Chapter 5: Administration (Pre-Grant) Flashcards
Introduction to Administration
Administration
When a person dies the legal process for managing the distribution of their estate, paying debts, taxes and other estate expenses, and making payments to beneficiaries is referred to as administration.
The people permitted by law to administer a deceased’s estate are the personal representatives (‘PRs’)
A PR appointed by a person’s will is called an executor
A PR appointed by operation of statute is called an administrator.
You will also come across the female forms ‘executrix’ / ‘administratrix’.
The court order confirming the authority of the PRs to act (in particular, their right to collect in the deceased’s assets and distribute the estate) is the grant of representation (the ‘grant’)
What is a grant of representation?
The grant is an order of the High Court. It is necessary because it establishes the:
- authority of the PRs to act (in particular, their right to collect assets and distribute the estate); and
- validity of the deceased’s will, or, that the deceased died intestate.
The PRs will not usually be able to collect or realise assets in the estate without producing the appropriate grant.
The power conferred by the grant is limited to the assets passing under the will or intestacy i.e. the succession estate. While the PRs may advise on practical steps to follow regarding assets passing outside the succession estate (e.g. joint tenant property) the PRs have no legal authority to deal with these assets.
What is a grant of representation?
Executors (PR appointed by will) derive authority from the will and, therefore, they may act from death. The grant confirms this authority.
Administrators (PR appointed by operation of statute) derive authority from the grant. They have no authority to act until the grant is issued.
Even though executors have a legal right to administer an estate without a grant it would not usually be practical to attempt this as most asset holders require sight of the grant before paying over funds to the executors.
Obtaining the grant of representation is therefore a priority for all PRs and this should be done as quickly as it is practical to do so.
- The role of a PR, their powers, duties and liabilities
The elements in this part of the module consider the: - role of a PR - the powers a PR has to carry out the administration and the source of those powers - legal and fiduciary duties of a PR - personal liability of a PR - protection a PR maybe afforded
- Grants of Representation
The elements in this part of the module consider the: - nature of a grant and why one is required - three main different types of grant and when each would be used - assets which may be distributed without a grant
- Applying for a Grant
The elements in this part of the module consider: - Initial steps taken following death - Who will be appointed as PR - Options for those who do not wish to act as PR - Non-Contentious Probate Rules - Reporting to HMRC and paying IHT - Completing the application
- Post Grant Practice
The elements in this part of the module consider: -The collection of the deceased’s assets - The payment of the deceased’s debts -Estate tax liabilities -Beneficiary tax liabilities -Making distributions -Preparation of Estate Accounts
The elements which explain pre and post grant practice will guide you through the administration process in a logical order.
However, you should be aware that in practice many of these steps will be carried out in parallel to ensure that the administration proceeds quickly.
Where the specific order is important, or obtaining the grant is a pre-requisite, this will be made clear.
Summary
Estate administration is the process of collecting in the deceased’s assets, paying debts and liabilities and distributing the remaining assets in accordance with the deceased’s will or the intestacy rules.
Many of the steps in an administration can be carried out simultaneously, although in this module we look at each particular step in turn.
The PRs carry out the administration process. A PR appointed by will is an executor and a PR appointed by statute is an administrator.
The grant of representation, commonly referred to as the grant, is a court order conferring authority on the PRs to carry out the administration.
The grant establishes the PRs right to deal with the succession estate assets.
Administration: Introduction to the role of a PR
What is the role of a PR?
s.25 Administration of Estates Act 1925 (AEA) a PR must ‘collect and get in the real and personal estate of the deceased and administer it according to law’
The role of the PR is to administer the estate of a deceased. This involves collecting in the deceased’s assets, ensuring the deceased’s debts are paid, meeting tax liabilities and other estate expenses and then distributing the assets to the beneficiaries who are entitled (either under a will or intestacy).
What is the role of a PR?
A PR may (but will not always be) a beneficiary of the estate.
The role of a PR is fiduciary in nature. All duties of a PR must be performed in accordance with their duty of care. What amounts to ‘due diligence’ will depend upon the circumstances and complexity of the estate.
To act as a PR a person must be appointed either by the deceased’s will or by operation of statutory rules – the Non-Contentious Probate Rules 1987 (‘NCPR’).
A PR appointed by will is referred to as an executor. An executor’s authority to act derives from the will itself and the grant of representation acts as confirmation.
What is the role of a PR?
Where there is a will, but no executor appointed who is willing or able to act, or where the deceased died intestate, a PR will be appointed under the NCPR and is referred to as an administrator. An administrator’s authority to act derives from the grant.
Legal title to the estate lies with the PRs by virtue of their appointment. However, PRs may decide to formally transfer the deceased’s assets into their own name before distributing them to beneficiaries.
The grant is confirmation of their authority to deal with the deceased’s assets.
While some assets may be administered without a grant, some institutions may be unwilling to release funds from the deceased’s account into the hands of the PRs without seeing the grant.
The land registry will require a grant before transferring legal title to land into the name of the PRs.
Are PRs also trustees of the estate?
A PR is not automatically the ‘trustee’ of the estate being administered, although the role of PR and role of trustee are similar, and both are fiduciary in nature. When the estate administration is complete the role of the PR ends (although their duties may continue).
