SQE2 PRs Duties and Powers Flashcards
Duties of PRs
- reasonable steps to preserve estate, realised investments which is not proper for them to retain
- pay off estate debts and distribute assets in accordance with will/intestacy
- Trustee Act 2000
- act with reasonable care and skill, taking into account any specialist knowledge or experience
- fundamental duty to act in best interest of beneficiaries
What is a PRs Liability for breaches of another?
Not liable unless they acted negligently
Powers of PRs
- Power to Sell, Mortgage or Lease
- Power of Appropriate
- Power to accept receipts for a minor’s property
- Power to Insure
- Power to Delegate
- Power to Indemnify for Expenses
- Power to run deceased’s business (if given in will)
- Power to invest (standard investment criteria applies)
- Power to Maintain a Minor
- Power to Advance Capital
When can a PR use appropriation? When can it be used in theri own favour?
- Consent of beneficiary
- unless contrary intention in will - for own benefit
- to satisfy pecuniary legacy only for moneys worth
- unless contrary in will
Options to get valid receipt from minor?
- Pay into court
- hold themselves as trustee
- Appint trustee
3 If will permits
- accept valid receipt if beneficiary is over 16
- accept valid receipt from parents
How can PRs delegate power?
- free to do so on terms they decide
- Must review with agent (unless will says otherwise)
Liability
- only if breached duty of care or failed to review
When can PR use power to run deceased’s business?
Sole Trader
- Can only carry on if they do so to sell it as going concern
- Or if will gives them power to run it
Partnership or Company
- PA or Articles to be consulted
What can PRs not invest in under power to invest?
Subject to will
Cannot invest in:
- land aboard
- land with someone else
- Standard Investment Criteria
- must be suitable and diversified
How is PRs power exercised if there are multiple?
General
- have joint and several authority to act of one binds the other
Land / shares
- if there are multiple PR’s all must join for transfer of land and shares
How can PRs protect themselves against unknown beneficiaries/creditor?
- Take out ads calling them to come forward in 2 months+
- London Gazette
- local newspapers
- relevant trade publications - Search for:
- creditors of land
- bankruptcy search
How can PRs protect themselves against future and contingent liabilities?
- Estimate and set aside appropriate amount,
- Seek indemnity from beneficiaries
- Arrange insurance and distribute estate
- Apply to court for directions
How can PRs protect themselves against claims of missing beneficiary’s or creditors?
- Pay amount into court
- Indemnity from beneficiaries
- Insurance (need full inquiry)
- Benjamin Order (full enquiry)
How can PRs protect themselves against claims unpaid inheritance tax after 12 months?
- HMRC will not pursue if it remains unpaid by recipients, if PRs have made full inquiries and obtained certificate of discharge
What happens to claims of/against deceased?
PR’s have power to bring, defend, settle claims
When is estate insolvent
Cannot pay:
- reasonable funeral expenses
- IHT
- Cost of obtaining grant
- cost of collecting, preserving and distributing assets
- pay other debts/liabilities
How are debts paid in solvent estate
- Secured Debts
- against security
- excess is unsecured debt
- subject to “free of mortgage” - Unsecured
- partial intestacy
- residue
- subject to rescue being free of debt
What if residue is not to be used to pay debts
- property given for purpose
- pecuniary legacy fund (proportionally)
- Property gifted (proportionally)
What can beneficiary do if PRs incorrectly use their assets to pay debts?
Doctrine of Marshalling
- paid our of residue
What can protect PR’s from Liability for incorrectly paying creditors in insolvent estate?
- Pay inferior debtor with no notice of superior creditor
- if did not act with undue haste - Pay 1 creditor in full before another in same class
- acted in good faith and no reason to believe estate was insolvent
Order of payment in insolvent estate?
- Costs
- Preferred creditors (£800 each(
- Ordinary Creditors (inc. HMRC and preferred for balance)
- Interest to ordinary creditors
- Deferred creditors (family)
How can beneficiary refuse gift?
