Admistartion Post Grant

Question 1

What duty’s are PRs subject to

Answer 1

Fiduciary duty - A PR is personally liable for loss caused by a breach of duty.

Common law duty to dispose of the deceased’s body

Statutory duty to provide information about the estate to HMRC and pay inheritance
tax (‘IHT’) due

Duty to collect in assets

Duty to administer the estate according to law

Duty to provide an inventory and account of estate assets

Duty of due diligence

Statutory duty of care

Question 2

What Does the fiduciary nature of the PR rule prevent the PRs from doing

Answer 2

No conflict rule - a PR may not purchase an asset from the estate even if this is for a fair value

No profit rule - can not 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

Question 3

What rules is the power to appropriate subject to

Answer 3

· A specific beneficiary must not be prejudiced.
· Consent of 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 of an asset exceeds the beneficiary’s entitlement the PRs may not appropriate.
If the value of the asset is less than the entitlement the PRs may appropriate and then make a balancing cash transfer.
It is common for a will to include an express clause removing the need to obtain the consents required by the section.

Question 4

Are PRs authorised to pay the insurance premiums (under power to insure) out of either estate income or capital

Answer 4

Yes

Question 5

If PRs retain assets for a period of time do they have a duty to preserve the estate and actively invest

Answer 5

Yes

Question 6

What does a lay PR, or a a professional PR who is acting alone, need to to be able to charge for their service

Answer 6

Needs to be given express power in the will

Question 7

Can PRs be reimbursed for expenses

Answer 7

Yes - All PRs (whether or not they are acting in a professional capacity) may reimburse themselves for expenses properly incurred when acting on behalf of an estate. For example, travel costs incurred in the course of carrying out estate administration.

Question 8

If delegation is required what is needed?

Answer 8

If delegation is required, the 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 (s15).
The use of an agent and the terms of the policy document need to be kept under review (s22).
It is common to delegate investment powers and law firms often have links with financial advisers to whom they refer work.

Question 9

If there is an express clause in a will which permits PRs to accept receipt from a minor beneficiary aged 16 or older is it effective?

Answer 9

Yes

Question 10

Can a joint PR act alone

Answer 10

If more than one PR is appointed then, similarly to trustees, they are required to make decisions together and should exercise discretionary powers unanimously

Question 11

Where statutory PR powers and express provisions in a will conflicts what takes priority

Answer 11

The express provisions in the will

Question 12

What can a claim against a PR be based on

Answer 12

Maladministration
Misuse of assets
Negligence
Breach of fiduciary duty

Question 13

What does maladministration include

Answer 13

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

Question 14

What does misuse of assets include

Answer 14

Making personal use of the estate assets

Question 15

What could negligence include in relation to breach of PR duties

Answer 15

Unreasonable delay in carrying out the administration
Failing to invest or making poor investment decisions in breach of the duty of care

Question 16

What could a Breach of fiduciary duty include:

Answer 16

Breach of the no conflict rule
Breach of the no profit rule
Self-dealing

Question 17

Can a PR who fails to carry out their duties properly be removed

Answer 17

Yes - a PR who fails to carry out their duties properly may be effectively removed from the role by:
A court order under s 50 Administration of Justice Act 1950 appointing a replacement
PR
An administration action, where the court would take over the administration itself

Question 18

What can the PRs seek guidance on the court about in order to avoid personal liability

Answer 18

Administration proceedings could take the form of:
an administration action application to have the estate administered by the court.
specific relief, an application for quidance on a particular matter

Question 19

What is an application under s 48 Administration of Justice Act 1985

Answer 19

An application to distribute in accordance with a written legal opinion - avoid personal liability

Question 20

How can PRs prevent liability to unknown/ unidentified beneficiaries and creditors

Answer 20

S27 Trustee Act 1925 - Publish a notice of their intention to distribute to known beneficiaries two months after the date of the advertisement.
The notice must be placed in:
The London Gazette,
A newspaper circulating in the area in which any land held on trust is situated, and
Any other newspaper which iS appropriate e.g. if the deceased owned a business, the relevant trade paper may be appropriate

Section 27 only protects against claims by unknown beneficiaries and creditors.

Question 21

Does s27 trustee act 1925 protect PRs against liability if they distribute assets ignoring the claim of a known but missing beneficiary or creditor

Answer 21

No

Question 22

What is a Benjamin order

Answer 22

In the case of known but missing beneficiaries PRs may seek a Benjamin Order permitting them to distribute the estate on the basis that the missing beneficiaries have died.

Question 23

The common assumption which allows PRs to distribute the estate under the Benjamin order is that the beneficiary has died, can any other assumptions be made

Answer 23

Yes e..g the assumption that the missing beneficiary had no children

Question 24

What must be done before a Benjamin order is awarded

Answer 24

Before an order is awarded the PRs must make full enquiries to attemptto establish the true position (Re Benjamin 1902) and demonstrate there is no reasonable prospect of knowing the true position without disproportionate expense.

