Administration: PR - Roles, Duties, Powers, Protection from Liability

Question 1

How are PRs appointed and where do they derive their authority to act?

Executors vs administrators

Answer 1

(1) Executors = appointed by will, derives authority to act from the will, a grant of representation only confirms this authority, can start to act from date of death

(2) Administrators = appointed by under statute (Non-Contentious Probate Rules Act 1987), authority to act derives from the grant of representation, can start acting from date of grant

Question 2

what is the role of a PR?

Answer 2

to administer the deceased’s estate - involving collecting in D’s assets, paying D’s debts, meeting tax liabilities, paying other expenses, and distributing the assets to the beneficiaries who are entitled to inerit

Question 3

how are PRs allowed to deal with the deceased’s assets? can they deal with all of the deceased’s assets?

Answer 3

legal title to the deceased’s assets which form part of the succession estate will pass to the PRs

PRs do not have authority to deal with assets falling outside the succession estate (but can advise on them)

the grant of representation confirms the authority of PRs to deal with succession estate assets

But not all types of assets require a grant to be dealt with (although asset holders are unwilling to release assets to PRs without seeing the grant)

Question 4

are the PRs also trustees of the estate? when will they be trustees of the estate?

Answer 4

PRs are NOT automatically trustees of the estate

BUT: a PR will be a trustee of some assets where:

(1) the will expressly appoints executors to act in capacity of trustee of any trust arising (but the will can appoint other persons to be trustees)
(2) there is intestacy - PRs hold the estate generally on trust with. power to sell
(3) a statutory trust arises under an intestacy - PRs will be trustees of the minor beneficiary

Question 5

can a PR also be a beneficiary?

Answer 5

yes

Question 6

will the estate be liable if a PR breached its duties?

Answer 6

no - PR is personally liable

Question 7

if PRs complete administration, but additional assets, creditors, or beneficiaries come to light afterwards, should the PRs act?

Answer 7

yes - PR is a life appointment so PRs must act to administer the estate

otherwise they remain personally liable

Question 8

what are the sources of the PRs’ duties?

Answer 8

(1) statute
(2) common law
(3) fiduciary duties

Question 9

PR duties before issue of grant (7)

Answer 9

(1) dispose of body

(2) duty to inform HMRC and pay IHT = grant will not be issued unless this is done

(3) locate will

(4) secure assets

(5) identify family members, other PRs, beneficiaries

(6) identify lifetime transfers, debts, etc to determine IHT liability

(7) dealing with assets passing outside succession estate may be done before obtaining grant (like chattel) but banks are unwilling to release funds without a grant

Question 10

PR duties under the grant of representation (3)

Answer 10

(1) DUTY TO COLLECT IN ASSETS = identify and locate assets, identify deceased’s liabilities and creditors, and obtain control, possession, or legal ownership of assets passing in the succession estate

(note: this would have already been done as part of reporting to HMRC and paying IHT prior to the grant)

(2) DUTY TO ADMINISTER THE SUCCESSION ESTATE = keep assets secure, pay debts, meet administration expenses, pay legacies, and distribute residue

(3) DUTY TO PROVIDE INVENTORY AND ACCOUNT OF ESTATE ASSETS = PRs must keep inventory (list of assts and values) and record the steps they took in ‘Estate Accounts’

Question 11

what are the PR / trustee duties?

Answer 11

1. administer the estate with due diligence
2. administer the estate within a reasonable time, efficiently, and without undue delay (usually 12 months after death)
3. duty of care: to exercise such care and skill as is reasonable in the circumstances, having regard to any special knowledge or experience the PR has or holds themselves out as having and if professional PR then having regard to any special knowledge or experience which is reasonable to expect them to have
4. maximise and preserve value of estate via investing

–> beneficiaries of the estate will have the power to compel the proper exercise of the trustee / executor duties

Question 12

what is the PR duty of due diligence?

