Administration: Collecting Assets & Payment of Debts Flashcards
Which type of debt takes priority over pecuniary legacies when applying estate assets in a solvent estate?
A. Unsecured debts
B. Funeral expenses
C. Secured debts
D. Administration expenses
A. Unsecured debts
Explanation: Unsecured debts are paid before pecuniary legacies in the statutory order (after administration and funeral expenses).
A PR sells the deceased’s car valued at £5,000 (unchanged since death) to raise cash. What tax implication applies?
A. No CGT is due
B. Full value is taxed
C. Gain must be split with beneficiaries
D. Loss is deductible
A. No CGT is due
Explanation: Since the value has not increased since death, there is no capital gain and no CGT due.
Which clause would override the default rule in s35 AEA 1925 regarding secured debts?
A. “I direct my house to pass to B free of any charges or encumbrances.”
B. “All debts are to be paid from my residue.”
C. “B shall receive my house absolutely.”
D. “I leave my residuary estate to C.”
A. “I direct my house to pass to B free of any charges or encumbrances.”
Explanation: This is clear and specific wording showing a contrary intention to s35.
Which account should estate funds be paid into by the PRs?
A. Personal account
B. Designated PR account or law firm client account
C. Joint account with beneficiaries
D. Investment ISA
B. Designated PR account or law firm client account
Explanation: This avoids mixing personal and estate funds and keeps everything transparent.
The estate includes £15,000 in cash and £10,000 in shares. Funeral costs are £5,000. Which fund should the PR use first?
A. Sell the shares
B. Use the available cash
C. Delay payment
D. Ask the beneficiaries to contribute
B. Use the available cash
Explanation: PRs should use cash assets before selling investments where possible.
Which of the following statements about s27 TA 1925 is correct?
A. It protects PRs from all liability
B. It protects PRs from unknown beneficiaries and creditors
C. It prevents creditors from suing beneficiaries
D. It replaces the need for Benjamin Orders
B. It protects PRs from unknown beneficiaries and creditors
Explanation: Section 27 provides protection against personal liability for unknown claims.
What is the correct term for a claim brought against a PR for misadministration of the estate?
A. Probate petition
B. Trustee appeal
C. Devastavit
D. Marshalling order
C. Devastavit
Explanation: A devastavit is a claim for losses caused by breach of duty by the PR.
A PR wrongly distributes the estate ignoring a known creditor. What is the outcome?
A. The creditor loses their right
B. PR is automatically protected
C. PR is personally liable
D. Creditor must sue a beneficiary
C. PR is personally liable
Explanation: Ignoring known creditors is a breach of duty; s27 protection won’t apply.
What happens if a beneficiary’s gift is used to pay debts that should have come from the residue?
A. PRs must repay the funds
B. The creditor must return the funds
C. Marshalling may allow a claim against the residue
D. The gift is void
C. Marshalling may allow a claim against the residue
Explanation: The doctrine allows the disadvantaged beneficiary to claim against the correct fund.
What is the definition of an insolvent estate?
A. Estate less than £50,000
B. When legacies cannot be paid
C. When PRs refuse to act
D. Assets are insufficient to meet debts and expenses
D. Assets are insufficient to meet debts and expenses
Explanation: Insolvency is based on whether the estate can meet liabilities, not whether legacies are paid.
PRs must raise cash to pay IHT. The estate includes a car and a painting that increased in value. Which should they sell?
A. Painting
B. Both
C. Neither
D. Car
D. Car
Explanation: Selling the car avoids CGT; the painting could be transferred directly to avoid CGT.
Which option best protects PRs from liability where a beneficiary is known but missing?
A. s27 notice
B. Payment into court
C. Ignore the issue
D. Benjamin Order
D. Benjamin Order
Explanation: This gives court-sanctioned protection when distributing on the assumption a beneficiary is deceased.
