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.
Requirement for a grant
The grant of representation provides prove of the PRs authority to act and is therefore required.
The authority of the grant only extends to the assets which actually vest in the PRs - i.e. succession estate.
Legally, the succession estate vests in the hands of an executor from death but does not vest in the hands of an administrator until their appointment is confirmed by the grant.
Grant of Probate
The grant of probate is required for estates where: * The deceased left a valid will * The will appoints executors * At least one of the executors appointed is going to act
The grant of probate is issued in the name(s) of those executors who apply.
A grant of probate is required even if the will does not dispose of any/all of the deceased’s property.
For example, the whole or part of the estate is left to a pre-deceased family member by will and no substitution provisions apply.
Grant of Probate
If the appointment of an executor under the will is limited e.g. to specific assets, jurisdiction or by time, then this will be reflected in the authority conferred by the grant.
Only those named may take out the grant and they cannot simply give that right to someone else. However, a named executor may formally appoint someone to act on their behalf under a power of attorney.
Grant of Letters of Administration (with will)
A grant of letters of Administration (with will) is the appropriate grant where: * the deceased left a valid will * but the will appoints no executors who are willing/able to act.
This is the correct grant even if the will fails to dispose of all the estate.
Administrators are appointed under the Non-Contentious Probate Rules 1987 (‘NCPR’). Rule 20 applies and lists, in order of priority, those entitled to apply for the grant.
Grant of Letters of Administration
A grant of Letters of Administration is the appropriate grant where the deceased died without having made a valid will (i.e. died intestate).
This may be because they did not make a will at all, had revoked a will they did make, or the will they made is invalid.
Administrators are appointed under NCPR 22 which lists, in order of priority, those entitled to apply for the grant.
Summary
- A grant of representation is required to confirm the authority of the PRs to administer a deceased person’s succession estate assets.
- An executor’s authority to act derives from will and is confirmed by the grant.
- An administrator’s authority to act derives from their appointment under the grant.
- A grant of probate is the correct grant where the deceased left a valid will that appoints executors, at least one of whom is going to act.
- The executors in the will who make the application are named on the grant.
- A grant of letters of administration with will is the correct grant where the deceased left a valid will but no executors are acting. Administrators are appointed under Rule 20 NCPR. A grant of letters of administration is the correct grant where the deceased died intestate. Administrators are appointed under Rule 22 NCPR.
Assets without a grant
The PRs will usually need a grant of representation to confirm their authority to collect in, realise and distribute the deceased’s assets.
However, no grant is required to deal with assets that fall outside of the succession estate, and there are exceptions for assets that do fall within the succession estate.
This element will focus on the administration of assets for which a grant is not required.
Where the following assets are included in the succession estate, no grant is required for the PRs to deal with them: * Assets which can be distributed under the Administration of Estates (Small Payments) Act 1965 * Personal household possessions * Cash
Administration of Estates (Small Payments) Act 1965
Orders made under this Act permit payments to be made to persons who appear to be beneficially entitled to the assets without formal proof of title. There is a restricted category of assets to which the Act applies. * National Savings (inc. Bank accounts, Savings Certificates and Premium Bonds) * Friendly Society and Industrial and Provident Society deposit accounts. * Arrears of salary and wages * Pensions where the deceased was a member of the police, fire authority, air force or army. * Building society accounts
Upper Financial Limit
There is an upper financial limit of £5,000 per asset. If the value of the asset is greater than £5,000 a grant is required to establish title to the whole sum, not just that in excess of £5,000. The provisions only make payments permissible, they do not compel those holding the assets to do so.
Evidential Requirements
In practice, these statutory provisions are rarely required because most banks and financial institutions adopt their own policy and will release sums (commonly up to £15,000 but sometimes larger amounts) without sight of the grant.
Each institution will have its own evidential requirements before closing an account. Most will require sight of the death certificate and will (or confirmation of entitlement under intestacy) as evidence that the recipient is entitled to the money. The PRs may also be expected to sign an undertaking confirming their right to administer and give an indemnity to the bank in the event the payment is made to the wrong person.
Example
Example: An estate incudes a * Building Society account worth £60,000 * Premium Bonds worth £2,000 * High street bank current account worth £10,000
Building Society Account: A grant is required because the value is greater than the statutory limit under the Act.
Premium Bonds: The Act would apply and these could be administered without a grant.
Current Account: although technically not subject to the Small Payments Act, the bank, following its own polices, may agree to close the account without sight of the grant.
Personal possessions & cash
Title to personal household possessions passes by delivery and proof of ownership is not required when they are sold (with the exception of cars where registration documents are needed).
Therefore, PRs are normally able to dispose of chattels without having to produce formal proof of their authority.
This applies where items were owned solely by the deceased. If there was a joint owner they would need to consent before the PRs could effect a sale.
Personal possessions and cash
Before any items are sold PRs should check whether any particular items were gifted specifically by the deceased’s will.
A PR does not need a grant to take possession of cash found at the deceased’s home.
Property that does not devolve on PRs
Assets which pass outside of the succession estate (in other words, cannot pass by a will or intestacy) do not require a grant in order for them to be released.
The death certificate, together with any other documentation the asset holder requires, will be sufficient to release the following assets:
The following slide is a reminder of the items passing outside of the succession estate and process for dealing with these following death:
Property owned as joint tenants
Property owned as joint tenants (commonly land and bank accounts) On the death of one owner the property passes automatically to the survivor under the rules of survivorship and this does not rely on the issue of a grant. The land registry / bank will transfer title into the name of the surviving owner.
DMC
Donationes mortis causa (DMC) Here the deceased would have transferred ownership or control of the asset to the beneficiary during their lifetime.
Life Policy
Life policies written in trust, discretionary pension lump sums nominated for a third party, and other nominated assets. On production of the death certificate these funds would be payable to the named beneficiary.
Assets held in trust
Assets held in a trust in which the deceased had an interest The trustee should be notified of the death. The trust deed will determine what happens to the trust fund (if anything) following the death of a beneficiary.
Practical Considerations
Practical Considerations There are advantages to having some assets within an estate that can be administered without a grant: * releases money which can be made available to beneficiaries without waiting for the grant or administration to be completed * provides a source of funds to meet expenses, including IHT * if the estate is small or comprises only assets which do not require a grant, it can be a cost-effective way to carry out the administration
Practical Considerations
Note that unless an estate comprises only assets where a grant is not required the PRs will need to obtain a grant of representation.
Once a grant is required, it is usually simpler to administer the whole estate with reference to the grant, rather than try and administer some assets without it, even if in principle that might be possible.
Summary
- A grant is usually required to enable PRs to administer the estate assets. However, some assets can be dealt with without a grant.
- Some accounts worth up to £5,000 can be released without a grant (but do not have to be) under the Administration of Estates (Small Payments) Act 1965. More generally, many other banks and financial institutions will release sums up to £15,000 (sometimes more) without sight of a grant and in accordance with their own policies.
- Household possessions and cash in the home can be dealt with without proof of title so a grant is not required
- Assets passing outside of the succession estate do not require a grant because these items do not devolve on the PRs.
Administration: Preliminary Steps
Pre-Grant Steps
This element will focus on some of the preliminary pre-grant steps. PRs will not necessarily be involved in all of these and some would usually be carried out by relatives.
Solicitors are more likely to advise on the technical, legal rules relating to the administration rather than the early practical steps.
While these steps appear as ‘a list’ there is no strict chronological order and many of the steps will take place simultaneously.
Death Certificate/Funeral
PRs may register a death but it is more likely to be done by the family who then provide the PRs with the death certificate. The death must be registered before a funeral can take place.
PRs need official copies of the death certificate to send to institutions where the deceased held assets e.g. banks / building societies/ insurance companies.
Government organisations such as HMRC / DVLA / DWP can be notified of the death via a centralised service when registering the death – if the service is not used PRs should notify each institution individually.
It is useful for a solicitor to keep a copy death certificate on file as it confirms the deceased’s name, date of death, birth, and other key information.
