Administration Post-Grant Flashcards
What are the general duties of a PR?
Duty to act with reasonable care and skill - statutory duty of care
Fiduciary relationship
Generally, mimics the standard duties of a trustee
What is the key duty of a PR pre-grant?
Notify HMRC about assets and liabilities
Pay IHT
What are the duties of a PR during the grant?
Duty to collect and get in the real and personal estate of the deceased and administer it according to law
Provide an inventory and account of the estate assets
What does the duty to administer the estate entail?
Keeping assets secure
Paying deceased’s debts and liabilities in accordance with statutory order
Meeting administration expenses.
Paying legacies
Distributing residue to those legally entitled
What does the duty to provide inventory and account include?
PRs must keep a list of assets and values and a record of steps taken
Usually recorded in ‘Estate Accounts’
Beneficiary or creditor can ask to see these - if inadequate, can make an application to court in accordance with NCPR for an order to produce an inventory and account
What does the duty of due diligence entail?
Due diligence depends on the facts of the case but if the court decides that this has been breached, it can declare and direct an inquiry as to damages
PRs should complete the administration within 12 months of the date of death
What could the implications of the fact that the PR role is essentially for life be?
- Must act if more assets found
- Ongoing risk of liability if creditors / other beneficiaries emerge
What does power to sell, charge or lease entail?
Wide powers to sell estate assets
May need to do this soon after the grant is issued so that they can repay deceased’s debts + any loan taken out to meet IHT liability
What does the power to appropriate entail?
Can appropriate an asset in satisfaction of a beneficiary’s entitlement and PRs can decide which assets are used to meet this
Subject to following rules
Cannot prejudice a specific beneficiary
Consent of recipient beneficiary required
Value of asset must be considered at the date of transfer / appropriation, as opposed to death
If the value of an asset is greater than the beneficiary’s entitlement – PRs may not appropriate
If the value is less, PRs may appropriate and make a balancing cash transfer
Common for a will to include an express clause removing the need to obtain consents required by the section
If PRs insure an asset how can they pay for it?
Can pay premiums out of the estate
When can PRs charge for their services?
Professional PRs may claim reasonable remuneration for their services
As long as
o They are not acting alone
o Co-PRs give their written consent
Lay PR or professional acting alone must be given express power in will to charge for services
Can PRs delegate? If so, how?
Yes - in writing, agent must agree to a written policy agreement, use of agent kept under review
On which decisions can PRs not delegate?
On how / whether assets should be distributed
Whether fees / costs are payable from income or capital
Appointment of trustees / nominees / custodians
How can a PR absolve themselves of their responsibilities if there is a gift to a minor in the estate?
Minors can’t give valid receipt - often PRs can appoint trustees for the minor legacy, instead of retaining it.
Minor’s parent or guardian has the power to give good receipt on behalf of minor
If there is an express clause in the will, PRs can accept receipt from a minor 16+
What is the PRs power to run a business?
Company / partnership should contain provisions in Articles / Agreements which dictate key provisions which apply on death of a shareholder.
When can a joint PR act alone?
Only if will expressly says it can - exception for any stocks and shares
When will a PR be liable for losses?
Personally liable for losses that result from a breach of duty which they did not commit. Can also be liable for breaches by other PRs if they made no reasonable attempt to monitor co-PRs conduct.
When can a devastavit be brought against PRs?
Loss to estate because of PR wrongdoing
What can a claim against a PR be based on?
Maladministration
Misuse of assets
Negligence
Breach of fiduciary duty
Give examples of maladministration
Incorrectly administering the estate by making distributions to the wrong beneficiaries
Using residuary to meet liabilities which should have been paid from elsewhere
Paying legacies before debts without retaining funds for creditors
Why might a PR ask for court directions?
If they foresee difficulties in the administration of the estate. Can ask to have whole administration done by the court, or specific relief
How can S48 AJA protect PRs
They can distribute in accordance with a written legal opinion
Must be given by barrister with 10 years experience
What can s27 Trustee Act protect against? How does it work?
Protects against claims by unknown beneficiaries and creditors
Notice goes in London Gazette, newspaper circulating in the area in which any land held on trust is situated, and any other appropriate newspaper
Two months after notice of intention - PRs can distribute
How does a Benjamin Order protect PRs?
Useful for known but missing beneficiaries - can distribute on basis that missing beneficiaries are dead or any other assumption e.g. had no children
What liability remains under a Benjamin Order?
Missing beneficiary could still claim against other beneficiaries
How does the Presumption of Death Act 2013 protect PRs?
Court order declaring that a person thought to have died / not known to be alive for seven years or more has died - the order confirms presumed date of death
If criteria for application can be met – quicker / easier option than Benjamin Order
How can insurance help PRs protect themselves?
PR insurance common - but can be expensive
How can an indemnity from beneficiaries protect PRs?
Tricky - only limited and as good as those giving it.
How can payment to court help protect beneficiaries?
Can pay a legacy amount to court and distribute the rest - useful if beneficiary is located but won’t accept the inheritance
When will a court exonerate a PR from a breach?
Court will have to judge that PR
Acted honestly and reasonably
Ought fairly to be excused for
- Breach of trust
- Omitting to obtain directions of the court in the matter
When a PR collects money in to the estate, where should it be paid to?
