Collecting Assets and Payments of Debts Flashcards
What is the method of collecting assets?
Banks require withdrawal forms; financial advisor can arrange sale/transfer of investments; Land Registry can transfer property.
Where should PR pay collected money into?
A PR’s dedicated bank account or a law firm client account.
What is the first thing a PR should do once assets are collected?
Pay outstanding debts and funeral expenses.
What happens if PR fails to pay debts?
They may be personally liable to creditors.
Can a will limit PR’s liability to creditors?
No, only to beneficiaries.
How can PR protect against liability to unknown creditors?
By using the S27 Trustee Act 1925 notice procedure.
What if will says assets are not to be used to pay debts?
Clause has no effect—debts must still be paid.
What affects the order in which liabilities are paid?
Whether the estate is solvent or insolvent and whether debts are secured or unsecured.
What is a solvent estate?
One with sufficient assets to pay all expenses, debts, and liabilities.
What is an insolvent estate?
Estate with insufficient assets to pay all liabilities.
If legacies cannot be paid, is estate insolvent?
No, it’s only insolvent if it can’t pay expenses and debts.
What is a secured debt?
A debt that is charged on a specific asset or property.
Will charged property bear the debt?
Yes, unless the will expresses a contrary intention.
How are unsecured debts paid?
By following a statutory order of priority.
What is the statutory order of assets that would pay for unsecured debts?
1) Property not disposed of by will
2) Residuary estate
3) Property set aside by will
4) Pecuniary legacy fund
5) Specifically gifted property.
What is a contrary intention in a will?
An instruction that alters the default treatment of debts.
How are secured assets usually passed on?
With the debt attached.
Does general clause about residuary estate cover mortgages?
No, must be specific about paying off secured debt.
Difference between redirecting unsecured and secured debts?
Unsecured debts can be redirected with general clause; secured debts need specific instructions.
What is marshalling?
Legal principle allowing compensation between beneficiaries when debts are paid from wrong assets.
How does marshalling work?
Beneficiary affected by wrong asset use can claim against another who benefited incorrectly.
What if a beneficiary loses inheritance due to misallocation?
They can claim against the assets inherited by another beneficiary.
What should PR consider when selling non-cash assets for debts?
Capital gains tax implications, speed and ease of sale, and wishes of beneficiaries.
Is a PR bound to follow wishes of a beneficiary regarding asset sales?
No.
