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Wills and Admin of Estates > Administration: PRs > Flashcards

Administration: PRs Flashcards

1
Q

What is a personal representative (PR)?

A

PRs are the people permitted by law to administer a deceased’s estate.

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2
Q

What is administration?

A

Administration refers to the legal process for managing the distribution of a deceased’s estate: paying debts, taxes, estate expenses and the beneficiaries.

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3
Q

What is a PR appointed by will called?

A

An executor

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4
Q

What is a PR appointed by statute called?

A

These are called administrators.

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5
Q

What is the document which confirms the authority of the PRs to act?

A

The grant of representation

Very important to confirm the right of PRs to collect in the deceased’s assets and distribute the estate.

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6
Q

What is a grant of representation?

A

The grant is an order of the High Court. It establishes:

  • the authority of the PRs to act; and
  • the validity of the deceased’s will, or that the deceased died intestate.

PRs are not usually able to collect or realise assets in the estate without producing the appropriate grant.

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7
Q

What assets are covered by the grant of representation?

A

The grant is limited to the assets passing under the Will or intestacy.

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8
Q

From what point can PRs act?

A

Executor: power derives from the will and they may act from the date of death - the grant confirms the authority to act.

Note: it may be impractical to start before the grant because most asset holders require sight of the grant.

Administrator: They have no authority to act until the grant is issued.

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9
Q

What is the role of a PR?

A

The role of a PR is to administer the estate of the deceased. They have a statutory duty to collect in the deceased’s assets, ensure the deceased’s debts are paid and outstanding tax liabilities are met and then to distribute assets to the beneficiaries who are entitled.

A PR may also be a beneficiary of the estate.

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10
Q

What type of duty does a PR have?

A

The role of a PR is fiduciary in nature.

All duties must be performed in accordance with their duty of care.

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11
Q

Is a PR also a trustee of the estate?

A

A PR is not automatically the ‘trustee’ of the estate - although the role of PR and role of trustee are similar and are both fiduciary.

Many of the statutory duties which apply to trustees also apply to PRs.

If there are any continuing trusts the PRs should record the date on which estate assets are transferred from the PRs to the trustees - even if the executors and trustees are the same people.

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12
Q

When will a PR be a trustee of the estate property?

A
  • the will expressly appoints the executors to act as trustees of any trust arising
  • there is an intestacy; the PRs hold the estate generally “on trust with a power to sell”
  • a statutory trust arises under an intestacy; the PRs will be the trustees of that trust on behalf of the minor beneficiary
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13
Q

What is the role of a solicitor in administering the estate?

A
  1. The solicitor has been instructed by the PRs for advice on the administration.
  2. The solicitor has been appointed as executor under the deceased’s will.
  3. The solicitor has been instructed to act on behalf of a party to a contentious probate matter.
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14
Q

Solicitor instructed by the PRs

A

A solicitor may be instructed by lay PRs if they feel they need help - often this happens about half way through.

If instructed by PRs - the client is the PR not the beneficiaries and must act on the PRs instructions.

Legal fees may be paid using the estate assets rather than the PRs personal funds.

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15
Q

Solicitor appointed as executor

A

if a solicitor acts as an executor they are a professional PR and their duties are owed to the estate creditors and beneficiaries.

The solicitor will charge the estate for their services.

Where the estate is complex or there are family disputes then appointing a professional executor may be in the client’s best interests.

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16
Q

Who is liable if there is a loss caused by a PR’s breach of duty?

A

The PR is personally liable.

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17
Q

Pre-grant duties

A
  • Common law duty to dispose of deceased’s body (usually this is arranged by surviving family members)
  • Statutory duty to provide information about the estate to HMRC and pay inheritance tax due

Note: the grant will not be issued unless information required to be reported to HMRC has been delivered and any IHT has been paid.

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18
Q

Duty to inform HMRC and pay IHT

A

The PRs must notify HMRC about the assets and liabilities of the estate.

This is done by completing and IHT 400.

PRs must also pay any inheritance tax due in relation to the estate assets within their control - this can be paid using estate assets.

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19
Q

Duties of a PR under the grant

A
  • 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

These duties are owed the beneficiaries and the creditors

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20
Q

The duty to collect in

A

To comply with this duty the PRs must:

  • identify and locate the deceased’s assets (including sums owed to the deceased)
  • identify the deceased’s liabilities and creditors
  • obtain control, possession or legal ownership of the assets
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21
Q

Duty to administer the estate

A

PRs must administer the estate in full be:

  • keeping the assets secure
  • paying the deceased’s debts and liabilities
  • meeting administration expenses
  • paying legacies
  • distributing the residue to those legally entitled
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22
Q

Duty to provide inventory and account

A

The PRs must keep a list of assets and values (inventory) and a record of the steps they have taken in the administration (account).

This information is usually recorded in the ‘Estate Accounts’

A beneficiary or creditor can ask to see the accounts and if refused can make an application to the court

23
Q

Duty of due diligence

A

The PRs have a duty to carry out the administration with due diligence and within a reasonable time.

Due diligence: depends on facts of the case - but the court can determine if there was indeed a breach.

