Administration of the Estate

Question 1

What assets should PRs sell?

Answer 1

• PRs have generally free choice in deciding what assets they should sell to raise cash for discharge of debts and payment of legacies, some things to consider.

1. Terms of Will or intestacy - shouldn’t sell asset that is subject to specific gift to a ben unless apparent that no other assets available so item must be sold.
2. Wishes of bens - usually PRs under no obligation to consult bens about administration. No point in selling though if one of bens wants to take in satisfaction of their entitlement.
3. Taxation consequences of disposal - may be IHT or capital gains tax implications.
4. PRs may have little choice - if property subject to option where person having benefit of option can buy regardless whether PR wishes to sell. Existing right of pre-emption similar consequence as have to sell to particular individual rather than open market.

• once PRs in position to pay liabilities, must consider rules on payment of debts

Question 2

Problems with payment of debts

Answer 2

• very little case law re payment of debts.
• often little need to resort to legal rules or application has been avoided by suitably drafted Will that provides clear guidance.
• rules different depending on whether estate solvent or insolvent
• different rules for debts that are secured (mortgage) or unsecured (council tax, electric bill)

Question 3

When is estate insolvent?

Answer 3

• insolvent if assets insufficient to pay all debts and liabilities - s421 Insolvency Act 1986
• as if debtor in position to be made bankrupt at time of death.
• if insolvent, 2 implications.

1. Not enough to pay all creditors in full so some may no get all that is due to them. Some debts paid in priority as others determined by IA 1986 and Administration of Insolvent Estates of Deceased Persons Order 1986.
2. There will be nothing for bens, so Will irrelevant.

Question 4

When is debt secured or unsecured?

Answer 4

• secured debt is when person dies owing debts that are secured against property - putting mortgage or charge on house or other land in favour of lender.
• part of lender’s security is that it has a privileged position in event debtor dying before loan paid off. lenders right to enforce loan by selling property preserved on borrower’s death
• lender can recover debt from the asset that it is secured on, regardless of other debtors and bens, and regardless of whether estate solvent or insolvent.

Question 5

Solvent estate

Answer 5

• estate solvent if assets sufficient to pay all debts and liabilities. May or may not be additional assets to pay any legacies.
• Creditors have to be paid before bens, so if not enough, then assets are used so cannot be given in full to debtor.
• have to consider position regarding any secured debts charged on property, then look at incidence of unsecured debts.

Question 6

Secured debts - s33 Administration of Estates Act 1925

Answer 6

• conveyancing paperwork must have been completed at time loan made to evidence it, but can also be other forms of loans such as debenture on company assets
• when person dies owning property subject to secured loan or debt, person that receives property under Will takes over responsibility for repaying loan/charge
• specific ben may be forced to sell property to pay off mortgage debt unless have funds available that will meet liability.
• 2 important points

1. s35 subject to contrary intention shown by test. May make clear that mortgage is not to be borne by ben but treated same was as unsecured debts.
2. doesn’t affect rights of secured creditor as its there to determine incidence of mortgage debt between specific ben and other bens. Creditor can still enforce payment against estate in normal way.

> Re Birmingham, Savage v Stannard 1959 - Died when exchanged contracts for buying house, but before completion. Seller has right to balance of purchase price - lien - so Ct treated lien as secured debt and ben receiving house under codicil obliged to pay off charge, not residuary. Conveyancing costs not secured, so treated as normal unsecured debt from residue.

• if individual asset charged with debt that exceeds value of asset, balance must be made up from general restate. Apply even if ben receiving gift also receiving as separate gifts other charged property owned by test that do have some value after debts on them paid - Re Holt 1916.
• where made one composite gift - “all my land” of several charged props, one where value of debt exceeds value of asset, deficit must be paid by ben who received composite gift assuming others have some left - Re Baron Kensington 1902
• where secured debt is single debt expressed to be on two separate props, and expressed in Will to pass to specific ben and residue, ben of prop passing as specific gift remains responsible for loan secured on it. Not treated as expressing contrary intention. Residue will not be responsible for that secured debt - Re Neeld 1962
• creditor retains right to go to Court to force sale of asset and recover sums owed. Won’t be concerned over arguments which ben should be paying the debt/. PR responsible for ensuring correct net financial effect carried out in accordance with rules.
• where Will gives X right to purchase from estate a prop that is subject to secured debt at fixed price or using formula, then if X exercises that right, will be entitled to receive property free of debt, so PRs have to pay off debt or mortgage from assets before completing sale to X - Re Fison’s Will Trusts 1950