Death Certificate/Funeral
Family members usually arrange the funeral but PRs (or instructed solicitors) may do this if necessary.
There is a moral, rather than legal, obligation to follow funeral wishes set out in a will. The will should be checked for specific instructions e.g. did the deceased request burial or cremation, should a particular religious ceremony be followed, or may the body be used for medical purposes?
The cost of a funeral is a post-death administration expense payable from the estate funds (s.34(3) Administration of Estates Act 1925) and may be taken into account when calculating inheritance tax (‘IHT’).
The deceased may have taken out insurance to pay for their funeral or purchased a pre-paid funeral plan during their lifetime (where funeral arrangements are made and paid for before death).
Secure the estate’s assets
The PRs have a duty to preserve the value of the estate and may be personally liable to account for loss or damage to the estate assets.
The PRs should take steps to ensure valuable items and documents are kept safe. If a property is left vacant it should be secured and the insurers notified. If a vehicle will be left unattended and off road, the insurers and the DVLA should be notified.
The PRs should consider the security of any digital assets and the possible closure of social media accounts.
Locate Will / Codicil
At the start of the administration process the PRs should obtain the original will and any codicils.
A copy will not suffice for the purposes of obtaining a grant unless special permission has been obtained from the Probate Registry. The PRs should satisfy themselves that the will is valid, e.g. it was correctly executed and witnessed. A check for obvious failings with the drafting process such as common drafting errors or missing clauses should be carried out. If any documents have been incorporated into the will these should be obtained too.
Any codicil to the will should be reviewed in the same manner as the will. The solicitor should ensure that the codicil is drafted in a way that makes logical sense when read together with the will.
Locate Will/Codicil
Essentially, the PRs should be aware as early as possible of any potential problems so that steps can be taken immediately to rectify the situation.
If it appears that the deceased died intestate (without having made a will) the PRs should make enquiries to confirm this before proceeding with the administration. If there is evidence a will was made, but it cannot be located, the PRs will need to find out what happened. Was it revoked or is it merely lost? If a valid will has been lost appropriate steps must be taken to re-construct it.
Commercial Search Organisations
There are commercial organisations which charge a fee for operating a search service against a national wills register. It is entirely optional to register a will on the national register.
While only the executors appointed in a will are legally entitled to see it before a grant is obtained, once the grant is issued the will is a public document.
Basis of distribution
The will plus any codicils should be read in full and the beneficiaries identified. If there is no will, the intestacy rules determine who benefits. Those entitled should be informed.
The PRs should provide the beneficiaries with a realistic timescale for distribution of the estate.
The administration process often takes longer (months rather than weeks) than some beneficiaries expect and it is best to manage expectations from the start.
Schedule of Assets and Liabilities
The PRs need to compile an accurate list of the deceased’s assets and liabilities to: * Identify and value the estate assets * Identify the deceased’s creditors (to whom the PRs owe a duty as well as the beneficiaries) * Work out what steps are required to manage the distribution of the assets * Calculate the IHT due (this is done with reference to the date of death values) * Establish whether the estate is solvent * Estimate what each beneficiary is entitled to
It is not possible to obtain the grant or calculate the IHT without this information.
Creating a complete list is not always straight forward or 100% accurate. A PR relies on family members to provide information about the deceased’s assets and organisations to contact where the deceased may have had dealings.
Schedule of Assets and Liabilities
It is not uncommon to start the administration with a theoretically complete list only to discover new assets later on that no one knew about.
If there are no family members a PR may need to search the deceased’s home for evidence of what they owned e.g. for bank statements or insurance policy documents.
Once a schedule of assets and liabilities has been prepared the PRs should contact any appropriate organisation to:
- notify them of the death and provide a copy death certificate (if this has not already been done) - request confirmation of the value of the asset at the date of death - request instructions for how to close an account / transfer ownership of the items to the PRs
To establish the value of the following commonly held assets:
Bank accounts: PRs should request from the bank a summary of the account balance on the date of death plus any accrued interest.
Joint accounts: PRs must establish what proportion of the bank account was owned by the deceased. 50/50 is often presumed but enquiries should be made to ensure that an alternative arrangement had not been made. For example, a parent and child may hold a joint account to allow the child to easily manage their parent’s finances – but the £ in the account may belong entirely to the parent.
To establish the value of the commonly held assets:
Low value chattels: It is usually acceptable to estimate their value. The probate value (what they would fetch if sold) will normally be lower than their value for insurance purposes (replacement cost). Single items worth more than £500 (or unusual items): a formal probate valuation should be obtained. Many commercial organisations specialise in this and the costs are payable from estate funds.
Quoted shares: If the deceased owned quoted shares there are special rules for establishing the date of death value linked to the stock exchange prices on that date. They are valued by taking the lower of the two prices on the Stock Exchange Daily List and adding one-quarter of the difference between the higher and the lower value.
Example
A man died yesterday. He held 2,000 shares in Blue Bottle plc. On the date of his death, the Daily List gave the following high and low value for Blue Bottle plc shares:
High: 550p
Low: 546p
The shares are valued by adding one-quarter of the difference (1p) to the low value i.e. 546p + 1p. Each share is worth 547p at date of death.
To establish the value of commonly held assets
Private co shares / partnership interests / sole trader business: the valuation process is more complex and a specialist valuer would usually be instructed. If the deceased held shares or other financial investments through a financial services company the broker will provide a list of shareholdings /investments and the date of death values.
Land: PRs will usually instruct estate agents to prepare a valuation. Commonly more than one estate agent is instructed and the average value is used. This helps avoid queries from HMRC later regarding the values for tax purposes. Where land is owned jointly the value of the deceased’s share should be established. A PR may need to view the land registry official copies to establish the basis on which joint property was owned (joint tenants or tenants in common) and the identity of the co-owner(s).
Debts
The PRs need to collect details of the debts owed by the deceased at death. These debts continue against the estate following death and the PRs stand in the position of the deceased and must make repayment. Often there will be evidence in the form of credit card statements and loan documents. When utility and phone companies are notified of the death they will provide a summary of amounts due to be paid (or refunded) at the date of death.
There are also steps PRs should take to locate possible creditors who exist but are not known to the family or PRs. This notice procedure is considered as a post-grant step.
Debts
Debts owed by the deceased should be repaid by the PRs. Usually the amount of the deceased’s debts are taken into account when calculating IHT (i.e. the value of the debt reduces the value of the estate for IHT purposes). However, this will not be possible in the situations stated below and the PRs should therefore make the necessary enquires to satisfy themselves of the nature of the decLeased’s debts as well as the amounts due in case one of following applies: * the deceased had borrowed money to finance the purchase of an IHT excluded asset. * a debt owed by the deceased is never actually repaid from the estate funds.
Lifetime Transfers
Lifetime transfers The value of lifetime transfers made by the deceased in the 7 years before their death will have an impact on the IHT due following their death, and if large transfers have been made, there may be a tax charge in addition to the tax due in respect of the death estate assets. It is therefore important for the PRs to ask questions of the family to establish: o The nature of any transfer o Date it was made o Amount or value o Identity of the donee
Summary
- The first “half” of the administration involves steps required to enable the PRs to apply for a grant of representation.
- Family members will usually register the death, arrange the funeral.
- The PRs must locate the original will (and any codicils) to identify the beneficiaries. If there is no will the intestacy rules will form the basis of the estate distribution.
- It is important that the PRs identify any potential problems with the will or codicil before making the application for a grant of representation.
- The PRs must compile a complete list of the deceased’s assets and liabilities as at the date of death and their lifetime transfers. Each institution the deceased had dealings with should be notified of the death. * When valuing estate assets the PRs should be aware of any particular rules that apply and should record the value of the deceased’s share of any jointly owned assets.
Entitlement to the Grant (Executors)
Authority to Act An executor is a PR appointed by will. An administrator is a PR appointed under the Non-Contentious Probates Rules 1987 (‘NCPR’). Executors are appointed by will and their authority to act derives from the wil
Grant of Probate
Grant of Probate The type of grant required for an estate depends on whether the deceased left a valid will, and whether any executor appointed under the will is going to act as PR.