Time: PRs should complete the administration within 12 months of the date of death (‘executors year’). If the administration takes longer than 12 months the PRs may be expected to justify the delay.

24
Q

Appointment for life

A

A PR is appointed for life which means:

  • if additional assets are discovered after the admin is completed the PRs have a duty to administer these assets
  • there is an ongoing risk of personal liability if creditors or beneficiaries who were not known of at the time come to light after the estate is fully administered and demand entitlement
25
Q

Statutory duty of care

A

PRs are subject to the same statutory duty of care (s1 TA 2000) as trustees when the PRs exercise the powers under TA 2000.
Powers to:
- invest
- delegate
- insure
- purchase land

s1 imposes a higher standard of care for professional PRs such as solicitors than lay trustees.

Higher standard is also imposed upon those possessing special knowledge or experience (and those who hold themselves out as having special knowledge or experience)

26
Q

Fiduciary duties

A

As the role of a PR is fiduciary in nature, PRs are also subject to the wider fiduciary duties. PRs must not (unless authorised by the court or fully informed the beneficiaries):

  • place themselves in a position of conflict (e.g. a PR may not purchase an asset from the estate even if this is for a fair value)
  • profit from their position. Payment for services will not constitute a breach of the no profit rule if a PR acts in a professional capacity or the payments are authorised under the will.
27
Q

Where do PR powers come from?

A

Two sources:

  1. Statute
    - if deceased died intestate only statutory powers will apply
    - if deceased left a will, statutory powers apply to the extent these do not conflict with express provisions
  2. Will/codicil
    - if deceased left a will it may contain express provisions dealing with PR powers
    - express clauses may confer additional powers or exclude/modify statutory powers
    - express provisions in a will take priority over statutory powers
28
Q

Statutory PR powers

A
  • sell, charge or lease
  • appropriate
  • insure
  • invest
  • charge for PR services
  • delegate powers
  • appoint trustees
29
Q

Power to sell, charge or lease

A

PRs have wide powers to sell estate assets.

PRs may need to this soon after the grant is issued so they can repay the deceased’s debts and any loan taken out to meet the inheritance tax liability.

Ss 33 and 39 AEA

30
Q

Power to appropriate

A

PRs have the power to appropriate an asset in satisfaction of beneficiary’s entitlement and PRs can decide which assets are used to meet this.

The power is subject to the following rules:
- A specific beneficiary must not be prejudiced
- Consent of the recipient beneficiary is required
- The value of the asset must be considered at the date of transfer/appropriation rather than the date of death

If the value exceed a beneficiary’s entitlement the PRs may not appropriate

If the value of the asset is less than entitlement the PRs may appropriate and then make a balancing cash transfer.

Note: it is common for a will to include an express clause removing the need to obtain the consents required by the section.

S 41 AEA

31
Q

Power to insure

A

PRs have the power to take out insurance to insure estate assets comprehensively and for full value.

PRs are authorised to pay the insurance premiums out of either estate income or capital.

S19 TA 1925

32
Q

Power to invest

A
  • If PRs retain assets for a period of time they have a duty to preserve the estate and actively invest.
  • General power of investment applies to PRs.
  • PRs are also permitted to acquire freehold or leasehold land in the UK in accordance with s8 TA 2000.
  • PRs must carry our regualr reviews of investments (common annually)
  • When exercising the general power of investment or reviewing their investments the PRs must have regard to the standard investment criteria (s4 TA 2000)
  • s5 TA: duty to obtain advice unless PRs reasonably conclude that in the circumstances it is unnecessary or inappropriate
33
Q

Power to charge for services

A

Professions may claim reasonable remuneration for their services provided:
- they are not acting alone, and;
- the co-PRs give their written consent

A lay PR or professional PR who is acting alone needs to be given express power in the will to charge for their services.

Payment for service is not treated as a gift under the will.

34
Q

Reimbursement for expenses

A

All PRs can reimburse themselves for expenses properly incurred (e.g. travel costs).

No power for time spent even if other work had be turned down.

35
Q

Power to delegate

A

Powers can employ agents and delegate their powers except for:

  • how and whether assets should be distributed
  • whether fees or costs are payable from income or capital
  • appointment of trustees/nominees/custodians

PRs may not appoint a beneficiary as their agent but may appoint one of the other PRs if sufficiently qualified

36
Q

How do PRs delegate?

A

PRs must:

  • do so in writing to the agent and
  • provide them with a written policy statement which the agent must agree to comply with

Common to delegate investment powers

37
Q

Power to appoint trustees (gifts to minors)

A

Where a legacy is given absolute to a minor there is no power to pay directly to a beneficary until the reach 18 because a minor cannot give valid receipt.

PRs need to hold asset on trust for minors - or they can instead appoint trustees and give the legacy to the trustees instead of retaining it.

38
Q

Power to accept receipt form parent

A

A minor’s parent or guardian has the power to give a good receipt to the PRs on behalf of a minor. However, this power is commonly included for clarity.