Question 7

Contrary intention reversing effect of s35

Answer 7

• rule in s35 can be varied by deed, Will or other document so that secured debt not borne by specific ben. Normally takes one of 3 forms:

1. Express exoneration or relieving provision where gift is stated to be “free of mortgage” or “free of charge”. Charge treated as unsecured debt and Will normally provides paid from residue.
2. General directions to pay all debts from particular fund such as proceeds of life assurance policy or from proceeds of shareholding. s35 provides does vary rule, even though no specific reference to actual secured debt. If balance insufficient to meet debt, balance borne by mortgaged property - Re Fegan 1928
   - general direction to pay debts from residue doesnt show contrary intention unless also some reference to secured debt.
   >Re Valpy 1906 - Will directed all debts except mortgage on specific prop should be paid from residue, but was another mortgage on different prop. Ct held by specifically excluding first mortgage, test had included second mortgage in general direction so will be paid by residue.
3. specific direction to pay secured debt from residue.

• s35 permits test’s contrary intention to be shown by evidence outside of Will. if shown by doc other than Will, must show that gift is free of charge and how charge is borne.
  >Ross v Perrin-Hughes 2004 - Cl, father and exec sought declaration re true construction of gift of prop to Def as was life policy to cover mortgage debt, so that was used to cover it and contended that he took lease subject to mortgage and had to reimburse estate. Ct held could take lease free of mortgage as test taken steps to ensure mortgage discharged by other means.

Question 8

Unsecured debts

Answer 8

• test can dictate own rules by Will about how debts are to be paid.
• Wont have any consequence for creditors, who can enforce payment in normal way, test directions will show how debts borne by bens
• if no express provision in Will for payment of unsecured debts, assets must be applied in payment debts according to order in s34(3) AEA 1925 and Part II Sch 1 AEA 1925

Question 9

The Statutory order

Answer 9

• statutory order is as follows:

1. Property of dec’d indisposed of by Will, subject to retention of fund sufficient to meet any pecuniary legacies.
   >Re Worthington 1993
   - for purpose of stat order, pecuniary legacy has meaning attributed by s55(1)(ix) AEA 1925 and means any annuity, general legacy and demonstrative legacy insofar as not discharged out of designated fund.
2. residue disposed of by Will subject to fund for pecuniary legacies insofar as not provided for in 1.
3. property that dec’d had specifically given for payment of debts
4. property of deceased charged with payment of debts - prop is given for payment of debts if there is no direction in Will is what is to be done with any surplus after payment of debts. Property is charged with payment of debts if Will does specify what is done with any balance after payment of debts. If debts paid before these classes reached, then prop falls into residue.
5. Fund retained to meet pecuniary legacies set aside in 1 and/or 2
6. Prop specifically devised or bequeathed rateably according to value. Value means value to testator - Re John 1933. If different props subject to specific legacies, in apportioning liability between legatees, value of any mortgage borne by legatee because of s35 should be deducted from value of mortgaged property.
7. property appointed by will under general power rateably according to value.

• general power of appt is where test has given ben prop with power to state who should receive it on death of ben. bens can make this decision in their Will.
• can also include funds payable to estate by exercise of an option - Re Eve 1956, property subject to donatio mortis causa, or prop subject to general power of appt exercisable by deed if had been exercised - Re Phillips 1931
• prop may appear to overlap and if does prop treated as falling into higher category - Re Kempthorne 1930
• no distinction between realty and personalty. Prop undisposed of by Will is primary funds for payment of debts. Includes lapsed share of residue - Re Lamb 1929

Question 10

Practical applications of statutory order

Answer 10

1. Where there is lapsed share of residue
   - If lapsed share of residue and Will doesn’t contain clear indication that statutory order is excluded, then lapsed share is property undisposed of under Will and devolved on partial intestacy.
   - residuary identified, then undisposed of identified, so residuary would be divided to value of lapsed share - Re Sanger 1939. Then, deduction of pecuniary fund deducted as per 1 & 2, then debts paid. Once all done, then left to pass to partial intestacy and other half passed to ben.
2. Where residue is insufficient
   - burden of mortgage debt will be on specific ben of prop, so will need to pay mortgage or sell it.
   - then follows statutory order. Can stop at stage where all debts/liabilities paid off, don’t have to continue down list.