Question 25

What is a quicker and easier way to confirm the presumption of death than requesting a Benjamin order if all criteria is met

Answer 25

Application under the Presumption of death act 2013

Question 26

Why may an indemnity from beneficiary’s not be a preferred option from PRs to protect against personal liability

Answer 26

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. As such this may not be a preferred option for the PRs

Question 27

When may a payment into court be appropriate to avoid pr personal liability

Answer 27

a payment into court may be suitable where a beneficiary can be located but is refusing to accept their inheritance

Question 28

An order for exoneration by the court will not be made unless ?

Answer 28

the court considers 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 [S.61 refers to trustees, which includes a PR for these purposes]

Question 29

Can clauses in a will exclude or restrict liability fro PRs wrongdoing

Answer 29

Yes - These clauses may cover a range of scenarios from innocent mistake to gross negligence and may offer different levels of protection to lay and professional PRs.

Question 30

Can PRs liability for fraud be excluded by will

Answer 30

No

Question 31

Where should money collected in be paid Into

Answer 31

• a PR’s bank account (opened specifically to hold estate money and to prevent this being mixed with their personal funds), or • law firm client account. Solicitors’ Accounts rules apply to money held in the firm’s client account and the firm must provide credit interest of a “fair and reasonable” sum.

Question 32

PRs have a duty to pay debts with due diligence what does this mean

Answer 32

this is not defined but creditors should normally be paid before the end of the 'executor's year'.

Question 33

PRs should also pay general administration expenses as and when they arise during the administration - what are examples of expenses

Answer 33

For example: • Cost of valuing the estate assets • Probate fees • S.27 notice costs Professional legal fees for services provided to the estate

Question 34

When is an estate solvent

Answer 34

if the assets are sufficient to pay all the funeral, testamentary and administration expenses, debts and liabilities It is immaterial whether legacies can be paid in full or not.

Question 35

When is an estate insolvent

Answer 35

if the assets are insufficient to pay all the funeral, testamentary and administration expenses, debts and liabilities

Question 36

For which type of estates must the debts be paid in the statutory order in the Administration of Insolvent Estates of Deceased Persons Order 1986.

Answer 36

Insolvent estates - You do not need to know the detail of this statute for this module (aka dont need to know order)

Question 37

What property bears liability for secured debts

Answer 37

Charged property will bear primary liability for payment of the debt secured against it unless a contrary intention is shown in the will (Section 35 AEA).

Question 38

What is the statutory order for paying unsecured debts

Answer 38

• Property not disposed of by a will (i.e.passing by full/partial intestacy) but subject to the retention of £ for any pecuniary legacies – (‘pecuniary legacy fund’) • Residue (subject to retention of ‘pecuniary legacy fund’ if not already done) • Property the will sets aside (or charges with) the repayment of debts • £ in the pecuniary legacy fund (if £ is insufficient, the legacies abate (i.e. are reduced) proportionately according to value) • Property specifically given (e.g. chattels)

Question 39

What is the general principle of marshalling

Answer 39

allows a beneficiary who is disappointed that his inheritance has been reduced (because assets to which he was entitled have been wrongly used to pay a creditor) to compensate himself by going against the property which ought to have been used to pay the debts This means the disappointed beneficiary could claim against the assets inherited by another beneficiary if those assets should have been used to repay the debts.

Question 40

If an assets is transferred directly to a beneficiary will it trigger a CGT charge

Answer 40

No - This is because the transfer from a PR to a beneficiary is not treated as a “disposal” for CGT purposes and the beneficiary inherits the asset at its probate value.

Question 41

Are PRs bound by the beneficiary’s wishes as to which assets are to be sold to pay debts

Answer 41

PRs are not bound to comply with the wishes of a beneficiary but should take these into account when reaching a decision. The PRs have the power to appropriate assets in satisfaction of: - a general legacy - an entitlement to the residuary estate So in simple terms, if a beneficiary wants to receive a particular item as part of their inheritance (and there is no legal objection) the PRs ought to respect these wishes and avoid selling the item where possible.

Question 42

If the PRs do not apply the statutory order of asset disposal to meet unsecured debts what doctrine is available to disappointed beneficiary

Answer 42

Doctrine of Marshalling

Question 43

Are tax liabilities (IT and CGT) estate expenses and payable form the etstate

Answer 43

Yes

Question 44

Why must PRs differentiate between deceased income and gains and the estates income and gains

Answer 44

Because different rates and reliefs apply

Question 45

What is classed as deceaseds income

Answer 45

untaxed income due and paid before death some income paid after death which relates to a period before death. E.g. Rent due on properties the deceased let, but which had not been paid Final dividends declared before death but not paid. Bank interest paid before death is taxed as the deceased's.