- Grant of Probate: This grant will be needed if the deceased left a valid will which appoints executors who are going to act. This element considers the appointment of executors.
- Letters of Administration (with will) and Letters of Administration: these grants are relevant where an administrator will be appointed and are not considered further in this element.
Entitlement to grant of probate
The entitlement to act as executor derives from the appointment under the will. Only those named may take out the grant and they cannot simply give that right to someone else. However, a named executor may formally appoint someone to act on their behalf under a power of attorney.
If the appointment of an executor under the will is limited e.g. to specific assets, jurisdiction or by time, then this will be reflected in the authority conferred by the grant.
Capacity to Act
An executor named in a will is unable to act as PR if they:
- pre-deceased the testator (or survived but died before taking out the grant). The will may expressly appoint a substitute executor to act in their place.
- are a minor. Although a minor cannot act as PR, their appointment by will is valid. Power can be reserved to the minor who, on reaching the age of 18, can make an application later if the administration remains incomplete.
- lack capacity
- are the testator’s former spouse/civil partner and the divorce/dissolution took place after the will was made. By s.18A/C Wills Act 1837 the former spouse/civil partner is treated as having pre-deceased the testator and therefore cannot be appointed (unless the will expressly overrides the effect of s.18A/C).
Number of executors
Only one executor is required, but for practical reasons it is common for at least two to be appointed.
If more than one executor is appointed, but not all of them will apply for the grant of probate, e.g. if one of them has pre-deceased, the remaining executor(s) may continue with the application. However, they will need to explain to the probate registry why not all of those named are applying e.g. by providing a copy of the death certificate.
The testator may appoint as many executors as he likes in the will but a maximum of four people can be named on the grant. If more than four are appointed in the will they must decide who is to take out the grant.
Power can be reserved to any remaining executors, which means they would be able to apply at a later date if vacancy arose and the administration remained incomplete. In this case, they would apply for a grant of double probate.
Example of appointing executors
For both scenarios below assume the named executors survive the testator and are willing and able to act. Explain who will apply for the grant of probate:
“I appoint my siblings Anna, Bella, Chris, David and Ellie jointly to be the executors of my will”
The grant can only be issued to four of the five executors named. They can decide which of them this will be. The 5th person could have power reserved to them and if a vacancy arises later they can apply for a grant of double probate to act alongside the others.
“I appoint my siblings Anna, Bella, Chris and David jointly to be the executors of my will but in any of them shall die before me or fail to be appointed for any reason I appoint my sister Ellie to fill any vacancy.”
The grant can be issued to the four executors appointed by the will. Ellie will not be involved. She cannot have power reserved to her as she was not appointed in the first place. However, if any of those originally appointed had died before the testator or were otherwise not appointed, she could have applied as a substitute.
Number of executors
Death of a proving PR What happens if a grant has been taken out and one of the PRs appointed dies before the administration is complete?
At least one PR remains: If more than one PR was appointed, following the death of one of them, the remaining PRs may continue with the administration. If, following the death, the number of PRs falls below the minimum needed an additional PR can be appointed.
If no PR remains: Following the death of the sole/last surviving PR, what happens depends on the estate being administered. Either: * Chain of representation applies, or * Grant of letters of administration de bonis non is issued
Chain of Representation
The chain of representation will apply if the last surviving executor (E1) dies having appointed an executor of their own estate and this person takes out the grant probate for E1’s estate (E2). S.7 AEA 1925 provides that E2 automatically becomes executor of the original testator’s estate as well as being executor for E1’s estate. No additional grant is required.
S.7 does not operate where administrators are acting.
If the chain of representation cannot operate a second grant will be issued - a grant of letters of administration de bonis non.
Three requirements must be satisfied: * the administration is incomplete; * there are no remaining personal representatives; and * there has been a previous grant of representation
Example
Example: A testator (T) dies leaving a will in which he appoints his civil partner (CP) as his sole executor. CP takes out a grant of probate for T’s estate but subsequently dies before completing the administration. CP made a will appointing his daughter (D) as his sole executrix.
Who will administer T’s estate?
T’s sole executor (CP) has died, appointing their own executor (D). If D takes out the grant of probate for CP’s estate the chain of representation is complete and D can complete the administration of T’s estate.
No additional grant is required. The grant of probate issued to D for CP’s estate is sufficient together with the grant of probate issued to CP in T’s estate.
Summary
Summary
* An executor derives their authority to act from the will
* Any adult with capacity may be appointed and act as executor
* A minimum of one executor is required and a maximum of four can be named on the grand of probate
* If an executor named in the will cannot act, the remaining executors (providing there is at least one) may still apply
* If a PR dies after having taken out a grant the remaining PRs may continue with the administration. If a sole surviving executor dies before the administration is compete, either s.7 AEA or a grant de bonis non apply
Administration: Entitlement to the grant (Administrators)
Entitlement to the Grant (Administrators)
PR authority to act An executor is a PR appointed by will. An administrator is a PR appointed under the Non-Contentious Probates Rules 1987 (‘NCPR’). Their authority to act derives from the grant. This element focuses on the appointment of administrators.
Grants of Representation Grant of Probate: This grant will be needed if the deceased left a valid will which appoints executors who are going to act and is not considered further in this element.
Grant of letters of administration (with will) and Grant of letters of administration: These grants are relevant where no executors can be appointed. This element focuses on the appointment of administrators under these grants.
Grant of Letters of Administration (with will)
Letters of Administration (with will) is the appropriate grant where the deceased left a valid will but there are no executors who are willing/able to act. This is the correct grant even if the will fails to dispose of all the estate (i.e. full or partial intestacy).
Administrators (not executors) are appointed.
Their entitlement to apply derives from Rule 20 Non-Contentious Probate Rules 1987 (‘NCPR’) not the will.
Rule 20 lists, in order of priority, those entitled to make an application for the grant. The order in
Rule 20 broadly follows the entitlement to the estate assets
NCPR 20
NCPR 20 The statutory order of entitlement to be appointed as administrator under a grant of letters of administration (with will) is shown below: Legislation: NCPR 20 a) executor; b) trustee of the residuary estate; c) any residuary beneficiary (whether taking absolutely or for life), or, where there is a partial intestacy, a beneficiary of the estate under intestacy; d) the PRs of anyone in (c) other than a trustee or life tenant of the residue; e) any other beneficiary or a creditor; f) PRs of anyone in (e).
Entitlement to grant
Entitlement to the grant correlates with the distribution of the estate under the will, not the applicant’s familial relationship with the deceased.
A person in one category cannot apply if anyone in a higher category is able and willing to act as administrator.
- A trustee of the residue (b) cannot apply if there is an executor (a) willing and able to act.
- A residuary beneficiary (c) cannot apply if there is either an executor (a) or trustee of the residue (b) willing and able to act.
Those within the same category have an equal right to apply (though a beneficiary with a vested interest is preferred over one with a contingent interest).
Three residuary beneficiaries
- If there are three residuary beneficiaries (c) [and no executor (a) or trustee of the residuary estate (b)] all three beneficiaries have an equal right to apply.
The applicant(s) must explain why anyone with a better right to apply is not doing so (known as “clearing off”). Applicants do not need to explain why a person in the same category i.e. with an equal entitlement is not making the application.
Two residuary beneficiaries
If one of two residuary beneficiaries (c) applies for the grant, the applicant must “clear off” (b) by e.g. confirming no trustee of residue is appointed, and (a) by e.g. confirming the sole appointed executor has pre-deceased. But the applicant is not required to “clear off” anyone in (c), i.e. explain why the other residuary beneficiary is not applying.
Example 1
Example 1 The deceased left a valid will that appoints their spouse as executor. The residue of the estate is left on trust for their adult children. The deceased’s brothers are appointed as the trustees. The deceased’s spouse has pre-deceased.