Question 11

Contrary intention and alteration of statutory order

Answer 11

• Statutory order for payment of debts may be varied by test, as long as creditors are paid they dont care which ben suffers the burden.
• have to consider whether direction to pay debts from non-residuary fund or charge of debts on such fund places fund in category 3 or 4 or whether amounts to contrary intention that excludes statutory order making fund in question primarily liable. Case law says:

. mere giving or charging prop doesn’t displace order. if did, would never be any prop in categories, so need something more to displace - Re Gordon 1940
. direction to pay debts from specified prop, and intention to exonerate other prop will alter stat order, as in Re James 1947. Followed in Re Meldrum’s Will Trust 1952 - test bequeathed bank acc to daughter after payment of legacies and debts, and left residue to son and daughter. Intention to pay debts from bank acc and later gift of residue showed intention to exonerate residue.

• if Will includes residuary gift, Ct likely to hold that direction to pay debts from non-residuary fund or charge or debts on such fund excludes statutory order altogether as test shown intention to exonerate residue.
• test an direct debts paid before residue ascertained so order changed. May charge debts on whole of residue before saying how its divided, so identified in usual way but debts paid before value of share identified.

> Re Kempthorne 1930 - test left all prop, after payment of debts and legacies to be divided among brothers and sister. 2 predeceased him, J held test directed debts to be paid didnt vary stat order, but Ct of A not agree, as using word “after” showed intention that debts would be paid before residue could be ascertained.
Re Harland-Peck 1941 - left prop “subject to payment of funeral, testamentary expenses and debts” to 2 people, one who predeceased. Ct of A held debts were charged on residue as a whole, so altered stat order.
Re Lamb 1929 - directors all debts be paid and after making certain bequests, left residue to be divided between 2 as tenants in common. 1 predeceased. Held no contrary intention to exclude stat order as Will didnt indicate which fund was to be used for payment of debts so applying stat order, lapsed share was liable.

• tests can elect to keep stat order but prescribe that categories are to be constituted differently within order.

Question 12

Marshalling

Answer 12

• in administering the estate, PRs may have to apply assets out of order to pay debts, especially if being forced by creditors to pay debts promptly as they don’t care where it comes from.
• at end of administration, PRs must marshal the assets - arrange in such way that correct ben bears burden of liabilities according to rules that apply.
• means that disappointed ben may seek reimbursement from be whose share should have been used for payment of debt.

Question 13

Insolvent estate

Answer 13

• if insolvent, bens get nothing. PRs have to determine what order debts are paid in until money runs out.
• debts must be paid in order set out in Insolvency Act 1986 and Administration of Insolvent Estates of Deceased Persons Order 1986
• priority given to reasonable funeral, testamentary and administration expenses over preferred debts (art 4(2) AIEDPO 1986) and then order of debts in bankruptcy.

Question 14

Secured Creditors

Answer 14

• those who have leant money to dec’d on security of prop by way of mortgage, charge or lien.
• secured creditors have priority over all other creditors and over payment of funeral, testamentary and administration expenses as rely on security.
• usual course of action would be to realise security to meet dent. If security insufficient then other courses of action.

1. To realise the security and if shortfall then claim balance of debt as unsecured creditor
2. To set value on security and prove for the balance. May be advisable if creditor wishes to keep prop or if to dispose of in 1 would cost too much. Care must be taken in valuing prop. If creditor puts too low value, PRs can insist on creditor redeeming at that value and prove as an unsecured creditor for the balance. If too high, will prove for an insufficient balance.
3. To surrender security and claim whole of debt as unsecured creditor.

Question 15

Unsecured creditors and order of bankruptcy

Answer 15

-If PRs administering estate that is or might be insolvent, must observe correct order for payment of creditors which cant be varied by testator.

• have to pay funeral, testamentary and administration expenses then bankruptcy order.
• if PRs dont follow this order, will be liable for any superior debts left unpaid.