If any continuing trusts are created, the property which makes up the trust fund should be transferred to the trustees as part of the administration process. 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.
However, a PR will be a trustee of some/all of the estate property where:
The will expressly appoints executors to act in capacity of trustee of any trust arising.
There is an intestacy; the PRs hold the estate generally “on trust with a power to sell” (s.33 AEA)
A statutory trust arises under an intestacy; the PRs will be the trustees of that trust on behalf of the minor beneficiary (s.46 AEA).
Are PRs also trustees of the estate?
Irrespective of whether a PR is formally acting in the role of trustee, many of the statutory powers and duties of a trustee that you will study, including the statutory duty of care, apply equally to PRs.
s.68 Trustee Act 1925: “the expressions “trust” and “trustee” extend to ….. the duties incident to the office of a personal representative, and “trustee” where the context admits, includes a personal representative”.
s.35(1) Trustee Act 2000: “this Act applies in relation to a personal representative administering an estate according to the law as it applies to a trustee carrying out a trust for beneficiaries.”
In this context, the ‘will’ would be a trust instrument and those entitled under the will or intestacy would be the beneficiaries.
The role of the solicitor
There are three broad ways in which a solicitor may become involved in the administration of an estate:
The solicitor has been instructed by the PRs for advice on the administration.
The solicitor has been appointed as executor under the deceased’s will.
The solicitor has been instructed to act on behalf of a party to a contentious probate matter.
The solicitor’s duties, and level of involvement in the administration, depend on the capacity in which they are acting.
Instructed by the PRs
A solicitor may be instructed by lay PRs if the PRs are unable to carry out the administration due to e.g. time constraints or a lack of technical knowledge or confidence to administer the estate without professional help. Ideally, a solicitor would be involved from the start but it is not unusual to be instructed part way through the administration where PRs have met with unexpected difficulties and sought assistance at this point. In this case the solicitor should check the earlier steps have been completed correctly.
Instructed by the PRs
If a firm is instructed by PRs the firm’s client is the PR not the beneficiaries. The solicitor must act on the PR’s instructions, not those of the beneficiaries. The solicitor should check the identity of the PRs when a file is opened in the usual manner for any new client. The cost of providing legal advice is an administration expense and the legal fees may be paid using the estate assets rather than the PR’s personal funds. Where the solicitor is advising PRs most formal documentation required for the administration will be signed by the clients even if it prepared/drafted by the solicitor.
Appointment of Executor by Will
A solicitor can be appointed as an executor by a will.
If a solicitor acts as executor they will be a professional PR and their duties are owed to the estate creditors and beneficiaries.
The testator may have appointed a firm (either an LLP or the firm’s trust corporation) or one or more of a firm’s partners. Solicitors may act alone or in conjunction with another executor (often a family member). The solicitor will charge the estate for their services.
Sufficient Information
A testator planning to appoint a professional executor should be given sufficient information to make an informed decision about the appointment and related costs (though if lay executors are named they may choose to instruct solicitors to assist and the costs are payable from the estate). Where the estate is complex or there are family disputes then appointing a professional executor may be in the client’s best interests.
Contentious Matters
A solicitor may find themselves involved in matters of contentious probate work.
For example:
the terms of the will or the validity of the will is challenged
a disappointed beneficiary wants to make a claim under the Inheritance (Provision for Family and Dependants) Act 1975
A solicitor may be acting for the estate PRs or beneficiaries to either bring or defend a claim and the solicitor owes a duty to their client in the usual way.
While the solicitor will not be involved in carrying out the administration they will require knowledge of the administration process and the obligations of the PRs in order to advise their client.
Summary
The role of a PR is to administer the estate of a deceased.
The administration process requires the PRs to collect in the deceased’s assets, pay the deceased’s debts and the estate expenses and then distribute the estate funds to the correct beneficiaries (who are entitled under the will or intestacy).
The role of PR is fiduciary in nature.
A PR may also act in the capacity of a trustee of any trust arising following the deceased’s death.
Many of the statutory duties and powers that apply to trustees under the Trustee Act 1925 / 2000 apply equally to PRs.
A testator may appoint a solicitor or firm to act as executor under their will.
Where lay executors are appointed under a will, or administrators are appointed under an intestacy, the PRs may instruct solicitors to assist them.
Solicitors may be instructed to assist with contentious probate matters.
Administration: Requirement for a grant & types
Grant of Representation
The grant of representation is a court order confirming the authority of those named in it to administer the estate. ‘Grant’ is a generic term for any grant of representation. This element considers the following three main kinds of grant:
Grant of probate Grant of letters of administration (with will) Grant of letters of administration
You will note that the grant confirms the:
- Identity and date of death of the deceased * Deceased left a valid will * Identity of the executors appointed * Value of the estate to which the grant applies (the succession estate)
An official signature, stamp and holographic seal are added.
Requirement for a grant
When a person dies it is necessary for someone to administer their estate. The person with the legal right to carry out the administration is the PR.
Some assets can be dealt with without a grant but unless the estate contains only these assets a grant is needed. This element focuses on estates where a grant is required.
To comply with their duty to collect in and administer the deceased’s estate, the PR will usually need to provide evidence of their appointment.