Unit 5 Flashcards
When does the administration period commence?
Moment immediately following the death and ends when the PRs vest the residue of the estate in the beneficiaries.
A PR holds office for life. If further assets or liabilities are discovered after the residue has been transferred, the PRs are still required to deal with them.
What is the primary duty of the PRs?
S 25 Administration of Estates Act 1925 = PRs must collect and get in the real and personal estate of the deceased and administer it according to the law.
What is a devastivt?
Where a trustee has breached a duty which has caused a loss to the estate
What types of breach of duty are there?
1) failing to protect the value of assets;
2) failing to pay the people entitled to the assets
What is a defence to breach of duty?
Potential defence = S 61 Trustee Act 1925 – court has discretion to relieve a PR from liability for breach of duty if satisfied that the PR has acted honestly and reasonably and ought fairly to be excused for the breach.
3 issues which PRs may face:
1) Unknown beneficiaries / creditors
2) Missing beneficiaries & creditors
3) Inheritance (provision for Family and Dependants) Act 1975
How can a PR protect themselves against unknown claims?
1) Complying with notice requirements of S 27 Trustee Act 1925
What are notice requirements of S 27 Trustee Act 1925?
PRs must give notice of the intended distribution of the estate, requiring any person interested to send in particulars of their claim, whether as a creditor or as a beneficiary, by:
(a) Advertisement in the London Gazette;
(b) Advertisement in a newspaper circulating in the district in which land owned by the deceased is situated; and
(c) ‘Such other like notices, including notices elsewhere than in England and Wales as would in any special case have been directed by a court of competent jurisdiction in an action for administration’.
Timing = Minimum notice period of two months from the date of the advertisement. PRs should advertise as early as possible in the administration.
If they’re executors = may advertise at any time after the death;
If they’re administrators = they have the power to advertise at any time after obtaining the grant of representation.
- Once the notice time limit has expired PRs may distribute the deceased’s estate taking into account only the claims of which they have actual knowledge, or which they discover as a result of the advertisements.
2) Missing beneficiaries and creditors
S 27 Trustee Act 1925 – Does not give any protection to PRs who know that there is a person with a claim but cannot find them.
Where PRs cannot trace a known beneficiary, they will need to consider one of the following:
(a) Keeping back assets in case the claimant appears.
(b) Taking an indemnity from the beneficiaries that they will meet any claims if the claimant reappears. Risky as beneficiaries may have dissipated funds by the time the claimant appears.
(c) Taking out insurance to provide funds – can be expensive and difficult to ascertain what sum to insure for as the claimant may be entitled to interest on the amount of their entitlement for the period up to payment.
Insurance does not absolve PR from personal liability – simply means there will be insurance money available to pay the claim. In the event of any shortfall, PRs are still liable to pay the difference.
(d) Benjamin order – Applying to the court for an order authorising the PRs to distribute the estate on the basis that the claimant is dead. Only relevant to missing beneficiaries whose existence is known of.
Before making an order, the court will require evidence that the fullest possible enquiries have been made to trace the missing person.
A Benjamin order protects the PRs from liability, although the claimant retains the right to recover the assets from beneficiaries.
Expensive but offers PRs full protection.
How can a PR protect against someone making an Inheritance (Provision for Family and Dependants) Act 1975?
- PRs will be personally liable if the assets have been distributed and an applicant under the Inheritance (Provision for Family and Dependants) Act 1975 then successfully obtains an order for ‘reasonable financial provision’ from the estate.
- To protect themselves from this liability, they can wait more than 6 months following the date of the grant of representation before distributing the assets.
If earlier distribution is required, PRs should ensure they retain sufficient assets to satisfy an order should an applicant be successful within sixth months of the grant.
Where the PRs waited 6 months or more, the PRs are no longer personally liable, however, the family member can still trace the monies to the beneficiaries and recover it.
When selling assets in the estate to pay for debts / expenses what must trustees / PRs have regard for?
1) provisions of will
2) beneficiaries’ wishes
3) tax consequences
However, they can realise / sell any assets under the will to meet the expenses / debts of the estate.
What is the order of paying debts and liabilities in solvent estates (estates where there are sufficient assets to pay all the debts)?
1) Secured debts (i.e., mortgage, unless directed otherwise – e.g., my cottage to my daughter free of mortgage).
2) Unsecured debts:
- Property undisposed of by will subject to retention of a fund to meet pecuniary legacies.
- Property included in a residuary gift subject to retention of a fund to pay pecuniary legacies not already provided for.
- Property specifically given for the payment of debts.
- Property charged with the payment of debts – Property is charged with the payment of debts where the testator directs in the will that the asset is to be used for this purpose but provides that any money left over is to go to a beneficiary.
- The fund, if any, retained to meet pecuniary legacies.
- Property specifically devised or bequeathed, rateably according to value.
- Property appointed by will under a general power rateably according to value.
- S 34(3) applies subject to a contrary intention shown in the will.
I.e., testator can vary the order by making express provision in the will which makes it clear that the testator intends to exonerate property which would otherwise be taken in priority.
Administration of insolvent estates: order of priority of debts..
- Assets are applied to pay the debts until they have been used up. Creditors will not be paid in full / or at all and the beneficiaries under the will or the intestacy provisions receive nothing from the estate.
- Insolvent estates are governed by the Administration of Insolvent Estates of Deceased Persons Order 1986 – this ranks debts and expenses in order of priority for payment.
- Funeral and testamentary expenses are paid in priority to ordinary unsecured debts and liabilities of the deceased.
- In an insolvent estate there will be insufficient funds to pay all the unsecured debts, and these therefore abate equally.
Who meets the cost of transferring the property to a specific legatee?
The legatee (i.e., person receiving gift) / should reimburse the PRs for the expenses incurred.
Where there is no provision in the will as to how specific pecuniary gifts are paid for, how are they?
From residuary estate with personalty being preferred to realty.