1. Funeral, testamentary and administration expenses
   - take priority over all debts owed to unsecured creditors, funeral expenses have priority.
2. Specially preferred debts
   - could include unpaid expenses incurred by dec’d in attempting to prevent bankruptcy before death, such as costs of arrangement under IA 1986 entered into by debtor to settle some debts and avoid bankruptcy proceedings.
3. Preferred debts
   - 2 categories
   . contributions due to occupational pension schemes
   . remuneration due to dec’d employees - wages o/s for 4 months before death to maximum of £800 and accrued holiday pay are main items.
4. Ordinary debts
   - all debts including arrears of tax to HMRC not in any other category
5. Deferred debts
   - debts owed in respect of credit provided by spouse or civil partner of deceased at latter’s death

• all debts proved at their value at date of death and include interest accrued up to that date. If precise value cant be reached, must be estimated. Interest on ordinary and preferred debts for period from death to payment runs at 8% or rate specified in agreement, whichever is greater. Interest ranks after ordinary debts. No additional priority acquired by creditor who sues for their debt

Question 16

Liability for not following bankruptcy order

Answer 16

• cant be varied by Will, PRs obliged by s25 AEA 1925 to comply with order of debts on insolvent estate
• breach of duty to pay debt of lower class before higher class that they had notice of.
• if do, PRs personally liable to pay all debts in higher class because payment of inferior debt amounts to admission that there are enough assets to pay all debts.
• if pay inferior debt without undue haste and w/o notice of superior one, won’t be personally liable
• must pay debts in same class pro rata and without preference of one over other. If PRs pay debt in good faith without reason to believe it would be insolvent, they are not liable to other creditors in same class if estate later turns out to be insolvent (s10(2) AEA 1925).
• protection doesn’t apply if liability was known but not what extent. To be safe, should always administer estate as if were insolvent.

Question 17

Insolvent estates and joint property

Answer 17

• joint prop, not available to PRs to pay debts as doesn’t devolve on them.
• if insolvent, under s421A IA 1986, if all other assets have been used, creditors may seek administration order no later than 5 years after death appointing trustee in bankruptcy who has power to seek recovery of dec’d share of jointly owned prop from surviving joint tenants.
• Ct must have regard to all circumstances of case, including interests of creditors and surviving joint tenants. Unless exceptional circumstances, Ct must assume that interests of creditors outweigh all other considerations

Question 18

Additional points regarding insolvent estates

Answer 18

• as bens get nothing, often at least one of them appointed exec, little or no incentive for them to obtain grant.
• creditor can obtain grant under rr20 or 22 NCPR 1987 as appropriate.
• if those entitled in priority wont obtain grant or renounce, creditor can use citation process to clear them off or ask Registrar or District Judge to pass them over under s116 SCA 1981
• PRs or creditors can petition for trustee in bankruptcy to be appointed following insolvency administration order made by bankruptcy court.
  -AIEDPO 1986 provides where estate administered by PRs or trustee in bankruptcy, same rules apply, but some practical advantages if trustee appointed.

Question 19

Payment of legacies

Answer 19

> Re Taylor 1969 - this area described as “tortuous” and “notoriously obscure”
- shares of estate used to pay legacies - could be undisposed of property, residue, personal property only, real property.
- case law since 1925 not conclusive on this, should be resolved by terms of the Will.

Question 20

Pre-1925 Rules

Answer 20

• before 1925, general legacies were payable only from residuary personalty. If insufficient, real prop could not be used and legacies abated.
• subject to contrary intention in Will, 2 rules evolved:

> Greville v Brown 1859 - where real prop and personalty were included in single residuary gift. Real prop would be liable for payment of legacies if personalty was insufficient
Roberts v Walker 1830 - where Will clearly directly legacies to be paid from residue as a whole, real property and personal property were liable rateably (pro rata).

Question 21

Post-1925 rules - undisposed of property

Answer 21

• stat trust with power of sale is imposed on undisposed of prop (s33 AEA 1925) where no express trust arises under Will and s33(2) appears to envisage that debts and legacies will be treated in same way - legacies will be payable primarily out of lapsed share.
• since 1 Jan 1997, stat trust for sale in s33 has become stat trust with power of sale and to extent that there is land in estate, will be a trust of land (TLATA 1996) but same principles apply.
  >Re Worthington 1933 - after certain legacies, left residue to A and B in equal shares. A predeceased and Ct of A held that residue should be divided first and legacies from undisposed of prop, being A’s lapsed share. Followed in Re Gillett 1950.
• if Will imposes express trust for sale and lapsed share of residue, express trust excludes stat trust imposed by s33 so s33 doesn’t apply to make legacies payable from lapsed share - Re McKee 1931
• Instead legacies would be payable out of general residue before division.
• if all beneficial interests under trust for sale of residue fail, express trust is of no effect and stat trust under s33 takes effect, making general legacies payable from lapsed shares.