Question 46

Is death a disposal for CGT purposes and give rise to a CGT liability?

Answer 46

No - On death, the base cost of assets in the estate is 'up- lifted' to the date of death value. This has the effect of wiping out the gains that have accrued during the deceased's lifetime (sometimes referred to as a "tax free uplift").

Question 47

What is estate income

Answer 47

Income that arises between the date of death and the date the assets are distributed. The estate may receive interest (in respect of bank accounts), dividends (in respect of shares) and rent (in respect of let properties). This income is taxed as estate income in the hands of the PRs.

Question 48

What rate to PRs pay income tax at

Answer 48

PRs pay IT at the basic rate (the % will depend on the type of income. The starting and higher rates do not apply to PRs in the same way they do for individuals.

Question 49

Are PRs entitled to claim an income tax personal allowance

Answer 49

No

Question 50

How is Income generated by the assets after they have been distributed to beneficiaries taxed

Answer 50

As the beneficiary’s income

Question 51

When does the requirement for PRs to pay income tax on etstae income arise

Answer 51

If total income exceeds £500 tax free amount, income tax is payable on the whole amount.

Question 52

Can PRs claim tax free allowance for CGT

Answer 52

Yes (currently £3000)

Question 53

If some assets have made a loss, can the amount of loss be off-set against gains made

Answer 53

Yes

Question 54

Are tangible assets (chattels) exempt from CGT

Answer 54

Yes if the disposal is for a consideration of £6,000 or less

Question 55

What value is the estate gain measured from in relation to CGT

Answer 55

The probate value

Question 56

What is the general order of payment of legacies

Answer 56

1. Specific 2. General 3. Residuary

Question 57

If a will contains a direction as to the order in which assets should be used to pay legacies must the pRs comply with it

Answer 57

Yes

Question 58

What options to PRs have in relation to obtaining receipt for gifts to minors (who can not give good receipt)

Answer 58

By virtue of s 3 Children Act 1989 (where a parent/guardian provides receipt) PRs to hold the gifted property themselves until the child is 18 Appoint trustees to hold the property for the minor (s 42 AEA) and make payment to the trustees Pay the legacy into court (s 63 Trustee Act 1925

Question 59

What are the three usual component parts to estate accounts

Answer 59

Capital Account Income Account Distribution Account

Question 60

What does a capital account set out

Answer 60

Sets out the estate assets and liabilities at death. Records what has happened to each item during the administration, for example, whether assets have been sold or transferred to a beneficiary. Liabilities such as pecuniary/specific legacies and IHT are included, as are any solicitor’s fees for carrying out the administration. The capital account will then show a balance which is available for distribution to the residuary beneficiaries.

Question 61

What does an income account set out

Answer 61

Sets out the income received in relation to the estate assets during the administration and summarises how this was spent Income expenses are then deducted as liabilities The income account will then show a balance which is available for distribution to the residuary beneficiaries If the PRs receive rent from the tenant of an estate property the income would be shown in the income account and any income tax payable on the income would be shown as an income liability.

Question 62

What is shown in the distribution account

Answer 62

The distribution account sets out the residuary beneficiaries’ entitlement. It includes distributions made during the course of the administration of the estate (‘interim distributions’) and the final balance due to be distributed. A is entitled to a ½ share of the residue worth £100,000. During the administration A received interim payments totalling £40,000 so a balance of £60,000 is due to him. Each interim payment and the final balance will be shown on the distribution account.

Question 63

What indicates the end of the administration

Answer 63

Singing the estate accounts

Question 64

If trustees are unwilling to act or it is impossible for the named trustees act will the trust fail

Answer 64

In such cases the trust will not fail. Instead, it will be necessary to appoint alternative trustees. The executors will hold the property on trust until the new trustees are appointed.

Question 65

How can replacement trustees be appointed

Answer 65

Use the trust instrument - are they any express powers to appoint trustees found in the trust instrument Use statutory powers to appoint trustees By the beneficiaries exercising their Saunders v Vautier rights. In the case of charitable trusts, by the Charity Commission. By the court.

Question 66

When can the general statutory power to appoint new trustees in s 36 Trustee Act 1925 be exercised

Answer 66

· On the death of a trustee · If a trustee is abroad for over a year · If an appointed trustee is a minor or otherwise lacks capacity to act · If a trustee wishes to retire, refuses to act or is unfit to act

Question 67

How can exercise the general statutory power to appoint new trustees

Answer 67

This power may be exercised by the persons nominated in the trust instrument to appoint trustees or, if there are no such persons, by the surviving or continuing trustees. If all the trustees have died, the power is exercisable by the personal representatives of the last to die (s18(2) TA 1925).