Who will apply for the grant? Under what authority? * Check: Does NCPR 20 apply? Yes, the deceased left a valid will but because their spouse pre-deceased the will does not appoint an executor who can act.
- So who will apply? Either or both of the brothers could apply as residuary estate trustees under NCPR 20(1) (b) (not in their capacity as the deceased’s siblings). The brothers would have an equal right to apply and will need to “clear off” the deceased’s spouse.
Example 2
Example 2 The deceased left a will that does not appoint any executors. The will gives £10,000 to the deceased’s friend and the residuary estate absolutely to the deceased’s adult niece and nephew.
Who will apply for the grant? Under what authority? -Check: Does NCPR 20 apply? Yes, the deceased left a valid will but the will does not appoint any executors.
- So who will apply? Either or both of the niece or nephew would have an equal right to apply as residuary beneficiaries under NCPR 20 (1) (c).
- They would need to clear-off the executors (a) and trustees of the residue (b), by showing that there was no-one appointed
Grant of Letters of Administration
Letters of Administration is the appropriate grant where the deceased died without a valid will (i.e. died intestate). This may be because they did not make a will, had revoked a will they did make, or the will they made is invalid.
Administrators (not executors) are appointed. Their entitlement to apply derives from Rule 22 NCPR.
Rule 22 lists, in order of priority, those entitled to make an application for the grant.
The order in Rule 22 follows the entitlement to the estate under intestacy.
Rule 22 NCPR
Rule 22 NCPR The statutory order of entitlement to apply to be appointed as administrator under a grant of letters of administration is shown here:
NCPR 22 a) surviving spouse or civil partner b) children of the deceased c) father and mother of the deceased d) whole blood siblings (share both parents) e) half-blood siblings (share one parent) f) grandparents g) uncles / aunts of whole blood h) uncles / aunts of half blood
Issue of b, d, e, g, and h are included where their parent has pre-deceased.
Crown can apply
If there is no-one who can apply from (a) – (h):
* The Crown (claiming bona vacantia) may apply (22(2))
* If the Crown does not apply, a creditor, or person who does not receive benefit (but would have done if the estate was larger) may apply (22(3))
Rule 20
Similarly to Rule 20: a person in one category cannot apply in priority to someone in a higher category, those within the same category have an equal right to apply, and applicants must “clear-off” anyone with a better (but not equivalent) right to apply.
Rule 22
Under Rule 22(4), the PR of any applicant who survived the deceased but died before taking a grant may apply on their behalf, although an application by a living person within the same category is preferred.
Demonstrate nature of familial relationship
Applicants must demonstrate the nature of their familial relationship with the deceased (to evidence which category they fall within). In addition, they must also have a beneficial entitlement under the estate. Commonly, the applicant next in order to apply will have an entitlement to the estate, but this will not always be the case. Consider the example on the next slide.
Beneficial Entitlement Option
Beneficial Entitlement Example: A man dies intestate leaving an estate worth £200,000. The man is survived by his spouse and two adult children. * The spouse has the best right to apply (a) but cannot do so until at least 28 days after the man’s death. This is because under the intestacy rules she is not beneficially entitled to the estate unless she survives the man by 28 days (s 46(2A) AEA).
If spouse chooses not to apply
And, if the spouse choses not apply…. * The adult children are the next category entitled (b). However, the value of the man’s estate is less than the statutory legacy so the whole estate passes to the spouse. The children therefore have no beneficial entitlement. * Where no-one in a) –h) with a beneficial entitlement to the estate will apply, a person with no immediate entitlement may do so, provided they would have benefited if the estate were larger (22(3)). As the children would have taken a share of the estate with the spouse if the man’s estate was more valuable, they are able to apply.
Example NCPR 22
A deceased died intestate and was survived by their mother and brother. The deceased was never married or in a civil partnership, did not have any issue, and their father had predeceased.
Who will apply for the grant? Under what authority? - Check: Does NCPR 22 apply? Yes, the deceased died intestate.
- So who will apply? The deceased’s mother is entitled to the whole estate. She has the best right to apply under (c) and will clear-off (b) (explaining there are no issue), and clear-off (a) (explaining the deceased never married). She does not need to clear-off the father’s right to apply because he falls within the same category.
Deceased brother
The deceased’s brother has no right to apply because he falls in a lower category of applicant (d). However, even if the mother decided not to act the brother would still be unable to apply. He would be next in order under Rule 22 but he has no beneficial interest in the estate. No matter how large the estate is, it all passes to the mother.
The brother would only be able to apply if he were a creditor of the estate under Rule 22(3).
Capacity to Act (Minor)
Capacity to act Someone who lacks mental capacity may not apply for a grant. Ideally, there would be someone else with an equal or greater entitlement to apply. However, if there is not, Rule 35 will determine who can act. The detail of Rule 35 is outside the scope of the module.
Capacity to Act (Minor)
A minor may not act as administrator, although it is possible for someone to apply for a grant on their behalf. However, an application by an adult with equal entitlement to apply is given priority over an application made on behalf of a minor (Rule 32).
An application on behalf of a minor may be appropriate where: - No adult with equal or greater entitlement will act - The minor is the only person within the category having the greatest entitlement, or, all those within the category are minors.
Number of administrators
Number of Administrators In respect of both letters of administration (with will) and letters of administration:
- Only one administrator is required, unless, there are minor or a life interests in the estate, in which case two will be required (s.114 Senior Courts Act 1981). i.e. two are needed if any part of the estate is passing to a minor beneficiary or is to be held on a life interest trust.
- Where two administrators are required but there is only one able/willing person in the category with best entitlement to apply, that person may apply for the grant with somebody from the next category of entitlement (Rule 25(1) NCPR).
- A maximum of four applicants may apply.
Summary
- Administrators are appointed under a Grant of Letters of Administration (with will) in accordance with NCPR 20 for estates where there is a valid will but no acting executor. The entitlement to apply depends on the provisions in the will.
- Administrators are appointed under a Grant of Letters of Administration in accordance with NCPR 22 for estates where the deceased died intestate. The entitlement to apply depends on the familial relationship with the deceased and a beneficial entitlement to the estate.
- The minimum number of administrators required is one, unless there is a life or minor interest, in which case two are needed. The maximum possible is four.
- A minor or someone without mental capacity does not have the capacity to be appointed as PR.
Executor unable to act
If the deceased left a valid will which appoints executors who are willing and able to act those executors will apply for a grant of probate.
However, an executor appointed under the will is unable to act if they:
- pre-deceased the testator or survived the testator but died before taking out the grant
- are a minor
- lack capacity
- are the testator’s former spouse/civil partner and the divorce/dissolution took place after the will was made. By s.18A/C Wills Act 1837 (unless the will expressly states otherwise).
Executor is unable to act
If an executor is unable to act, the remaining executor(s) can still apply for the grant of probate but will need to explain to the probate registry why all of those appointed by the will are not applying.
If an executor is a minor, probate can be issued to the other executors with power reserved to the minor, who is entitled to make an application upon reaching 18 (Rule 33 NCPR). Power may also be reserved to an executor who lacks capacity.
In some circumstances an application can be made by a competent adult on behalf of a minor/someone who lacks capacity but these circumstances are outside of the scope of the module.
Executor unwilling to act
It may be that an executor named in the will is able to apply but does not wish to.
This could be because they are unwell or believe the role is too complex. It may also be impractical for them to act due to time constraints of work or family. Others may be unwilling to assume the responsibility if any dispute or family disagreement is likely to arise or if there are insufficient funds to meet expenses and liabilities.
Executor is not willing to act
If an executor is not willing to act, they have a number of options:
- Renunciation
- Reserving power
- Appointing an attorney
Renunciation
An executor may formally renounce (give up) their right to apply for probate and the administration continues as though they had not been appointed.
The executor must sign a form of renunciation
Those who are applying for the grant must submit the form of renunciation to the probate registry as evidence of why an executor appointed by the will is not making the application.
