Administration: Dealing With The Estate

Question 1

What is the administration period?

Answer 1

Commences at the moment of death, and ends when the PRs are in a position to vest the residue of the estate in the beneficiaries.

Question 2

What are the duties of the PRs?

Answer 2

PRs must collect and get in the real and personal estate of the deceased, and administer it according to the law.

Question 3

What protection is there against liability for the PRs?

Question 4

What are 3 issues that the PR may be faced with?

Answer 4

May be creditors of whom they are unaware or unknown relatives

They may not know the whereabouts of some beneficiaries, who may have lost contact with deceased family

There could be a successful claim against the estate under the Inheritnace Act 1975

Question 5

How can PRs protect themselves against unknown beneficiaries and creditors?

Answer 5

Provided they wait 2 months before distributing the estate, they wll be protected.

PRs shoudl advertise ASAP.

Must give notice of intended distribution of estate - advertisement in london gazette, newspaper, other notices.

Question 6

How can PRs protect against missing beneficiaries and creditors?

Answer 6

Keep back assets in case claimant appears

Taking indemnity from beneficiaries that they will meet any claims if claimant reappears

Take out insurance. This can be expensive

Apply to court for order authorising PR to distribute estate on basis that claimant is dead - BENJAMIN ORDER. Will require evidence that the fullest possible enquiries have been made to trace missing person. This protects beneficiaires and PRs from liability. This is expensive though

Question 7

How do you protect PRs from inheritance act. Claims?

Answer 7

Wait 6 months from date of presentation before distributing the assets

Question 8

How should the PRs collect assets?

Answer 8

Automatically devolve on to the PRs.

Real property devolved by virtue of AEA, and personal property by common law.

Executors - straight away
Administrators 0- grant of representation.

Question 9

What should the PRs consider when selling assets?

Answer 9

Provisions of the will
Ebeneficiares wishes
Tax consequences

Question 10

What are payments that must be made out of the estate?

Answer 10

Deceased debts and liabilities
Funeral expenses
Testamentary expenses (obtains the grant, preserving the assets, any IHT)

Question 11

What are solvent estates?

Answer 11

One in which there are sufficient assets to pay all expenses, debts and liabilities in full.

Question 12

What should PRs do about unsecured debts and expense?

Answer 12

Assets must be applied in order set out. Statutory order.

Property indisposed of by will subject to retention of a fund to meet pecuniary legacies

Property included in residuary gift subject to retention of a fund to pay pecuniary legacies not already provided for

Property specifically given for payment of dbets

Prperty charged with payment of debts

The fund to meet pecuniary legacies

Prperty rateable according to value

Property appointed by will.

Question 13

What are insolvent estates?

Answer 13

If the assets are insufficient to discharge in full the funeral, testamentary and administration expenses, debts and liabilities.

Question 14

What is the ranking for insolvent estates?

Answer 14

Debts and liabilities
Mortgage charges
Unsecured creditors

Question 15

When do you pay the legacies?

Answer 15

Once funeral, testamentary and administration expenses and debts have been paid.

Question 16

How should specific legacies be paid?

Answer 16

Transferring to beneficiary or trustees.

Depend on nature of property. If land or shares - through correct formalities.

Question 17

What is the executors year?

Answer 17

This is one year afte the testator’s death

Question 18

What happens at the end of the executors year?

Answer 18

Pecuniary legacy is payable

PRs are NOT bound to distribute estate to beneficial befoer expiration of 1 year from death

Question 19

What are the 4 occasions when interest is payable on a pecuniary legal from the date of death?

Answer 19

Payable in satisfaction of a debt owed by the testator to a creditor

Charged on land owned by testator

Payable to testators minor children

Payable to any minor, where intention is to provide maintenance.

Question 20

When is the administration complete?

Answer 20

Once PRs have paid the funeral, testamentary expenses, debts and any legacies given by the will, they can then distribute the residuary estate ina ccordance with wll/intestacy.

They then draw up estate accounts and make final distribution.

Question 21

When must the PR adjust the IHT?

Answer 21

Discover of additional assets
Discover of PETs
Agreement of provisionally estimated values or district values.
Agreement between PRs and HMRC of a tax liability or repayment
Sales made by PRs after deceased death, which have given rise in loss relief.

Question 22

What is inheritance tax loss relief?

Answer 22

This is when PRs sell assets becuase they need cash to meet debts ad liabilities.

The value of some of these fluctuates depending on market conditions, and PRs may find they sell them at less than the value of death.

Loss on sale relief can reduce IHT liability.

Question 23

What is the deceases liability on income and CGT?

Answer 23

PR must make a return to HMRC immediately following death, making a return to HMRC of the income and CG of the deceaesd from the period STARTING 6 APril, before death and ending with DOD.

This is all the tax they must pay

Question 24

Are PRs subject to income tax in their capacity as PR

Answer 24

Yes, they are subject to income tax, on any income paid to the estate during administration.

May be income producing assets. Income may also be generated by actions.

PR will pay tax at following rates:

Dividends: 8.74

Other income: 20%

Question 25

What is the informal concession of income tax to PRs?

Answer 25

If incomeof estate is interest that does not exceed £500, PRs pay no income tax.

Question 26

Is CGT charged?

Answer 26

Charged on gains made. Assessed on difference between purchase and sale price.

There are NO CGT disposals, therefore no tax.

If PRs dispose of chargeable assets to raise cash, then they are liable for CGT! At 20%, or 28% when residential property.

Annual exemption of 6,000

If PR transfer it to beneficiary, there is no disposal, therefore beneficiary acquires asset at market value at DOD

Question 27

What are the estate accounts?