Can draft the will to exclude this power

Note: express clause in a will which permits PRs to accept receipt from a minor beneficiary age 16 or older is effective

39
Q

Power to run a business

A

shareholder - articles and/or shareholder agreement
partner - partnership agreement will contain terms

Sole trader: limited common law power to enable PRs to sell the business as a going concern within a year of death.

May only access assets in the business at the date of death and are personally liable to business creditors (may indemnify themselves from the estate for liabilities occurred when running the business for realisation only).

Common to include an express power to PRs can run/manage a sole trader business in accordance with the testator wishes.

40
Q

What kind of liability does a PR have?

A

A PR is personally liable for losses that result from breach of duty.

The may also be liable for breaches committed by other PRs if they did not make a reasonable effort to monitor the co-PRs conduct.

41
Q

What is a devastavit?

A

A claim of action against a trustee/PR for breach of their duties.

May be brought there is loss to the estate because of PR wrongdoing.

Even if no loss, if there was a breach of fiduciary duty the claimant may seek an account of unauthorised profit and/or for a transaction to be set aside.

42
Q

What might a claim against a PR be based on?

A
  1. Maladministration
    - incorrectly administering the estate by making distributions to the wrong beneficiaries
    - using the residuary estate to meet liabilities which should have been paid from other parts of the estate
    - paying legacies before debts without retaining sufficient funds for creditors
  2. Misuse of assets
    - making personal use of the estate assets
  3. Negligence
    - unreasonable delay in carrying out the administration
    - failing to invest or making poor investment decisions in breach of the duty of care
  4. Breach of fiduciary duty
    - breach of the no conflict rule
    - breach of the no profit rule
    - self-dealing
43
Q

Removal of a PR

A

Can be removed by:

  • a court order under s50 Administration of Justice Act 1950 appointing a replacement PR
  • an administration action where the court would take over the administration
44
Q

Methods for protection PRs

A
  • seeking court directions
  • s 48 AJA 1985 application
  • s 27 Trustee Act 1925 notice
  • Benjamin Order
  • Presumption of Death Act
  • Insurance
  • Payments into court
  • Indemnity from beneficiary
  • S61 Trustee Act 1925
45
Q

Court directions

A

Can seek court guidance for decisions which may lead to PRs incurring personal liability.

Could take the form of:
- an administration action application to have the estate administered by the court
- specific relief, an application for guidance on a particular matter

46
Q

s48 AJA 1985

A

Seeking court directions can be expensive and time consuming.

In cases where there is a question over the construction of a will, the PRs may instead make an application under s48 AJA 1985 to distribute in accordance with a written legal opinion (so long as they are appropriate for the court to rely on).

47
Q

s27 Trustee Act 1925

A

Used to prevent liability to unidentified beneficiaries and creditors. Will NOT protect if a beneficiary or creditor is known but is missing.

Trustees will publish a notice of their intention to distribute to known beneficiaries two months after the date of the advertisement.

Notice must be placed in:

i) The London Gazette
ii) Any newspaper circulating in the area in which any land held on trust is situated; and
iii) Any other newspaper which is appropriate

Note: this does not protect other beneficiaries who may have received a larger sum than their entitlement - a claim may still be made against them.

48
Q

Benjamin Order

A

Used for known but missing beneficiaries.

Allows PRs to distribute the estate on an assumption (eg a missing beneficiary has died or the missing beneficiary has no children).

Order relieves the PRs from personal liability if the administer an estate in accordance with the court order and the assumption turns out to be incorrect.

Before an order is awarded the PRs must establish the true position and demonstrate there is no reasonable prospect of knowing the true position without disproportionate expense.

49
Q

Presumption of Death Act 2013

A

Prs can make an application under this act for a court order declaring that a person thought to have died or not known to have been alive fro 7 years or more has died.

Will confirm the presumed date of death and related generally to the deceased’s property and affairs.

May be faster than a Benjamin Order if the criteria are met.

50
Q

Insurance

A

PRs could purchase insurance to cover the risk that the beneficiary or creditor returns and amkes the claim.

May not be possible if the risk is too high. Premiums can also be very expensive (but less than a Benjamin order)

51
Q

Indemnity

A

PRs could seek an indemnity from the beneficiaries they can trace.

They would promise to reimburse the PRs for any losses suffered by the PRS as a result of being sued by a disappointed beneficiary or creditor.

An indemnity from the existing beneficiaries is only as good as the person giving it. Also it may prove difficult in the future to trace those providing the indemnity.

52
Q

Payment to court

A

PRs could pay the legacy amount into court and distribute the balance of the estate.

Insurance would be preferable for a missing beneficiary but this might be a good option where a beneficiary can be located but is refusing to accept their inheritance.

53
Q

Exoneration by the court

A

A PR can apply to the court for an order exonerating them in whole or part from personal liability for breach.

Court must consider that the PR:
- acted honestly and reasonably;
- ought fairly to be excused for the breach of trust and omitting to obtain directions of the court in the matter

54
Q

Exemption clause in a will

A

Will may contain clauses which exclude or restrict liability for a PRs wrongdoing.

May cover scenarios from innocent mistake to gross negligence.

Not possible to exclude for fraud or other criminal acts.

Wills and Admin of Estates (13 decks)

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