PR’s bank account – one opened specifically to hold estate money
Law firm client account – Credit interest of a fair and reasonable sum will apply
In what time frame should debts of the estate be paid?
Duty to pay debts with due diligence - no definition, standard to pay before end of executor’s year
What payment should be prioritised once grant administered?
Any pre-grant loan taken out to pay IHT - particularly if they have given a first proceeds undertaking to the bank.
What is the general rule in terms of the burden of debts and expenses?
all deceased’s property constitutes assets which can be made available for the payment of the deceased’s debts and liabilities. Any clause to the contrary in a will is VOID
When is an estate considered solvent?
Assets are sufficient to pay all funeral, testamentary and administration expenses, debts, and liabilities
but no need to be able to pay all beneficiaries!
If there is a charge on a specific property, does it continue to bear liability post-administration?
Yes - the property the original charge was made against continues to bear liability unless a contrary intention is shown in the will.
What happens if a loan is larger than the value of an asset secured?
Remainder will rank as an unsecured creditor
In which order are unsecured debts paid according to statute?
1) Property not disposed of by will
2) Residue
3) Property the will sets aside for the repayment of debts
4) £ in the pecuniary legacy fund - if insufficient, legacies abate proportionately
5) Property specifically given
How can the statutory order of unsecured debts be overriden?
Express wording in a will - very common that wills include a direction for the residue to bear the burden of debts
How can the statutory order of secured debts be overriden?
A general direction for debts to be paid out the residue is not enough - a clear and specific intention for the beneficiary of the secured asset to receive the item free of debt must be shown.
What does the doctrine of marshalling allow beneficiaries to do?
Allows a beneficiary who is disappointed that inheritance has been reduced to compensate himself by compensating himself via the property which ought to have been used to pay the debts
Disappointed beneficiary could claim against the assets inherited by another beneficiary if those assets should have been used to repay debts
How should beneficiaries decide what to sell if there are insufficient assets to repay all debts?
Comply with statutory order
Consider - CGT, speed, wishes of beneficiaries
How must PRs apply CGT considerations to the estate?
Sell assets that have not risen in value
Assets falling in value should be sold
Assets which have risen in value can be transferred to a beneficiary without any CGT charge.
What liability does a PR have in terms of IT and CGT which was owed in the deceased’s lifetime?
Must pay it, or claim any refunds
Record information and notify HMRC via a tax return on behalf of deceased for the period 6 April to date of death
This can be considered an estate expense
How should PRs consider whether the deceased had any outstanding CGT liability?
PRs will need to consider the disposals made by the deceased before they died
These matters relate to assets that the deceased no longer owned on the date they died
When calculating the CGT due PRs should utilise the deceased’s tax free allowances and pay tax at rates applicable to the deceased
When may PRs have to pay income tax?
When an estate generates income, which goes into their accounts
This will always be paid at the basic rate - no personal allowance or higher rates for PRs
What is the threshold above which PRs should report to HMRC or pay income tax on estate income?
Total income received is more than £500 / year
How can an estate acquire CGT liability? How does this work?
If PRs make a disposal / sale of assets during an administration period
What, if any, personal allowance do PRs have on CGT?
Same tax free allowance as an individual for CGT
If when PRs sell assets they have fallen in value, how can they use this from a CGT perspective?
Off set against other gains
What is the threshold below which chattels can be sold by PRs exempt from CGT?
Under £6,000 or less
What tax efficiency considerations might PRs bear in mind when administering estate?
If beneficiary has used tax free allowance / is a higher rate tax payer - better for PRs to sell the assets, and use the estate tax-free allowance and distribute cash
Reverse applies also
PRs can’t claim residence relief
If an asset will generate a loss - PRs should consider whether the estate / beneficiary has gains against which to set off the loss
What should PRs consider to fulfil their duty to accurately distribute the estate?
Identify beneficiaries
Nature of interest
Property to which beneficiaries are entitled
Method of transfer
Relieving provisions
Claims against estate (e.g. IPFDA), unknown beneficiaries (ss27 notice)
In which order are legacies paid?
Specific
general
residuary
What happens if there is not enough money to fulfill all legacies?
They abate in reverse order
If there are sufficient funds to meet all specific gifts but not all general legacies, general beneficiaries take a reduced inheritance
Specific gifts take priority
Within each category; if not all legacies can be paid, they abate proportionately
What should PRs get from beneficiaries when they make a distribution?
Receipt
What can PRs do if beneficiaries are minors to ensure receipt
Express clause meaning receipt can be given from 16 / 17 year olds
Parent or guardian provides receipt
PRs hold property themselves until child is 18
Appoint trustees
Pay legacy into court
What would be logged in estate capital account?
- Sets out estate assets and liabilities at death
- Records what happened to each item
- Liabilities such as pecuniary / specific legacies / IHT included
- Solicitors’ fees included
- Capital account will show balance available for distribution to residuary beneficiaries
What would be logged in estate income account?
- Income received in relation to estate assets during administration and summarises how this was spent
- Income expenses are then deducted as liabilities
- Income account will then show a balance available for distribution to residuary beneficiaries
What would be logged in estate distribution account?
- Sets out residuary beneficiaries’ entitlement
- Includes distributions made during the course of the administration of the estate and final balance due to be distributed
Who should approve estate accounts?
Should be signed off by all PRs and residuary beneficiaries – usually releases PRs from further liability to account
NOT legacy beneficiaries
