Head 4: The Estate (The Patrimony) Flashcards
What makes up an estate?
An estate is the totality of a person’s assets and liabilities on death that must be ‘wound up’ by the executor. Winding up means that the executor must pay the debts, any tax, distributes the balance to the beneficiaries. The word patrimony is synonymous with estate.
How is an estate defined?
The estate is defined in the Succession (S) Act 1964 s 36 as:
⁃ “…the whole estate, whether heritable or moveable, or partly heritable and partly moveable, belonging to the deceased at the time of his death…”
How is an estate administered?
An estate is administered by a deceased’s executor. Under Succession (S) Act 1964 s 14:
⁃ “…on the death of any person (whether testate or intestate) every party of his estate (whether consisting of moveable property or heritable property) falling to be administered under the law of Scotland shall, by virtue of confirmation thereto, vest for the purposes of administration in the executor thereby confirmed and shall be administered and disposed of according to law by such executor”
It is the job of the executor to identify the assets and liabilities and to pay off the liabilities with the assets, then to take whatever is left and distribute it to whoever is entitled to inherit.
The liabilities of debts of the estate must be paid by the executor. The executor is also liable for paying inheritance tax before any payments to beneficiary(s)[ This is from the net estate.].
CRUCIAL: the estate’s liabilities are paid using assets from the estate - the executor is not liable to pay from their own pocket.
What is active transmissibility of assets?
There is an active transmissibility of assets (ATA): all the assets of the deceased add to the estate. They include personal as well are real rights. However note that liferents die with the holder.
What is passive transmissibility of assets?
There is a passive transmissibility of liabilities (PTL): liabilities of the deceased continue as liabilities of the estate. Death does not dissolve obligations. It is for the executor to discharge the obligation here. This is done by means of realising the assets to pay the debt. The executor has power to sell assets as debts come first. However the rights of the beneficiaries are to be satisfied only out of the net estate. So if the deceased died insolvent then the beneficiaires take nothing. The executor nor the beneficiaries have no personal obligation to pay the deceased’s debts, so if the value of the assets is insufficient to cover it, then the creditors must grin and bear it.
However there is no rule that says which part of the estate is to be realised to meet their claims, it is up to the common law to decide. (e.g. Whether to sell the house or the car…) However, if a debt is secured against a particular asset, for instance a debt secured by standard security over a house, that asset is regarded as the fund out of which that debt is to be paid. When a debt is secured over two assets, both are burdened in the ratio of their values.
ATA - PTL =
net estate
Lord Kinnear in Morton’s Trs v Aged Christian Friend Society (1899)
“It is a general rule that a personal obligation transmits against the personal representatives of the obliger.
What do assets include?
- Ownership of property
- Pro indiviso share of common property
- Household goods[ Under the FL(S)A 1985 s 25, the husband and wife are presumed to own the contents of their house in equal shares. Same rules for cohabitants (I think) under FL(S)A 2006 s 26(2).]
- Liferents DO NOT constitute an asset.
- Tenancies will probably NOT constitute an asset in the vast majority of cases but it depends (see S(S) Act s 16 and 36)
- Personal rights can be assets, but they can also be liabilities.
Adam lends Eve £10 (a personal right). What happens if:
⁃ I) Adam dies
⁃ II) Eve dies
⁃ III) They both die
I) Adam dies
⁃ Just because Adam has died doesn’t mean that the debt has extinguished. Adam’s estate still has the right to receive £10 - his executor’s can insist on receiving the £10 from Eve.
II) Eve dies
⁃ Eve’s estate will be subject to a £10 liability.
⁃ III) They both die
⁃ The debt still exists; Adam’s estate has an asset, Eve’s a liability.
So it is a general rule that a personal obligation transmits against the estate of the obliger as administered by his personal representatives[ This means that the executors are not personally liable - they are not. It is only the estate that are liable.
However there are very occasionally exceptions to this: executors may be personally liable if they have acted fraudulently etc.
Damages (S) Act 2011 s 2
states a claim for solatium can transfer to the executor of the deceased.
Does a bank account form part of the estate?
A bank account is a personal right and an asset (you are the creditor, the bank is the debtor). Thus it forms part of the estate.
What is the distinction between heritable and moveable property?
There is a distinction between heritable and moveable property which is very important in 3 key areas:
1) Legal rights: only due on moveable property
2) Incidence of debts (how debts are paid off)
⁃ Generally speaking personal debts are due from moveable property[ E.g. if someone lends someone £100 this is a personal debt and this will normally be met by realising moveable property e.g. money in the bank.]
⁃ Heritable debts are generally due from heritable property[ This means that if you have a mortgage over a £300k house and there is £100k outstanding, the mortgage will be paid off from the house - so for all intents and purposes the house will be worth £200k.]
3) Private international law
⁃ If the property is heritable property, it is normally governed by the lex situs
⁃ If the property is moveable property it is normally governed by the lex domicilius
What is the effect of death on executory contracts to buy or sell land (Conversion)?
By executory contract this means two people have concluded missives over a property (ownership obviously won’t transfer until the buyer registers the disposition).
So John (owner) and Kate (buyer) agree missives. What happens if (i) John dies? (ii) Kate dies?
i) If John dies then John’s estate is entitled to the price from Kate. This right to receive the price is a piece of moveable property. His executor is under an obligation to transfer the property to Kate.
ii) If Kate dies, although she doesn’t own the property, Kate’s right to receive the house is considered to be heritable property. Thus it won’t be taken into account for legal rights.[ This seems to be VERY IMPORTANT!!!!] The debt that is owed to the seller’s remains moveable so John is still entitled to the moveable right to the price.
What is Inheritance Tax (IHT)?
⁃ Considered to be a debt payable on the estate - the executors and beneficiaries are liable.
⁃ It is payable based on the value of the deceased’s net (i.e. minus debts and funeral expenses) estate at the time of death