Question 22

Post-1925 rules where s33 Administration of Estates Act 1925 doesn’t apply

Answer 22

• where s33 AEA doesn’t apply and Will silent on how general legacies are to be borne, Q is whether AEA 1925 altered old rules, relevant in situations including:

. If there is a lapsed share of residue but it is subject to an express and effective trust, excluding s33
. if there is a lapsed share of residue to which s33 does apply but its insufficient to meet all general legacies.
. if there is no lapsed share of residue so s33 doesn’t apply

• if old rules altered, effect is to make undisposed of prop primarily liable, followed by residue as whole.

> Re Thomson 1936 and Re Anstead 1943 suggest rules not altered.
- in Re Thompson, estate consisted of residuary personalty and realty. Test left various legacies and gifts of residue. Ct held was no rateable apportionment, whole of residuary personalty should be used first, then shortfall made up from realty.
- decision may have been influenced by estate duty considerations as if legacies had been paid rateably, additional estate duty would have been borne by legatees to extend that their benefits were attributable to realty. BUT, was followed in Re Wilson 1967.

• Re Beaumont 1950 and Re Taylor 1969 Ct took same view, about whether was an express trust for sale of residue and undisposed of share of the residue, that share was primarily liable for payment of legacies under statutory order or whether residuary personalty as a whole was primarily liable. Ct held no change in law and residuary personalty as a whole was liable.
• cases that support view that law has changed are Re Midgley 1955, Re Gillett 1950 and Re Martin 1955. In Midgley was held that legacies were payable from lapsed share of residue although was commented on that it was tortuous way of legislating. IN Gillett was conceded that stat order applied.
• unusual for law to be changed without mention and s34(3) AEA 1925 expressly refers only to debts. If law not changed, ref to pecuniary legacy fund in stat order means that before dealing with the incidence of unsecured debts, one must apply rules on legacies and take legacy fund from indisposed of prop or residue before applying rules on incidence of unsecured debts.

Question 23

Distribution of assets

Answer 23

• when assets collected in, all debts and expenses have been paid or provided for, PRs in position to distribute asset to those entitled under valid provisions of Will or in accordance with intestate.
• no time limit when it has to take place.
• s44 AEA 1925 says PR not bound to distribute estate before one year before death.
• legatee couldn’t compel distribution of legacy during exec’s year if there is good reason for non-payment but PR must deal with estate promptly.
• Undue delay could render PR liable to devastavit action brought by aggrieved ben or creditor.

Question 24

Ascertainment of bens

Answer 24

• PRs must ascertain who entitled under Will or intestacy, have to correctly identify them, applying rules of construction and locate them.
• on intestacy, have to correctly identify class of relatives entitled to inherit and identify and locate each member of class.
• if principle ben has predeceased or failed to inherit, PRs have to consider who entitled under substitution provision.

Question 25

Finding bens

Answer 25

1. Enquiry - PRs can pursue own enquiries in order to find missing bens and next of kin on intestacy. Could instruct genealogist or take out missing person’s indemnity insurance.
2. Insert notice under s27 Trustee Act 1925 - protection can be afforded to PRs from later claim by ben whom they had no notice of at time of distribution - Re Aldhous 1955. Need to do this before apply for Benjamin order
3. Apply for Benjamin order - if ben known but cant be found, app can be made for Benjamin order were Ct will order distribution on terms of order, on footing that named ben has predeceased.

• although PRs protected, neither s27 notices or Benjamin order prevents missing ben who appears from pursuing their rights and recovering share from those who received distributions. Ben can take action to recover from wrongly or overpaid ben through tracing or action for refund as in Re Diplock 1948.

Question 26

Rights of beneficiaries pending distribution

Answer 26

• before distribution, PRs hold assets on limited trust.
  >Commissioner for Stamp Duties (Queensland) v Livingston 1965 - held for purposes of carrying out functions and duties of administration, not for own benefit. In fiduciary position with regards to assets that came to them in right of office and was treated by Court as trustee.
• trust limited in scope, doesn’t give bens equitable interest in entitlement in same way ben under express trust has equitable interest. Said that until administration complete, no one was in position to say what items would need to be realised for purpose of administration..
• pending distribution, ben has chose in action to ensure estate is properly administered - right to bring action to compel due administration of estate. Chose is assignable by ben in same way as any other chose in action - Re Leigh’s Will Trusts 1970

> Re Hemming, Saul & Co 2008 - confirmed right of ben pending distribution is chose in action. Effect of rule was to vest chose in action in trustee for bankruptcy of insolvent ben. Common practice for sols to carry out bankruptcy searches against names of bens to identify whether payment should be made to a trustee in bankruptcy.