The renunciation will be noted on the grant when it is issued
Renunciation is final and the executor cannot later change their mind without court approval.
An executor cannot renounce if they have intermeddled with the estate and the court will not accept an attempt to renounce.
Intermeddling
A person intermeddles when they take steps indicating they have ‘accepted their appointment’ and are fulfilling the duty to administer the estate (even if they do not in fact wish to act as executor). Examples include:
“Obtaining, receiving or holding” the deceased’s assets, or forgiving any debt or liability due to the estate (s 28 Administration of Estates Act 1925)
Paying debts, selling assets, disposing of personal property (under common law)
Acts of common humanity such as arranging a funeral or taking steps to secure the estate assets do not amount to intermeddling.
Reserving power
If an executor does not want to act initially, and will not apply for the original grant, but wants to retain the option to apply for probate later, they may reserve the power to do so.
To reserve power there must be at least one other executor who does take out the grant of probate. The power ‘reserved’ is to apply for the same grant as originally issued i.e. there must be an original grant of probate.
To act later, the executor who reserved power can apply for grant of double probate to run concurrently with the original grant.
Applying for a grant of double probate is only appropriate if the administration is not yet complete.
There is no form of reservation. However, where power is reserved to an executor, the executor(s) who are applying for probate must give notice of their intention to apply to the executor to whom power is reserved. The reservation of power will be noted on the grant. Rule 27 NCPR.
Appointing an attorney
An executor who does not want to be directly involved in the administration may appoint another person as attorney to act on their behalf. The power may be given by the executor (donor) to the attorney (donee):
- After the executor has obtained a grant: s 25 Trustee Act 1925 confirms that a PR may delegate their functions to an attorney for a maximum of 12 months. This can be renewed if needed. Notice should be given to the other executors. Once appointed the attorney can carry out administrative steps on behalf of the donor.
- Before a grant has been obtained: in this case the executor is delegating the power to apply for a grant. As the attorney is not named in the will as executor they cannot apply for a grant of probate. Instead, if other executors are applying, the executors would apply for a grant of probate and the attorney would make a parallel application for letters of administration (with will).
The power of attorney must be provided to the probate registry as part of the application.
Administrator unable to act
If the deceased left a valid will which does not appoint willing or able executors, or the deceased died intestate, administrators will be appointed under either NCPR 20 or 22.
However, a person cannot act as administrator if they:
- Pre-deceased the testator or survived the testator but died before taking out the grant (although in some cases their PR may act)
- are a minor (unless an application is made on their behalf)
- lack capacity
- do not have a beneficial entitlement to the estate (for appointments under NCPR 22 only)
Administrator unable to act
It may be that someone with a right to apply is able to act but does not wish to. As with executors who do not wish to act, it could be because they are unwell or believe the administrator role is too complex or onerous a task.
If a potential administrator does not wish to act they have a number of options:
- Renunciation
- Appointing an attorney
Note that unlike an executor, an administrator cannot ‘reserve power’.
Renunciation
A potential applicant may formally give up their right to apply for the grant and the next person best entitled to apply may do so. Renunciation is final and because there is no right to reserve power a person must think carefully before renouncing.
A form of renunciation must be signed and submitted to the probate registry with the application for the grant. The renunciation will be noted on the grant.
A potential administrator may renounce at any time before the grant is issued. They are not prevented from renouncing even if they have intermeddled with the estate.
An executor who renounces their right to apply for a grant of probate, does not automatically renounce their right to apply as administrator under NCPR 20/22 so they mayA need to renounce both rights.
Appointing an attorney
Someone who does not want to be directly involved in the administration may appoint another person as attorney to act on their behalf.
The power may be given by the administrator (donor) to the attorney (donee):
- After the administrator has been appointed under the grant: s.25 Trustee Act 1925 confirms that a PR may delegate their functions to an attorney for a maximum of 12 months. This can be renewed if needed. Notice should be given to the other administrators. Once appointed the attorney can carry out administrative steps on behalf of the donor.
- Before a grant has been obtained: in this case the applicant is delegating the power to apply for a grant, which is permitted under Rule 33 NCPR. The power of attorney must be provided to the probate registry as part of the application.
Citations
If a PR is entitled to act but decides not to, they should take formal steps to give up their right to apply so others can proceed with the administration. They should not “do nothing”.
But, what happens if those entitled to apply refuse to act but also refuse to renounce their right to apply? Or, what if an executor intermeddles in the estate (and is thus unable to renounce) but refuses to apply for the grant?
In these situations, it is possible to obtain a court direction (using the citation process) to:
- Require a person to take out a grant
- Remove their right to apply
- Authorise another person to take on the administration
The citation process is outside the scope of this module.
Summary
- An unwilling executor may renounce probate (unless they have intermeddled), have power reserved (provided another executor takes out the grant) or may appoint an attorney.
- An executor who has power reserved may apply later to administer the estate under a grant of double probate.
- An unwilling administrator may renounce their right to apply for a grant (even if they have intermeddled) or appoint an attorney. They cannot have power reserved.
- A minor or someone who lacks capacity cannot be appointed as a PR.
- Citations may be used to force an unwilling PR to act, remove their right to act, or authorise another to act in their place.
Administration Process
The administration process carried out by PRs can be roughly divided into two stages
Steps required from death up to the issue of the grant of representation – including the account and payment of inheritance tax (IHT)
Steps required from issue of the grant to completion of the administration
IHT Payment and Account
The PRs of an estate have a duty under s.216 Inheritance Tax Act 1984 to:
Deliver an account to HMRC regarding the deceased’s estate
Pay any IHT due in respect of the succession estate
PRs should deliver an account to HMRC specifying:
all of the property comprising the deceased’s taxable estate immediately before death and the value of each item at the date of death (in essence a list of assets and liabilities)
the exemptions and reliefs that apply.
The account provides the basis upon which the amount of IHT due (or not) is calculated and the form is submitted to HMRC along with payment for any IHT due.
IHT Payments and Accounts
The next page explains in basic terms how HMRC assess the IHT position using the information provided.
IHT is calculated by adding the value of the deceased’s taxable assets, then reducing this figure by deducting the deceased’s debts and applying exemptions /reliefs.
No IHT is due on assets passing to a spouse or charity. If business property relief (‘BPR’) applies, no IHT is due on business assets.
Once deductions are made the tax rates are applied:
0% on the nil rate band (‘NRB’) (value up to £325,000 – though figure may vary)
40% on any value above the NRB.
If the deceased’s (D) spouse (Y) pre-deceased them, D’s estate may be entitled to claim the unused part of Y’s NRB – the transferrable NRB (TNRB)
Consider these basic examples
A man dies leaving his estate to his wife - no IHT is due (irrespective of the value) as the whole estate is spouse exempt.
A woman dies leaving her estate to charity - no IHT is due (irrespective of the value) as the whole estate is charity exempt.
A woman dies leaving her estate to her son. The estate comprises £30,000 and a business worth £500,000 (which qualifies for BPR). The estate is valued at £530,000 but after the deduction of BPR the value that remains is £30,000. This amount falls within the 0% nil rate band so no IHT is due.
IHT Account and Deadline
The deadline for submitting the account is:
12 months from the end of the month in which the death occurred. If the deceased died on 15 March the IHT account would need to be submitted by 31 March the following year.
The deadline for paying IHT due is:
6 months from the end of the month in which death occurred, after which interest becomes payable on the unpaid tax. If the deceased died on 15 March the IHT should be paid by 30 September.
In practice the PRs will submit the account and pay the IHT due as soon as possible because the:
grant will not be issued until information about the estate has been provided to HMRC and any IHT has been paid; the PRs need the grant to carry out the administration
payment of interest on unpaid IHT should be avoided.
Example of Deadline
If the deceased died on 18 January the due date for submitting the IHT account is 31 January the following year. However, as interest would be charged on any IHT that has not been paid by 31 July the PRs should pay the IHT and submit the account by the earlier date.
IHT Account - Installment Option
Under ss. 227-228 IHTA the IHT due in respect of certain assets may be paid by 10 equal annual instalments.