- Disclaimer
- only if not accepted benefit
- must be all or nothing
- should be in writing for tax purposes
- falls to residue/intestacy
- may revert back to them in intestacy - Variation
- can appoint replacement
- for tax purposes should be in writing (Deed of Variation), not for monetary consideration and within 2 years of death
How are Pecuniary Legacies typically paid?
- Starting point is residue paid from residue (unless provided otherwise)
- if residue is insufficient beneficiaries are paid in proportion
- appropriation may be used (with beneficiaries consent)
How are specific legacies paid to beneficiaries (chattels, shares and land)?
Chattels
- Transfer achieved delivery, in return for receipt
- Insurance should be cancelled
Company Shares
- Stock transfer form completed and sent with office copy of grant and the share certificate
Land
- Transfer requires assent in writing
- Insurance should be cancelled
- Beneficiary must register interest at HMLR
When might a certificate of discharge not protect a PR?
Certificate not effective where:
- Fraud;
- Failure to disclose material facts;
- Subsequent discovery of further assets; or
- Changes in inheritance liability
What is a certificate of discharge? Are there different types?
- PRs should apply for this to avoid further inheritance tax liability
- Limited certificate given if PRs have to pay future instalments of inheritance tax
- No certificate needed for excepted estates
Can PRs be remunerated?
Generally cannot charge for services.
- will can authorise payment
- can agree payment with beneficiaries
- Court can authorise renumeration for PRs past, present or future
Presumed that any specific or general legacy left to executor is conditional on them accepting role
- does not apply to residue
- can be rebutted if will gives it to them in different capacity “ie to my brother/friend etc.”
Time line for IHT
- Interest charge after 6 months (from end of month of death)
- IHT return to be filed 12 months (from end of month of death)
Requirements for assents, From when does it apply?
- In writing
- Signed by PR
- Name the person in whose favour it is given
Applies from date of death, so beneficiary is entitled to income generated in that time
Who must complete first registration for assent of unregistered land? Is evidence needed?
Either:
- PR can apply , producing grant when making application; or
- beneficiary will then apply later (submitting certified copy of grant)
What remedies do beneficiaries have when difficulties arise in administration of the estate?
- Personal Action against PR
- may be absolved under will, agreement with beneficiaries
- relief from court if acted honestly, reasonably and ought fiarly to be excused - Tracing
- estate property or its proceeds
- from PR or other recipient
- right lost against bona fide purchaser for value - Personal Action agsint person who wrongly recieved asset
What are requirements for Claims Against Estates under Inheritance Act 1975?
- Deceased domiciled in UK
- or left assets and dependants here - claim to be brought in 6 months of grant
- later with leave of the court - Must be of permitted class
What is the permitted class for Inheritance Act 1975?
- Spouse
- Living as spouse for 2 years before death
- Ex-Spouse
- unless remarried or clean break divorce - Children or treated as child (incl step children)
- unlikely if adults, able Bodied and employed - Person being maintained
- substantial contributions to reasonable needs
What constitutes reasonable financial provision for a surviving spouse?
- would be reasonable in all the circumstances, whether or not required for maintenance
- Court should consider what would be awarded in a divorce
What constitutes reasonable financial provision for a former spouse?
- Court discretion to apply spouse standard if
- death 12 months of divorce
- no final order made in proceedings
What constitutes reasonable financial provision for non-spouse applicants?
Required for their maintenance such that they can live decently and comfortably according to their situation
However:
- reason for no provision admissible if in the will
What happens in claim under Inheritance Act 1975 is approved
Estate passes according to court order
- can also direct assets disposed of before death if this was done to avoid giving reasonable financial provision
IHT Implication of spouses that are not domiciled in UK
Only not subject to IHT for first £325,000 of gift and taxed after this (lifetime cap so same amount for any gifts during life and on death)
Means in UK for at least 15 out of 20 tax years before transfer
Term children in intestacy
Biological and adopted
Never Step children
But step children can apply for reasonable financial provision (as this includes treated as children)
Who is living for purpose of wills / intestacy
Includes unborn but conceived