Question 27

Assents

Answer 27

• When PRs assent to certain prop passing in accordance with terms of Will or intestacy, indicating they no longer need prop for purposes of administration and prop can pass to ben

Question 28

Assents to personalty

Answer 28

• no set form how is to be made where prop is other than land. Can indicate orally, in writing or by conduct that asset no longer required for administration - Attenborough v Soloman 1913
• transfer doesn’t occur by reason of assent but by virtue of dispositions in Will. Assent just makes dispositions operative.
• effects of assent of specific gift of personalty are:

1. gift relates back to death so ben has right to income and profits arising from date of death. Assent is operative in respect of legacy and not legatee. Significance is that in situation where legacy given to wrong person, assent perfects the title to the rightful legatee from the death.
   - Re West 1909 - exec assented to person named in codicil. Later codicil found, bequeathing legacy to different person. Ben under later codicil sued execs - fact that assent had been made to wrong person made no difference, assent was to bequest and not to the beneficiary.
2. Assent bests property in ben, who becomes responsible for it. Consequence is that costs of transport or packaging of chattel and insurance in transferring must be borne by ben, for ex in delivery to China in Re Sivewright 1922. Often Will reverses and says “free of costs of transfer and delivery” so will be paid by residue.
3. Re West shows ben entitled to take legal proceedings for recovery of chattel. Only exists in respect of specific gifts, general or residual legacies.

• title passes when assent made. In case of chattel, passes immediately. In case of chose of action, PRs become trustees for ben where its necessary to comply with other requirements of transfer. For ex, in company shares, title passes when ben’s name appears on share register - Re Grosvenor 1916

Question 29

Assents to land

Answer 29

• s36 AEA 1925 governs assents to land and applies to estates or interests in land that devolve on PRs that they want to transfer over to person entitled. Might be adult ben who is absolutely entitled, or trustees to hold on trusts of Will. Also used where PRs exercising power of appropriation and ben has consented to take land in satisfaction or part satisfaction or interest.
• must be by deed to pass legal estate, assent need only be in writing. Must be signed by PRs and must name party in whose favour assent made - s36(4).
• if already at LR, needs to be in form AS1
• before 1964, was thought didnt need to do assent if PR and ben same person as just change in capacity, but held to be incorrect in Re King’s Will Trust 1964 - until assent made, PR holds legal estate as PR and doesn’t have ability to deal with as beneficial owner.
• assent operates to best legal estate in favour of person named in assent from date of death. s36 contained provisions intended to protect bens and subsequent purchasers. If title was already registered at LR, protection not needed and since unregistered title now subject to first reg, provision less important now.
• s36(5) entitles bens to require PRs to enter notice of assent on probate or letters of administration at expense of estate. Intended to give protection to bens if PRs tried to deal with prop in favour of other. In that case, purchasing party wouldn’t have protection afforded by s36(7).
• in case of subsequent purchaser for money or money’s worth, s36(7) gives protection by providing that assent of legal estate sufficient evidence of assentee’s title unless notice of previous assent or conveyance placed on or annexed to probate.
• s36(10) authorises PRs to assent subject to mortgage.
• If PR slow to make assent, ben can apply to Ct for directions under s43(2) AEA 1925
• if land conveyed to PRs after death, where died between contract and completion of purchase, assent in writing wont suffice and land will have to be transferred by PRs by deed as in normal conveyancing transaction - Re Stirrup’s Contract 1961

Question 30

Power to set off legacies against debts

Answer 30

• where ben who is entitled to money from estate owed money to estate, PR may set off or retain money owed by ben against what is due.
• right to set off applies only where there is a gift of money and now where subject matter is a chattel - Re Savage 1918
• ben must owe money and not something else, and money must be due and payable. if debt being paid in instalments, set off can only apply against instalments due and payable.
  >Turner v Turner 1911 - debt was owed by 2 partners jointly but legacy had been left to one so right of set off not available.
• not readily available if ben has predeceased test but legacy has been saved from lapse, for ex by operation of s33 WA 1837 as in Re Binns 1929
• right for retainer gives PRs right to recover the debt without need for incurring court costs.
  >Courtenay v Williams 1844 - PRs could set off against statute barred debt.