The first instalment is due by the usual deadline (i.e. six months after the end of the month in which the deceased died). The remaining instalments are due on each subsequent anniversary date, with interest usually charged on any IHT that remains outstanding after the initial deadline date.
IHT Account - Installment Option
Usually, PRs must pay the tax for which they are liable when they submit the IHT400 (required before the grant is issued), whether or not the six-month deadline has passed (s.226 (1)(2) IHTA 1984). However, if instalment option is being used, when the PRs submit the IHT400 they only need to pay instalments that have become due by that date.
This means that if the grant application is made before the IHT due date, the PRs will pay the non-instalment IHT at this time but are not required to pay the IHT attributable to the instalment option property. To the extent instalment option IHT remains unpaid following the issue of the grant, the PRs should take care to ensure the first instalment is paid by the usual deadline to avoid interest payments.
Instalment option is only available in respect of the IHT attributable to the following assets:
· Land and buildings
· Company shares/securities giving the deceased control
· Some unquoted company shares/securities that did not give control where:
o payment cannot be made without undue hardship, or
o the tax attributable to the shares (and other instalment option property) represents 20% or more of the total tax for which the PRs are liable, or
o the value of the shares is greater than £20,000 and the shareholding represents at least 10% of the nominal value of all the company shares.
· Farms or interest in a farming business
· Business or interest in a business
· Timber
Installment Option- Prevents Undue Hardship
Instalment option exists to prevent undue hardship on the taxpayer. If any property to which instalment option applies is subsequently sold, the instalment option ceases in relation to that property. The outstanding IHT on that property is due immediately and the sale proceeds are available to meet this liability.
For this module you are not required to calculate how much IHT may be paid by instalments i.e. apportion the overall tax to the value of the assets on which instalment option may be claimed.
IHT Account - IHT400
Unless the estate is excepted the PRs report to HMRC about the estate assets and liabilities by completing form IHT 400 (IHT account).
Completing the IHT 400 can be time consuming and complicated if a large number of the supplemental schedules also need to be completed.
If the estate is excepted, the PRs are not required to complete an IHT400. Instead, they provide information about the value of the estate as part of the application for the grant of representation. Key information is then sent by the Probate Registry to HMRC.
IHT 400
The IHT400 must be used unless an estate is excepted so it is therefore important to establish whether a particular estate is excepted or not.
For those domiciled in the UK there are two categories of excepted estate:
- Low value excepted estate
- Exempt excepted estate
If neither of these apply, the estate is not excepted.
For this module you are not required to know the law governing the estate of a non-domiciled individual.
Low Value Excepted Estate
A low value excepted estate is one where there is:
no IHT payable, and the reason for this is because
the gross value of the estate is below the NRB.
The gross value for these purposes is the total taxable estate figure plus the value of certain ‘specified transfers’ plus the value of ‘specified exempt transfers’.
Low-Value Excepted Estates
Specified transfers include chargeable transfers made in the 7 years before death comprising cash, chattels, shares or land.
Specified exempt transfers include exempt gifts to spouses/civil partners and charities.
The NRB considered here is:
· The current NRB amount and any transferable NRB available from their spouse.
· The residence NRB is not considered, and if claimed, the estate cannot be excepted.
Example of low value excepted estates
A woman dies and leaves her estate to her friend. She had never married, made no lifetime gifts and had no debts.
The woman’s estate includes her home (£300,000), bank account (£2,000) and car (£1,500).
The total (gross) value is £303,500.
This is below the NRB of £325,000 so the whole of the estate is taxed at 0% and no IHT is payable.
Example 2
A woman dies leaving her estate to her daughter. She made no lifetime gifts and had no debts. The woman’s civil partner (CP) died before her and did not use any of her own NRB.
The woman’s estate includes her home (£600,000), bank account (£2,000) and car (£1,500). The total (gross) value is £603,500.
CP did not use her own NRB so it can be transferred in full to the woman’s estate - which qualifies for the woman’s own NRB and a TNRB.
The value of the woman’s estate is below £650,000 (2xNRB) so the whole of the estate is taxed at 0% and no IHT is payable.
Exempt Excepted Estates
An exempt excepted estate is one where:
- the gross value of the estate is no more than £3 million, but
- no IHT is payable, and the reason for this is because
- after debts are deducted and spouse and/or charity exemption are applied the net value of the estate is below the NRB.(N.B. debts alone cannot bring the estate into exempt excepted status).
The meaning of gross value and NRB are the same as for the low value excepted estate.
Only spouse or charity exemption can be considered for these purposes – no other reliefs can be taken into account.
Example 1
A man dies leaving his estate worth £3.5M to his spouse. No IHT is payable because the whole estate passes to his spouse and is exempt. However, this is not an exempt excepted estate because the value of the estate is more than £3 million.
A man dies leaving his estate worth £400,000 to his son. After BPR is applied the value of the estate is £50,000. No IHT is due as all of the estate falls within the NRB.
However, this is not an excepted estate because although the estate is worth less than £3M and no IHT is due, this is only because of BPR - and BPR cannot be considered for these purposes.
A woman dies leaving her estate worth £600,000 to a charity. No IHT is payable because the whole estate passes to a charity and is exempt.
This will be an exempt excepted estate.
Example 2
A woman dies leaving her estate worth £400,000 equally between her spouse and children. The value of the spouse exemption is £200,000 and once this is taken into account the remaining £200,000 falls within the NRB and is taxed at 0%. No IHT is payable.
This will be an exempt excepted estate.
[A] A man dies with an estate valued at £700,000. He had no debts and had never married or entered a civil partnership. He gives £60,000 to a charity, which leaves a net estate £640,000.
Although the estate is worth less than £3m and charity exemption applies, the value after charity relief has been considered is still above the NRB. IHT is payable and the estate is not excepted.
A widower dies. His wife died before him and did not use any of her own NRB. The man’s estate is valued as per [A] above.
The man’s PRs will claim his NRB and the TNRB from his spouse. After the gift to the charity, the remaining estate (£640,000) is below £650,000 (2x NRB) and no tax is due. This is an exempt excepted estate.
A widower dies with an estate valued at £360,000. His wife died before him and used half of her NRB
The man’s PRs will claim his NRB and the unused TNRB from his spouse. No tax is due because the total NRB is greater than £360,000 (£325,000 + £162,500). This is a low value excepted estate.
Excepted Estates
Once the PRs have established that an estate may be either a low value or exempt excepted estate they must also check that no additional factors prevent the estate from being excepted. If any of the following apply, the estate cannot be excepted:
The deceased made a gift with reservation of benefit that subsists at death (or the reservation ended in the 7 years prior to death and the transfer was not exempt)
Excepted Estates
The estate includes either more than one trust interest, or, a single trust interest worth more than £250,000 (and is not passing to spouse)
Foreign assets are worth more than £100,000
The value of specified transfers exceeds £250,000
A claim for the RNRB is being made (the claim for RNRB - IHT 435/6 - would accompany the IHT 400).
IHT Account
The factors which determine whether an estate is excepted or not are considered for the purposes of deciding whether to complete form IHT 400. They do not affect the distribution of the estate or the calculation of IHT due.
An advantage of dealing with an excepted estate is that it is simpler and quicker than the IHT 400. If the estate is excepted, then there is no form to complete and send to HMRC.
The IHT 400 is a long form and is supplemented by additional forms called schedules (IHT401 - IHT 420) which contain detailed information about each of the assets. Which schedules should be completed will depend on the assets held by the deceased.
IHT Account
Remember that it is the date of death values which are relevant for IHT purposes and when completing the IHT 400. Changes in the value of the assets post death are not recorded for these purposes (unless the PRs make a claim for loss relief).
Loss relief entitles the PRs to claim a partial refund of IHT where losses occur on the sale of certain assets within prescribed time frames – the detail of this relief is beyond the scope of the module.