Question 68

Does the general statutory power apply to replacement and additions?

Answer 68

Yes - S36(1) - replacement of trustees S36(6) - add trusteees - maximum of 4 trustees

Question 69

What are Saunders v Vautier rights

Answer 69

Power to direct the trustees to appoint a new trustee If the beneficiaries of a trust agree they can they can exercise their Saunders v Vautier rights to change the trustees of the trust. This power must be exercised in writing and cannot be exercised in cases where the trust instrument contains an express power to appoint trustees.

Question 70

It is a core principle that equity will not allow a trust to fail for want of a trustee - what can the court do

Answer 70

if a trust would be without a trustee because there is nobody authorised who is able and willing to make the appointment, the court can make the appointment instead. The court’s power to do this is found in s 41(1) TA 1925.

Question 71

What principles will the court consider when exercising its power to appoint a trustees

Answer 71

· The court should consider the wishes of the settlor or testator (if such wishes are expressed or evidenced in the trust instrument) · The court should not appoint a trustee where there a dispute between the beneficiaries as to whether that person would be appropriate. · The court should consider whether the appointment will promote or impede the trust administration. This means the court should take into account the views of the existing trustees, but must consider whether those views are reasonable.

Question 72

When else will the court get involved Appointmnet or trustees

Answer 72

When there is a dispute between trustees as to a new Appointmnet - need for unanimity in divisions making

Question 73

Does the courts statutory power to appoint trustees under s 41 TA 1925 also extend to the removal of trustees.

Answer 73

Yes

Question 74

How can a trustee voluntarily retire

Answer 74

By deed where there are at least two people or one trust corporation to act as trustees and the co-trustees and any person with a power to appoint trustees consents: s 39(1) TA 1925.

Question 75

Can beneficiaries compel a trustees to retire

Answer 75

Yes - In addition to having a power under s 19 TLATA to appoint trustees, beneficiaries with Saunders v Vautier rights also have the power to compel a trustee to retire from the trust. The direction must be made in writing and requires the agreement of all beneficiaries.

Question 76

What is the statutory power of maintenance

Answer 76

allows trustees to pay trust income (including any previously accumulated income) for the 'maintenance, education or benefit' of minor beneficiaries.

Question 77

When can the statutory power of maintenance be used

Answer 77

for the benefit of minor beneficiaries with vested or contingent interests in the capital (as long as no other beneficiary has a prior interest in the income.)

Question 78

Is maintenance, education and benefit narrowly defined

Answer 78

No - This gives the trustees a very broad discretion in respect of the trust income.

Question 79

Who should the income be paid to under the statutory power of mainatnce

Answer 79

The trustees should not pay the income directly to a minor beneficiary as a minor cannot give good receipt. It should be paid either to the child's parent or legal guardian or directly to the provider of the goods or services that are being acquired on behalf of the beneficiary (eg the trustees could pay school fees directly to the school).

Question 80

What is good practice for trustees in relation to the statutory power of mainatnce

Answer 80

The power can no longer be used once the beneficiary reaches 18, meaning any previously accumulated income which has not been paid out using the power of maintenance must be added to the capital. It is therefore good practice for trustees to consider exercising the power shortly before a minor beneficiary turns 18

Question 81

What is the statutory power of advancement

Answer 81

Section 32 TA 1925 gives trustees the power to use capital for the 'advancement or benefit' of a beneficiary before the beneficiary becomes absolutely entitled to the property.

Question 82

When is the statutory power of advancement available

Answer 82

May be used by both adult and minor beneficiaries. Applies to both vested and contingent interests. Can be modified or excluded by the trust instrument: s 69(2) TA 1925

Question 83

How much capital can be paid under the statutory power of advancement

Answer 83

The trustees may use the power of advancement to pay up to 100% of a beneficiary's prospective entitlement to the capital (even if they have a contingent interest).

Question 84

What does bringing the payment into account mean

Answer 84

The trustees may use the power of advancement to pay up to 100% of a beneficiary's beneficial entitlement. Any such payment must be brought into account when the beneficiary becomes absolutely entitled. In other words, the amount that the beneficiary will receive when their interest vests will be reduced proportionately to reflect the proportion of the capital that they received early.

Question 85

What are the consequences of an advancement being treated as a proportionate share

Answer 85

Could risks beneficiary no longer being entitled to anything from the trust fund, regardless of how much the fund is worth when Enfield absolutely

Question 86

If the advancement is paid to the beneficiary (or their parent or guardian), what obligation is placed on the trustees

Answer 86

The trustees must check that the payment has been used for the correct purpose.

Question 87

If the advancement is paid to the beneficiary (or their parent or guardian), what obligation is placed on the trustees

Answer 87

The trustees must check that the payment has been used for the correct purpose.