Administration: Post-Grant - collecting in assets and paying debts

Question 1

what is the method of collecting estate assets and how does it depend on the type of asset? (4 types of assets)

Answer 1

method of collection varies depending on type of assets and the procedures that institutions have -

• bank accounts = banks require withdrawal forms to be completed
• actual property (eg jewellery) = must be stored and secured
• investments = sale/transfer can be done by financial advisor
• registered land = transferred into the names of PRs or Bs directly

institutions would require sealed copies of the grant issued by the Probate Registry (not certified copies or photocopies)

Question 2

money collected by PRs - where should it be paid?

Answer 2

1) a separate PR bank account (not mixed with personal funds)

or

2) law firm client account (firm must provide credit interest of a ‘fair and reasonable’ sum)

Question 3

what are the requirements for the PRs to pay DEBTS?

Answer 3

• PRs must pay D’s debts as soon as assets are collected
• must pay debts with due diligence and reasonable time (before end of ‘executor’s year’)
• if PRs do not pay debts but have available assets = PRs will be liable to creditors and any B for consequent losses like recovery proceedings (express clause in will can limit PR liability re B but not re creditors!)
• liability unless s27 notice - protects them from liability to unknown creditors

Question 4

what are the EXPENSES which the PRs must pay?

Answer 4

administration expenses

• PRs must repay a pre-grant loan taken to pay IHT - ASAP to minimise interest payments (bank will usually require PR to undertake ‘first proceeds’ = PRs promise to use first moneys raised to repay loan)
• costs of valuing estate assets
• probate fees
• s27 notice costs
• professional legal fees
• insurance premiums

Question 5

what is a ‘solvent estate’?

Answer 5

assets of estate are enough to pay:

• funeral
• testamentary and administration expenses
• debts and liabilities

Question 6

what assets can be used to pay deceased’s debts and liabilities?

Answer 6

all deceased’s assets are available

But - there are rules to determine the ORDER in which the estate assets are used to pay off debts - depending on whether debts are secured or unsecured - UNLESS contrary intention is shown in the will to disapply these rules

Question 7

if there is a clause in the will stating that D’s assets will not be used to pay liabilities, debts, and expenses, is this valid?

Answer 7

no it is void - these will be paid from D’s assets

all the assets can be made available to pay these

Question 8

what assets will pay off secured debts?

Answer 8

RULE =

charged property will bear the primary liability for the payment of the debt secured against it

AND no other estate asset can be used to discharge a mortgage –> so you would have to sell a house to pay off a mortgage loan taken on it

CONTRARY INTENTION=

• this is unless contrary intention is shown in the will
• express wording is required and a clear + specific intention must be present for the beneficiary of the secured assed to receive the asset free from debt
• this is not enough to show contrary intention: a general direction for debts to be paid out of residue

Question 9

what assets will pay off unsecured debts and admin expenses?

Answer 9

RULE = statutory order of paying unsecured debts - assets in each category must be exhausted before moving to the next:

1) property not disposed of by a will (passing via full/partial intestacy) but subject to the retention of money for pecuniary legacies in the pecuniary legacy fund

2) residue (also subject to pecuniary legacy fund)

3) property the will sets aside or charges with the repayment of debts

4) money in the pecuniary legacy fund ==> if money is insufficient, then the legacies abate proportionately according to value

5) property of specific gifts (eg, chattels)

CONTRARY INTENTION = express wording can override statutory order eg, a general direction for the residue to be used to pay off debts will be sufficient

Question 10

what is abating proportionately - for paying unsecured debts?

Answer 10

under the statutory order of paying unsecured debts, if all is exhausted including the pecuniary legacy fund (except for specific gifts) =

pecuniary legatees abate proportionately according to their entitlement

example: A has pecuniary legacy of 5k. B has pecuniary legacy of 15k. After unsecured creditors are paid, 15k is left. ==> A gets 1/4 of the 15k and B gets 3/4 of the 15k

Question 11

what is marshalling?

Answer 11

If PRs take assets not following the right order, Bs whose assets have been wrongly used to pay a creditor, thus their entitlement reduced, can use the doctrine of marshalling

marshalling = allows B to compensate himself by going against the property which ought to have been used to pay the debts

but creditors are not bound by this and are under no obligation to return the money paid to them

Question 12

if cash assets are not enough to pay debts and PRs use non-cash assets to sell and make payments, then what are the considerations of PRs when exercising power of sale? (3)

Answer 12

(1) CGT considerations =

• PRs deemed to acquire assets at market value on date of death (‘probate value’)
• if asset increased in value CGT may be payable on the gain if gain is more than tax-free allowance (consider transferring these to B instead)
• PRs should consider selling assets that did not rise in value
• PRs should sell assets of falling value to preserve value of estate

(2) ease of sale =

• quoted shares/financial investments = easy to sell
• unquoted shares/business interests/land = longer to sell
• cars and personal possessions = easy but low value

(3). wishes of beneficiaries = PRs NOT BOUND to comply wish B wishes but should take these into account