Answer 12

PRs have duty to administer the estate:

(1) with due diligence
AND
(2) within a reasonable time (12 months from death)

Question 13

do PRs owe a duty of care?

Answer 13

PRs do owe a duty of care under statute

• s 1 TA 2000 duty = PRs must exercise such care and skill as is reasonable in the circumstances
• having regard to any special knowledge or experience the PR has or holds themselves out as having
• for professional PRs = having regard to any special knowledge or experience which is reasonable to expect them to have

applies when PRs are exercising their statutory power to invest, delegate, insure, and purchase land

Question 14

what are the fiduciary duties of PRs? (2 main ones)

Answer 14

(1) No conflict = PRs must not purchase assets from the estate even if at fair value - unless consent from all adult Bs/court is obtained

(2) No profit = PRs must not profit from their position as PRs (charging for services when allowed does not contradict this)

Question 15

what is the time limit for PRs to administer the estate?

Answer 15

12 months from the date of death

this is a ‘reasonable time’ for the PRs to act under their duty of due diligence

BUT if administration takes longer = THIS IS NOT A BREACH OF DUTY although PRs may have to justify any delay

Question 16

where do PR powers derive from?

Answer 16

from statute + will/codicil

• If deceased died intestate = only statutory powers apply
• if deceased left a will = express provisions of will take priority over statutory powers, and statutory powers apply to the extent that they do not conflict with the will (aka in default)
• will can confer additional powers, exclude statutory powers, or modify statutory powers

Question 17

statutory powers of PRs (default powers) - (10)

Answer 17

(1) power to sell, charge, or lease estate assets after grant is issued (eg, to pay debts/take loans to pay IHT)

(2) power to appropriate any asset in satisfaction of a beneficiary’s entitlement

(3) power to insure estate assets + choose to pay premium out of estate income or capital

(4) power (and duty) to invest estate assets held over period of time + carry out regular reviews of investment + have regard to standard investment criteria + duty to obtain advice + duty of care

(5) power to charge for services for professional PRs not acting alone and with consent of all PRs

(6) reimbursement of PR expenses reasonable incurred

(7) power to delegate non-dispositive powers

(8) power to appoint trustees = where gift is for minors, PRs can be trustees or can appoint trustees

(9) power to accept receipt from parent/guardian of minor beneficiary

(10) power to run a sole trader business that T had (but not a company or partnership)

Question 18

statutory power of PR to appropriate an asset

what is the power?
what are the PR’s limits while exercising the power? (5)

Answer 18

PRs have the power to appropriate any asset in satisfaction of a beneficiary’s entitlement (for general legacies and entitlement to the residue)

BUT NOTE:

(1) a specific B cannot be prejudiced

(2) CONSENT of recipient B must be obtained to do this

(3) asset is valued at date of appropriation not death

(4) PRs CANNOT appropriate an asset that is valued MORE than B’s entitlement

(5) PRs CAN appropriate an asset that is valued LESS than B’s entitlement and then pay B the difference

Question 19

what is the power to invest?
what duties must the PR abide by while exercising this power? (4)

Answer 19

PRs have a power to invest AND duty to invest and preserve the estate if they retain assets over a period of time

duties while exercising this power:
(1) have regard to the standard investment criteria
(2) carry out regular reviews (e.g., annually) + have regard to standard investment criteria while reviewing
(3) obtain advice unless they reasonably conclude that in the circumstances it is unnecessary or inappropriate
(4) act in accordance with the statutory duty of care

Question 20

when can PRs charge for their services?

professional PR vs lay PR

Answer 20

professional PR (e.g., solicitor) = can claim reasonable remuneration for their services only if:
(1) they are not acting alone, AND
(2) co-PRs give their WRITTEN CONSENT

lay PR OR professional PR acting alone = cannot charge for their services unless:
(1) given express power in the will via charging clause, OR
(2) all beneficiaries consent to remuneration (but all Bs must be adults with capacity)

remuneration is not treated as a gift for tax purposes or for s15 Wills Act if PR acts as witness

Question 21

what can a PR claim reimbursement for vs what can they not claim reimbursement for?

where do they get reimbursed from?

