneration provided:
- not acting alone, and
- co-PRs give their written consent
reimbursement of PR expenses
all PRs can use this
power to delegate
PRs can employ agents and delegate, except re:
- how and whether distribution,
- whether fees or costs are payable from income or capital,
- appointment of trustees/nominees/custodians
power 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.
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.
power to accept receipt from parent
It is thought that under s3 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 (mentioned in prev. flashcard).
Note that an express clause within a will which permits PRs to accept receipt from a minor beneficiary aged 16 or older is effective.
power 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 1 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.
when a joint PR act alone?
they must usually act unanimously unless:
- the PRs are joint executors appointed by will and the will states otherwise
- when exercising the power to sell or transfer an estate asset, unless these are stocks/shares in joint names of PRs
when may a PR be liable for breaches committed by other PRs?
if they did not make a reasonable effort to monitor the co-PRs’ conduct
what is a devastavit
wasting of assets
claim of action against a PR for breach of PR duties
what is claimant claiming in a devastavit?
- PR make good the loss using their personal assets,
- if no loss but breach of fiduciary duty? - account of unauthorised profit and/or transaction to be set aside
possible causes of action against PR (4)
- maladministration
- misuse of assets
- negligence
- breach of fiduciary duties
- breach of trustee duties
- maladministration
- incorrectly administering the estate by making distributions to the wrong beneficiaries
- using the residue to meet liabilities which should have been paid for from other parts of the estate
- paying legacies before debts without retaining sufficient funds for creditors
- misuse of assets
eg making personal use of the estate assets
- negligence
- unreasonable delay in carrying out the administration
- failure to invest
- poor investment decisions in breach of duty of care
- breach of fiduciary duties
- no conflict rule
- no profit rule
- self-dealing
- breach of trustee duties
when acting in capacity as trustees
protection for PRs (9)
- seeking court directions - entire administration, or specific guidance
- s48 AJA 1985 court app - written legal opinion
- s27 TA 1925 notice of intention to distribute to unknown Bs
- Benjamin Order - assumptions eg known but missing Bs, missing B had no children etc
- Presumption of Death Act 2013 - dead or presumed for 7 years or more
- Insurance
- Indemnity from beneficiary
- Payment into court
- s61 TA 1925 exoneration
- s27 TA 1925 notice of intention to distribute to unknown Bs and Cs
- 2mo after ad in London Gazette, paper where land on trust situated, any other appropriate paper (eg trade paper)
- does not work for known but missing Bs or Cs
- does not protect Bs who receive more than their entitlement - disappointed C or B can claim against them (eg PR who is also a B is protecting in their capacity as PR but not as B)
- Benjamin Order - known but missing Bs or Cs
assumptions:
- that the missing B has died
- that the missing B had no children
disappointed B or C can still claim against other Bs who receive more than their entitlement
- presumption of death act 2013
quicker and easier to do this rather than Benjamin Order
- insurance
The PRs could purchase insurance to cover the risk that the beneficiary or creditor returns after the administration is complete and makes a claim against the PRs for the share they should have received.
However, it may not be possible to obtain insurance if the risk is too high. Insurance premiums may also be very expensive (although are likely to be less expensive than seeking a Benjamin Order)
- payment into court
PRs could pay the legacy amount into court and distribute the balance of the estate. Although
the person who would otherwise benefit from the share paid into court may not favour this option.
While the purchase of insurance would be a preferable option re a missing beneficiary, a payment
into court may be suitable where a beneficiary can be located but is refusing to accept their
inheritance.
- indemnity from known Bs
The PRs could seek an indemnity from the beneficiaries they can trace.
The beneficiaries promise to reimburse the PRs for any loss the PRs suffer as a result of being sued
by a disappointed beneficiary or creditor.
An indemnity from the existing beneficiaries is only as good as the person giving it. Also, it may
prove difficult in the future to trace those providing the indemnity. As such this may not be a
preferred option for the PRs.
- exoneration by the court
Under s 61 TA 1925 a PR may apply to the court for an order exonerating them, in whole or part, from personal liability for breach.
An order will not be made unless the court considers that the PR:
* acted honestly and reasonably,
* ought fairly to be excused for:
- the breach of trust and
- omitting to obtain directions of the court in the matter
Section 61 TA 1925 refers to trustees, which includes a PR for these purposes.
exemption clauses in the will
eg for innocent mistake, gross negligence etc (cannot exclude wilful fraud or dishonesty)
example of exemption clause
“None of my Executors (other than a professional executor) shall be liable for any act or
omission save for an act or omission involving wilful fraud or dishonesty and I further declare the duty of care contained in section 1 of the Trustee Act 2000 shall not apply to any of my Executors.”