Corrective Accounts
Although post death changes to the estate are not usually notified to HMRC, if the PRs discover later on that the date of death information provided in the IHT400 was inaccurate, and too much or too little IHT has been paid, this must be corrected. Revised information is set out in corrective account Form C4.
The C4 is used to inform HMRC about:
additional assets/ liabilities discovered after the IHT 400 was submitted
corrections to the value of assets/liabilities originally included in the IHT400
changes to exemptions/reliefs applied – e.g. an increase or decrease in value or where these were not claimed or not due
Corrective Accounts
a variation of the original beneficiary entitlements which affect the IHT liability e.g. changes in the value of what an exempt beneficiary receives
If the PRs complete a C4 they will also make an adjustment to the calculation of IHT as the liability has either increased or decreased.
If new assets are discovered, the original value of an asset was too low (or a liability too high), or reliefs were mistakenly claimed - the total value of the taxable estate will increase. The PRs should pay the additional IHT due when sending HMRC the C4.
If new liabilities are discovered, the original value of an asset was too high (or liability too low), or reliefs due were not claimed - the total value of the taxable estate will decrease. The PRs will claim a refund of IHT already paid.
Raising funds to pay IHT
PRs cannot obtain a grant without payment of IHT but in most cases cannot access the deceased’s assets without a grant – so with what money do they pay the tax due?
The options available are:
- Direct Payment Scheme
- Borrowing
Direct Payments Scheme
Banks or building societies may not be able to release funds to the PRs prior to the issue of the grant but they can be asked to make a direct payment from the deceased’s account(s) to HMRC by telegraphic transfer under the Direct Payment Scheme.
PRs must complete schedule IHT 423.
Borrowing
From a beneficiary (often interest free). The main beneficiary of the estate will often fund the payment of IHT using funds outside of the succession estate/ for which the grant is not required e.g. money held in a joint bank account which passed by survivorship, or the proceeds of a life policy written in trust.
From a bank, where commercial rates of interest will apply.
Summary
The value of the deceased’s assets and liabilities at the date of death are set out in form IHT 400.
No form is required for an excepted estate (low value or exempt).
IHT 400 for any estate which is not excepted.
If IHT is payable on an estate, it will never be excepted.
If no IHT is payable, the estate may be excepted if the required criteria are met.
The deadline for submitting the IHT 400 is 12 months from the end of the month of death.
The deadline for paying IHT (or the first instalment where instalment option is used) is 6 months from the end of the month of death.
To raise funds to pay the IHT due prior to the issue of the grant the PRs may use the direct payment scheme or arrange to borrow money.
Grant of Representation
The grant of representation is a court order confirming the authority of those named in it to administer the estate. The type of grant required for an estate depends on the particular circumstances:
Grant of Probate
Estates where the deceased left a valid will which appoints executors who are going to act. The grant will name the executors who are appointed.
Grant of Letters of Administration (with will)
Estates where the deceased left a valid will but no executors are appointed or those appointed are unwilling or unable to act. The grant will name the administrators.
Application Process
The Probate Registry will not issue a grant unless the applicants can demonstrate they are entitled to it. Applicants must therefore provide sufficient information about the deceased’s estate to satisfy the Probate Registry that the correct grant has been requested and that those applying have the best entitlement to it. This information is provided by either:
- Completing and then posting a paper application form to Probate Registry
- Submitting an online application via HMCTs service and answering the relevant questions
The applicants are also required to submit supporting documentation. This is considered in more detail in another element.
The format of the application depends on the person making it and the type of estate/grant required. In this element we consider professional applications.
Professional Applications
A professional application is one made by a solicitor or probate practitioner. This may be because the solicitor or firm is appointed as PR, or where they are instructed by the PRs and submit the application on their behalf.
Applications by professionals fall into one of three categories:
- Mandatory online application (includes most grants of probate)
- Online application possible but not mandatory (includes some simple applications under NCPR 20 and 22 e.g. sole applicant and no minority or life interests)
- Mandatory paper application (includes non-standard grants, and more complicated applications under NCPR 20 and 22). The full list is shown in Schedule 3 NCPR and includes those noted below:
Professional Applications
o Second grant of probate e.g. to an executor who previously reserved power
o Grants to a PR where chain of representation applies
o Grants where original will is missing or there are issues with the will
o Grants to attorneys
o Grant under NCPR 20 if life interest arises
A solicitor must decide whether to make an online or paper application. If a paper application will be made, the solicitor must complete either form PA1A or PA1P:
Paper Applications
- PA1A: deceased did not leave a will - NCPR 22 applies
- PA1P: deceased left a valid will (whether or not executors are appointed)
It is important to identify the correct grant required and to complete the appropriate application form (where a paper application is made).
When complete, the paper forms are sent to the probate registry.
The flow chart which follows summarises when each form should be used and the type of grant that can be issued following an application using that form:
Tasks
Task:
Where the deceased left a valid will appointing executors but there is a partial intestacy due to careless drafting the PA1A will be used.
False: Where the deceased left a valid will the correct application form to use is the PA1P.
Task:
A man died and left a will appointing his civil partner as his executor. The will has subsequently been declared invalid as there was only one witness. The man had not made any other will.
What grant will be required for his estate and which PA form will be used?
Grant of letters of administration because the deceased died intestate and therefore form PA1A should be completed.
All applications, irrespective of the type of grant or whether the application is made online or by PA1A/P, require applicants to:
- confirm the identity of the deceased and the applicants
- justify the type of grant requested and their entitlement to act as PR
- provide information about the value of the estate and inheritance tax (IHT) status of the estate
- complete the legal statement on the probate form confirming the information provided is correct and they will administer the estate properly
The following slides consider how each of these requirements are demonstrated:
Identity of the deceased
The full name of the deceased (as per death certificate) should be included along with the date of birth and death.
If the deceased owned assets in a different name this should be stated. For example, “Margaret Alice Smith also known as Meg Smythe or M A Smith”. This ensures the grant will be issued in both names so the PRs will be able to deal with assets held in either. The deceased’s address is their last usual residential address (which can be a residential nursing home). The testator’s domicile, marital status, and value of foreign property are also confirmed.
Each applicant’s full name, address and contact details are included. Information for up to four applicants can be provided (the maximum who can be named on the grant).
Confirmation of the grant
An express statement confirming the type of grant requested must be included.
Recap
- Grant of probate is required where executor(s) appointed by will are applying
- Grant of letters of administration (with will) is required where no executors appointed by will are applying and so NCPR 20 applies.
- Grant of letters of administration is required where the deceased did not leave a valid will (i.e. died intestate) and so NCPR 22 applies
Executor’s Entitlement to grant
Executors are entitled to act by virtue of an appointment under the will. The deceased’s will and any codicils to it are therefore evidence of this. Original testamentary documents must be submitted so they can be confirmed as valid. This is known as “proving” the will. The original documents are not returned.
Information about the physical condition of the will is given and confirmation that all of its pages are submitted.
Executor’s Entitlement of grant
If an executor’s true name differs to that in the will, this should be explained – e.g. “Francis Donnelly in the will called Frank Donnelly.”
If anyone named is not applying e.g. because they pre-deceased, renounced or reserved power, evidence is needed. For example, the death certificate, form of renunciation, or confirmation that notice was given to those to whom power is reserved.
Administrator’s entitlement to grant
Applicants under NCPR 20 should:
- state which category of applicant they fall within (with reference to the will)
- clear-off anyone with a better right to apply (but not those with equal right) e.g. explaining why executors appointed by will are not acting
- state whether any beneficiary is a minor or if any life interest arises (in either case, at least two administrators are then required)
Applicants under NCPR 22 should:
- state their familial relationship to the deceased / identify which category of applicant applies, and confirm they are entitled to the whole or part of the estate
- clear-off anyone with a better right to apply (but not those with equal right) e.g. explaining who surviving family members are
- state whether any beneficiary is a minor (if so, at least two administrators are required)
Estate value and IHT status
Settled Land
Settled land refers to a specific interest in land under a trust governed by the Settled Land Act 1925.