Answer 21

PRs CAN reimburse themselves from the estate for expenses properly incurred when acting on behalf of the estate = e.g., travel costs

PRs CANNOT claim reimbursement for the time spent on administration even if they had to turn down other work (unless they have the power to charge for their services)

Question 22

power of PRs to delegate

what powers can a PR delegate vs not delegate (3)?
who can the PRs delegate powers to?
what is the process to follow?
what are the PR duties when delegating powers?

Answer 22

• PRs can delegate non-dispositive powers
• Cannot delegate:

1. how and whether assets should be distributed
2. whether costs are payable from income or capital
3. appointment of trustees

• cannot delegate to a beneficiary
• can delegate to another PR
• process = delegation must be in writing + PRs provide agent with a written policy statement that agent complies with
• PRs have a duty to:

1. monitor acts of the agent and whether the policy statement needs updating
2. act in accordance with statutory duty of care when delegating and monitoring

Question 23

if a will gives a legacy to a minor absolutely (i.e., not under a contingent trust), what can the PR do? (3 options)

Answer 23

The minor cannot give good receipt - so PRs have 3 options:

(1) Hold the assets themselves on trust for the minor in their capacity as trustees until the minor turns 18 (PRs will have duties to invest and powers of maintenance and advancement)

(2) Appoint trustees to hold the assets on trust for the minor (usually parent / guardian)

(3) Give the legacy directly to the parent /guardian as they can give good receipt on behalf of the minor

notes:
- an express clause in a will that states a minor 16+ can give good receipt is valid
- a will can be drafted to expressly give the legacy to named trustees or PRs in their capacity as trustees on trust until the minor reaches 18 - this must be followed so PRs do not have an option

Question 24

if there are minor interests under a will or under the intestacy rules, how many PRs must be appointed?

Answer 24

1 executor is enough

2 administrators must be appointed if no executors are appointed in a will or if intestacy rules are operating

Question 25

Can a joint-PR decide things and act alone?

Answer 25

joint PRs must make decisions together and exercise discretionary powers unanimously

but PRs will usually have the power to act alone when exercising a power to sell or transfer estate assets during administration (but not re shares)

Question 26

who do PRs owe their duties to?

Answer 26

beneficiaries and creditors of the estate

they can bring personal claims against PRs for breach of these duties

Question 27

when can a devastavit claim be brought?

2 different cases with 2 different remedies

Answer 27

(1) estate suffers loss as a result of PR wrongdoings or breaches –> C will seek an order that PR makes good the loss using their personal assets

and/or

(2) PR breach of fiduciary duty (no need for loss to be caused to estate) –> C will seek an account of unauthorised profits and/or a transaction to be set aside

Question 28

what are some examples of wrongdoings which a devastavit claim can be based on? (5 examples)

Answer 28

(1) maladministration of estate (distributing to wrong Bs, paying legacies without enough funds to meet creditors)

(2) breach committed by another PR but the defendant PR did not properly monitor their conduct

(3) misuse of assets eg, for personal use

(4) negligence = delay/failing to invest / breaching duty of care when investing

(5) breach of fiduciary duty:
- make unauthorised profit by taking unauthorised remuneration (breach of no profit rule)
- buying estate assets (breach of no conflict rule - self-dealing)

Question 29

what are some consequences and remedies of PR breaching their duties? (4)

Answer 29

1) personal liability to compensate for loss

2) account for unauthorised profits

3) order for removal from office

4) any transaction being set aside

Question 30

methods of protecting PRs from liability (10)

Answer 30

(1) exemption clause in will = exclude or restrict PR liability (cannot exclude liability for fraud)

(2) court guidance on a particular matter (e.g., construction of will) OR to have the estate administered by the court