Question 31

Bankrupt beneficiaries

Answer 31

• PRs who pay legacy direct to bankrupt ben may become personally liable to ben’s trustee in bankruptcy.
• s306A IA 1986 all prop of bankrupt person including rights to claim a share in dec’d estate, vests in trustee in bankruptcy.
• under s279 IA 1986 - bankrupt person normally have bankruptcy automatically discharged after a year. Essentially, means bankrupt person has debts cleared. If discharge was before date of death, PRs may pay ben their share of estate. if discharge after but before distribution of estate, must pay share to trustee in bankruptcy.

Question 32

Administration period

Answer 32

• no stat definition of end of administration period, in practice final distribution of assets and handing over by PRs of signed estate accounts would mark end of period.
• important to fix a time of end of period as in many cases PR appointed exec and trustee. When period ends, person becomes trustee if still holding assets then subject to different rights and liabilities.
• administration ceases and trusteeship starts, in case of land when PRs assent to themselves as trustee or to others, or in case of pure personalty, either on assent or completion of administration period, whichever is first.

1. PR can be sued after end of period for acts committed during period.
2. In special cases, grant may be obtained after admin period, for ex, infant who is of age, where PR must account to ben for work done, or where reversionary interest falls into estate long after admin period ended.
3. PRs may still have to act as such in relation to any assets or liabilities discovered at later date

Question 33

PR or trustee?

Answer 33

• PRs wind up estate and distribute assets, trustees hold assets until special event occurs, such as end of life interest or meeting of contingency. No of reasons why its important to know role.

1. Authority - right to deal with assets and pass good title. PRs authority is joint as to land, and joint and several as to pure personalty, so PRs must execute assent of land to transfer title to ben. Just one of several PRs can validly transfer title to chattels by either selling or transferring it. Trustees must always act jointly. - Attenborough v Soloman 1913.
2. Sale - sale by sole or last surviving PR is sufficient to overreach equitable interests, whereas for there to be such overreaching by trustees disposition must be made by all trustees, at least 2 or trust corp.
3. Appointment - new trustee can be appointed by other trustees or PR of last surviving trustee. PRs cant appoint additional PR if sole or last surviving PR dies and chain of rep broken, grant of de bonis non is necessary.
4. Tax - rates, allowances and rules applying to income tax and capital gains tax are often different depending on whether personal receiving income or making capital gain is a PR or trustee at relevant time.
5. Limitation in actions - in case of claims against PRs, ben generally have 12 years from date of death on which right of action accrued - usually date of death but could be later if action relates to asset that only came to light years later. If claimant has disability, limitation period not start to run until disability ends. No limitation period applies if PR fraudulent or in possession of estate assets or proceeds. Claims against trustees normally 6 years from date when right of action accrued.

• grant of probate that is limited in time, for ex, durante minore aetate expires at end of period otherwise office of PR lasts for life. Person may be PR and trustee at same time but cant hold same item in both capacities at same time.

> Attenborough v Solomon 1913 - 2 sons as execs and trustees, left part of estate to him, part in trust for daughter. In a year, all debts and legacies paid, silver plate on trust for daughter held by one of sons. Son pledged plate to pawn broker who didnt know it was part of trust. Son died, brother took action against pawn broker. Held execs considered had done all they could as execs, nothing else needed so chattels vested in them as trustees, so son couldnt give valid title to lender despite fact there was no formal assent.

> Ponder v Ponder 1921 - wife PR of husband estate, paid all debts and divided estate according to pre-1926 Statutes of Distributions. At stage, assumed character of trustee and could exercise stat power to appoint new trustees.
Harvell v Foster 1954 - test appt daughter as exec but at death was minor. Lets of admin given to husband limited during minority. Bond was given, husband received net residue, misappropriated it and disappeared. When daughter came of age, had bond assigned to her and took action to recover estate. Ct said H couldnt have well and truly administered estate, so H remained liable as PR until correctly distributed estate.

> re King’s Will Trusts 1964 - ct held PR who had completed admin of estate should formally assent to himself title of prop vested in him as trustee, so now PRs who are also bens have to assent to themselves. IF dies without doing so, further grant will be needed to dec’d estate to assent to or sell prop as legal ownership remained with PR as PR not ben owner.