Interests in settled land are different to, and should not be confused with, a normal trust of land.
It is no longer possible to create a trust that includes settled land but those interests which existed on 1 January 1997 remain and are governed by their own rules.
When applying for the grant an applicant must state whether the deceased had an interest in settled land. If they did, a separate grant is required to deal with the legal estate.
It is unusual for an estate to include settled land.
Legal Statement
The applicants formally confirm they will comply with their obligation to collect in and duly administer the estate (s.25 AEA) and that the contents of the form are true.
The form must be signed by each applicant or their legal representative acting for them.
Completing the application
When the applicants are ready to proceed with their application, they should consider what supplemental documentation should be provided in support of their application.
The documentation required for an estate depends on the circumstance and is not considered in detail in this element.
Oaths
Historically, the application for a grant was made by way of an oath:
Grant of probate: Oath for Executors was used
Grant of letters of administration (with will): Oath for Administrators (with will) was used
Grant of letters of administration: Oath for Administrators was used
Oaths are no longer used but you may still see reference to these in practice and in practitioner texts
Summary
- The application for a grant may be made online or by completing PA1A or PA1P.
- If a PA form is going to be used, PA1P is completed if the deceased left a valid will and PA1A is completed if the deceased died intestate.
- If an online application is made, the applicant simply needs to answer the questions asked correctly, and this enables the probate registry to distinguish the different kinds of estate.
- Applicants must provide sufficient information to the probate registry to allow them to verify those applying to be appointed as PR are entitled to the grant requested.
- Applicants must sign a statement of truth by which they promise to comply with their legal obligations to administer the estate.
What is an affidavit?
An affidavit is a formal written statement of fact which a person signs under oath.
The person making the affidavit (deponent) ‘swears’ or ‘affirms’ (i.e. makes a formal promise) that the contents of the document are true.
If the requirements for making an affidavit are met the facts contained within it can be admitted as evidence in support of legal proceedings. The legal requirements for making an affidavit include the requirement that the authenticating statement (known as ‘jurat’) is:
- signed by all parties and dated
- completed and signed by the person witnessing (this must be an independent solicitor or commissioner for oaths) and their name, address and qualification must be stated
- must follow immediately on from the text and not on a separate page
Example
Below is an example of the jurat which would appear at the end of the affidavit:
[Sworn OR Affirmed] by the above named deponent
[SIGNATURE OF DEPONENT]
at: [ADDRESS OF SOLICITOR OR COMMISSIONER FOR OATHS]
this [DATE] day of [MONTH] [YEAR]
before me: [SIGNATURE] [Solicitor OR Commissioner for oaths]
When are affidavits required?
Ideally, affidavit evidence would not be required. However, this may be needed where there is a valid will but there is something about the document which renders its validity or interpretation uncertain. The original will is submitted with the affidavit and the affidavit provides confirmation to the Probate Registry of the circumstances surrounding the drafting or execution of the will.
Where applicable, an affidavit will often relate to one of the following:
-Compliance with s.9 Wills Act
-Knowledge & Approval
-Date
-Physical condition of the will
This element will consider each of these in turn.
Requirements of s 9 Wills Act 1837
An affidavit of due execution would be used where the PR believes the will to be valid but it is not clear that the execution requirements set out in s.9 Wills Act 1837 have been complied with.
For example:
- Signatures are oddly placed
- There is no attestation clause (but e.g. three signature appear at the end)
The original will is submitted with the affidavit.
The affidavit will usually be made by one of the witnesses and will confirm that the will (in the form attached to the affidavit) was executed in accordance with the formalities required.
If the probate registry accepts the evidence the application for the grant can proceed.
Knowledge and Approval
Where a will has been properly executed and contains a standard attestation clause this raises a presumption of knowledge and approval.
However, if there is reason to doubt this e.g. the testator was blind or could not read the contents of the will, or the appearance of the signature suggests extreme frailty, an affidavit of due execution may be required.
If the Probate Registry accepts the evidence the application for the grant can proceed.
The affidavit would usually be made by one of the witnesses and confirms the circumstances in which the will was executed e.g. that it was read out loud to the testator and testator appeared to understand the contents of the will.
The need for an affidavit can be avoided if the original attestation clause is drafted to reflect the special circumstances under which the will was signed i.e. was read out loud to the testator.
Date
The Probate Registry will need to be clear of the date on which the will was signed in order to be certain that the will submitted is the last will the testator made.
There may be doubt as to the date where the date is:
- missing
- incomplete
- more than one date is included
An affidavit of due execution made by one of the witnesses to confirm the correct date can be submitted with the original will.
Date
It is not uncommon for a client to return their will signed but not dated.
This is particularly true where the clause containing the date of the will is drafted as part of the commencement clause and not at the end of the will with the attestation.
Solicitors should always check a will has been properly signed and dated before it is put into storage to avoid any issues later.
Physical condition of the will
The physical condition of the will submitted to probate may give rise to problems with its interpretation and affect whether or not its contents can be given effect to.
You will already be aware that there are problems if alterations have been made to the text in the will as it is not always possible to determine when these were made; before execution (and valid) or after execution (and invalid).
Consider a will which contains the words “I give the sum of £100 to my friend Kelly”. These words have been crossed out in pen but are still clearly visible underneath.
Affidavits as to alterations
Assuming there is a clear intention to revoke the gift to Kelly, this alteration would be effective if it was made before the will was executed. An affidavit as to alterations could be submitted by one of the witnesses to establish the timing of the alteration.
In the absence of affidavit evidence, PRs will have to rely on the presumptions regarding timing and interpretation in s 21 Wills Act 1837 and the common law when deciding how to distribute the testator’s assets.
Physical conditions of will tampering
- There are other physical signs that suggest a will may be incomplete or have been tampered with:
- Pin holes (indicating staples have been removed)
- Paperclip indentations (indicating another document was attached to the will)
- Non-consecutive page/clause numbering or other sign there may be missing pages
- Signs that an attempt had been made to revoke the will e.g. burning or tearing
In these situations an affidavit of plight and condition may be required.
Affidavits signature
The affidavit should be signed by someone who is able to confirm the condition of the will when it was executed, and its condition later when it was found following the death of the testator.
If there is evidence to suggest that another testamentary document was supposed to be attached to the will, it is possible that an affidavit of search may be required.
The personal representative would confirm what enquiries were made and searches carried out to locate the missing document.
Original will is missing
If a will or codicil existed but the original document cannot be located this must be addressed before making the grant application. The will or codicil may be missing or could have been accidentally destroyed.
NCPR 54 permits a copy of the will or codicil to be admitted to probate if there is a court order approving this. An affidavit including the following should be used when applying for a court order:
- evidence that the will/codicil existed after the deceased’s death (or facts which rebut the presumption that the missing will was revoked during the testator’s lifetime (for further detail about this refer to the element on Revocation))
- confirmation the will/codicil was correctly executed, and
- that the copy document submitted accurately records the testamentary wishes of the deceased.
Practical Considerations
Affidavits are only an option where a suitable deponent can be located and is able and willing to provide the evidence required.
If a will or codicil is properly drafted, and care is taken over its execution and storage, there is unlikely to be any need for affidavit evidence.
Issues most commonly arise in respect of ‘home-made’ wills or where the execution of the will was not supervised by a solicitor. Proper instructions should be given to a client who will execute their will at home. A testator should be instructed not to make alterations to the will and to take care over the condition of the document, avoiding anything that leaves an unintended physical mark
Summary
-An affidavit can sometimes be required when an application is made for the grant of representation.
-Affidavits can be needed where there is evidence to suggest a problem with the validity or enforcement of a will or codicil.
- An affidavit:
of due execution can be used to confirm compliance with s 9 Wills Act 1837, that knowledge and approval were present, and the date on which the will was signed.
as to alterations can be used to confirm the timing of alterations made to a will.
of plight and condition can be used to confirm the physical condition of the will at execution and after death.
of search can be used to confirm steps taken to locate missing documents.