(3) s48 application = to distribute according to a written legal opinion and court grants permission

(4) s 27 notice = protects PRs against claims of unknown beneficiaries and creditors

(5) Benjamin Order = protects PRs against claims from known but missing beneficiaries - allows PRs to distribute an the assumption

(6) Presumption of death act = application to court declaring a person died if they are not found for 7 years

(7) insurance to cover risk that B or creditor claims against PRs after administration is complete

(8) obtain indemnity from beneficiaries that PRs can trace

(9) payments into court and distribute the balance = where B is known but unwilling to accept their inheritance

(10) apply for exoneration by the court from personal liability

Question 31

s 27 notice - what is it? what can it protect from? process PRs must follow? limitations of the method?

Answer 31

what is it and what it protects from = protects PRs from claims of unknown beneficiaries and creditors who come to light after distribution

process = PRs must place a notice in the London Gazette and a local newspaper and any other newspaper they think fit - and wait 2 months from placing the notice to distribute

limitations =

• does not protect PRs against claims from known but missing beneficiaries and creditors
• does not protect other beneficiaries who receive more than their entitlement –> unknown beneficiaries who come to light can still claim against them
• does not protect PRs in their capacity as beneficiaries

Question 32

Benjamin Order - what is it? what can it protect from? examples? process PR must follow? limitations of the method

Answer 32

what is it = Court order allowing PRs to distribute the estate on the assumption that certain events happened or did not happen - relieving PRs from liability if they administer it as such and the assumption turns out not to be correct

what can it protect from = protects PRs from claims from known but missing beneficiaries

example = assumption that a missing B died or a missing B does not have children or there are no additional creditors

process = before an order can be awarded, PRs must make full enquiries to establish the true position and show there is no reasonable prospect of knowing the true position without disproportionate expense

limitations = does not protect beneficiaries - missing Bs / Cs can still claim against them

other options for known but missing Bs = insurance, presumption of death, payments into court

Question 33

when is it advisable for PRs to obtain insurance?
what does this protect from?
what are the limitations of this method of protection?

Answer 33

PRs can obtain insurance to cover the risk of a known but missing beneficiary or creditor returns after administration is complete and claims against the PRs for the share they should have received

limitations =
- if risk that B or C return is too high, then it may not be possible to obtain insurance or the premiums will be expensive (but may be cheaper if obtained with a Benjamin Order)
- not possible to get insurance for the risk of unknown creditors or beneficiaries (risk too high)

Question 34

how will obtaining an indemnity from beneficiaries help protect PRs from liability? limitations?

Answer 34

Bs promise to reimburse the PRs for any loss they suffer as a result of distributing and being sued by a disappointed beneficiary or creditor

limitations
- not all known beneficiaries may agree to provide an indemnity
- a B who provided the indemnity may not have sufficient funds to reimburse
- a B who provided the indemnity may not be traceable in the future

Question 35

what must the PR show if it applies for court to be exonerated from liability?

Answer 35

1) PR acted honestly and reasonably

and

2) PR ought to be fairly excused for the breach of trust and for omitting to obtain court directions on the matter in question

Question 36

what is the appropriate PR protection where a beneficiary is known to a PR but refuses to accept their inheritance?

Answer 36

payment of legacy into court and distribute the balance

Question 37

what is the appropriate PR protection where a beneficiary is known and identified but missing?

Answer 37

Benjamin order

Indemnity insurance

Payment into court

Presumption of death act if missing for 7 years or more

Question 38

what is the appropriate PR protection where the PRs do not know if anymore beneficiaries or creditors exit?

Answer 38

s27 notice - then distribute after 2 months

indemnity from beneficiaries

Question 39

what is the appropriate PR protection where there is doubt about PR obligations and construction of the will?

Answer 39

apply to court to either:

1) give court guidance on how to distribute

2) approve to distribute according to a written legal opinion (s48 application)

3) ask the court to carry out administration