Administration: Dealing with the Estate Flashcards
What is the primary duty of Personal Representatives (PRs) according to s 25 Administration of Estates Act 1925 (AEA 1925)?
PRs must “collect and get in the real and personal estate of the deceased and administer it according to the law”. They are personally liable for loss to the estate resulting from any breach of this duty
What is devastavit?
Devastavit is a breach of duty by a Personal Representative (PR) that results in a loss to the estate. The PR is personally liable for this loss. The test is whether there was a loss caused by a breach of duty, not whether the PR is culpable
How can PRs protect themselves against unknown creditors or beneficiaries?
PRs can advertise for claimants in compliance with s 27 Trustee Act 1925. They must wait at least two months before distributing the estate. This protects them from personal liability if an unknown claimant appears later, though the claimant can still pursue the assets from the beneficiaries
What is a Benjamin order?
A Benjamin order is a court order that authorizes PRs to distribute an estate on the basis that a missing beneficiary is dead. This protects the PRs from liability, but the claimant retains the right to recover assets from beneficiaries. The court will require evidence that full enquiries were made to trace the missing person
How can PRs protect themselves against claims under the Inheritance (Provision for Family and Dependants) Act 1975?
PRs should wait more than six months following the date of the grant of representation before distributing the assets. If earlier distribution is necessary, they should retain sufficient assets to satisfy a potential claim
What is the “administration period?”
The administration period starts immediately after death and ends when PRs are ready to transfer the residue of the estate to beneficiaries or trustees. However, PRs hold office for life and must deal with further assets or liabilities discovered after the residue has been transferred
What is the statutory order for paying debts and expenses in a solvent estate?
The statutory order under s 34(3) AEA 1925, dictates that assets are used in the following order:
1. Property undisposed of by will.
2. Residuary gift property.
3. Property specifically given for the payment of debts.
4. Property charged with the payment of debts.
5. Fund retained to meet pecuniary legacies.
6. Property specifically devised or bequeathed.
7. Property appointed by will under a general power
What is the order for paying debts and expenses in an insolvent estate?
In an insolvent estate, the assets are used to pay debts in a specific order of priority as outlined in the Administration of Insolvent Estates of Deceased Persons Order 1986. Secured creditors are paid first, followed by funeral and testamentary expenses, with unsecured debts abating equally if there are insufficient funds
What are testamentary expenses?
Testamentary expenses include:
○ The costs of obtaining the grant.
○ The costs of collecting in and preserving the deceased’s assets.
○ The costs of administering the estate (e.g., solicitors’ and valuers’ fees).
○ Inheritance tax payable on death on the deceased’s property that vests in the PRs
When is a pecuniary legacy generally payable?
A pecuniary legacy is generally payable at the end of the “executor’s year,” i.e., one year after the testator’s death. Interest may be payable if payment is delayed or in specific circumstances, such as legacies in satisfaction of a debt, charged on land, or for a minor’s maintenance
How is capital gains tax (CGT) handled on death and by PRs?
No CGT is payable on death itself. PRs acquire assets at their probate value. If PRs sell assets, they are liable for CGT on any gains, but get an annual exemption and can deduct costs. If PRs transfer assets to beneficiaries, no disposal occurs for CGT purposes
What is the effect of an assent?
An assent is the way that PRs indicate they no longer require property for administration purposes, and is used to pass title to beneficiaries or trustees. For personal property, an assent can be informal, but for land, it must be in writing and signed by the PRs
What is the PR’s liability for Inheritance Tax (IHT) on lifetime transfers?
PRs may become liable for IHT on lifetime transfers made by the deceased if the donee does not pay within 12 months after the end of the month in which the donor died
What is a corrective account?
A corrective account is a report to HMRC which details any variations in the value of the deceased’s assets and liabilities and quantifies any reliefs to which the estate is entitled
What is an IHT clearance certificate?
An IHT clearance certificate is confirmation from HMRC that there is no further claim to inheritance tax. The certificate discharges all persons, including the PRs, from further liability to IHT (unless there is fraud or non-disclosure of material facts)
