UNIT 5: ASSETS Flashcards
1
Q
When is the administration period?
A
administration period’ - commences at the moment immediately following the death and ends when the PRs are in a position to vest the residue of the estate in the Bs, or the Ts if a trust arises under the will or the intestacy rules
* NB PRs hold office for life - so if further assets or liabilities are discovered after the residue has been transferred, the PRs are still required to deal with them
2
Q
Liability of personal representative?
A
o PR who accepts office is personally liable for loss to the estate resulting from any breach of duty they commit as PR
this type of breach is known as a ‘devistavit’
Test - whether there has been a loss caused by breach of duty (not whether PR is culpable)
o PRs are generally not liable for breaches committed by co-PRs
3
Q
- Other types of breach of duty include?
A
o failing to protect the value of the assets
o failing to pay the people entitled to assets
4
Q
Relief from liability?
A
o s61 Trustee Act 1925 - gives the court power at its 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’
o Alternatively - executor may be able to rely on a clause in the will providing protection from liability for mistakes made in good faith
5
Q
PR liability for failing to pay creditor or beneficiary
A
- If PRs fail to pay someone who is entitled either as a creditor or a beneficiary, they will be personally liable to that person
6
Q
Unknown beneficiaries/creditors
A
- PRs can protect themselves against unknown claims by advertising for claimants in compliance with the requirements of the s 27 Trustee Act 1925.
o Provided the PRs wait for the time period specified in the statute (at least two months) before distributing the estate, the PRs will be protected from liability if an unknown claimant later appears.
o However, the claimant will have the right to claim back assets from the beneficiaries who received them
7
Q
Timing for advertising
A
o Minimum notice period = 2 months
o PRs should advertise as early as possible in the administration
If executors - may advertise any time after the death
If administrators - have power to advertise any time after obtaining the grant of representation
8
Q
Do PRs have to give any notices?
A
o PRs must give notice of intended distribution of the estate.
must require any person interested to send in particulars of their claim, whether as a creditor or as a beneficiary, by:
advertisement in the London Gazette;
advertisement in a newspaper circulating in the district in which land owned by the deceased is situated; and
‘such other like notices, including notices elsewhere in England and Wales, as would, in any special case, have been directed by a court of competent jurisdiction in an action for administration’
If in doubt, PRs should apply to courts for directions as to what notices should be given
o Must require any person interested to send in particulars of their claim within the time specified in the notice, which must not be less than two months from the date of the notice
9
Q
A
10
Q
Notice requirement?
A
o Must require any person interested to send in particulars of their claim within the time specified in the notice, which must not be less than two months from the date of the notice
11
Q
Searches?
A
o PRs should make searches which the prudent purchaser of land would make in the Land Registry, Land Charges Register, and Local Land Charges Registry as appropriate
o Purpose - to reveal the existence of any liability in relation to the deceased’s ownership of an interest in land (e.g., a second mortgage)
12
Q
On expiry of time limit on notice?
A
o PRs can distribute the deceased’s estate, taking into account only those claims of which they have actual knowledge, or which they discover as a result of the advertisements
o PRs are not personally liable for any other claim, but C may pursue the claim by following the assets into the hands of the Bs who have received them from the PRs
13
Q
What if there is a missing B/creditor that the PR knows about?
A
- no protection to PRs who know that there is a person with a claim but cannot find them
14
Q
What can PRs do to protect themselves if they cannot trace a known B/creditor
A
o Retaining assets in case the claimant appears.
usually unpopular with the other beneficiaries
o Taking indemnity from Bs that they will meet any claims if C reappears
represents a risk for the PRs as the Bs may lack the means to satisfy the claim when C appears
o Taking out insurance to provide funds
can be expensive
C 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 - if there is shortfall, PRs are liable to pay the difference
o Applying for court order authorising the PRs to distribute the estate on the basis that C is dead - Benjamin order
Court will require evidence that the fullest possible enquiries have been made to trace the missing person
Protects PR from liability, but C retains right to recover assets from the Bs
Expensive, but offers full protection
15
Q
Inheritance (Provision for Family and Dependants) Act 1975
A
- PRs will be personally liable if the assets have been distributed and an applicant under the IPFDA obtains an order for ‘reasonable financial provision’ from the estate
- PRs can protect themselves against liability by waiting 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 in case applicant is successful within 6 months of grant
16
Q
How do assets devolve
A
- Assets which pass under will or intestacy rules automatically devolve on the PRs
o Real property - by virtue of s1 AEA
o Personal property - by common law
o Executors - devolution happens immediately on the death
o Administrators - devolution happens when grant of representation is issued
17
Q
What is devolution
A
o gives PRs ownership of the assets in estate, but their duty is to collect them in as soon as practicable
o PRs will be able to take possession of some assets immediately (e.g., cash found at deceased’s house)
o Mostly, in order to collect the property, PRs will need to produce their grant of representation to whoever is holding the asset (e.g., deceased’s bank or building society)
18
Q
After collecting assets?
A
o PRs must preserve the assets pending the completion of the administration
o PRs have same powers as trustees in terms of management and investment, and are subject to the same duty of reasonable care and skill under s1 Trustee Act 2000
19
Q
Assets outside of will/intestacy rules?
A
o Do NOT devolve on the PRs
o PRs have no obligation or power to deal with them
20
Q
Immediate sources of money
A
- As soon as money can be collected from deceased’s bank or building society, or realised through insurance policies, etc., PRs should pay deceased’s outstanding debts and the funeral account
- Administration expenses, e.g., estate agents’ and valuers’ fees, will arise during course of administration - will have to be settled from time to time
21
Q
Repayment of loan to pay IHT
A
- If PRs have taken out a loan to pay IHT to obtain the grant, and have given the deceased’s bank an undertaking in connection with the loan, it will likely be a ‘first proceeds’ undertaking
o i.e., PRs must use money first realised by them during the administration to repay the bank
o Failure to ^ = breach of terms of the undertaking
22
Q
Sale of assets?
A
- Any assets in the estate can be used for payment of debts and expenses (s32(1) AEA)
o NB PRs must take considerable care when deciding which particular assets they will sell in order to raise money
23
Q
What should PRs consider when selling assets
A
- Provisions in the will:
o Will may direct from which part of the deceased’s estate the debts, funeral account, testamentary and administration expenses should be paid (usually the residue)
o Without such direction, PRs must follow the statutory rules for the incidence of liabilities
o It would be generally incorrect for PRs to sell property given specifically by will unless all other assets in the estate have been exhausted in payment of the debts, etc. - The beneficiaries’ wishes:
o Wishes of Bs of the residuary estate should be respected where possible
o Although the PRs have power to sell any assets in the residuary estate, it is clearly appropriate that the residuary Bs should be consulted before any sale takes place.
o If residuary B wants to retain some assets for transfer to them, other assets may be sold by the PRs to raise necessary money - Tax consequences:
- PRs should consider the amount of any capital gains (or losses) likely to arise as a result of the sale of any assets, and the availability of any exemptions, etc.
- Full use should be made of the annual exemption for capital gains tax
- If assets are to be sold at a loss, loss reliefs for capital gains tax and IHT purposes may be available for the PRs
24
Q
Deceased’s debts and liabilities?
A
- PRs must settle any outstanding debts owed by deceased at the time of death - e.g., outstanding utility bills or payments of income tax
- They will be liable for any loss if they fail to do so
25
Funeral expenses?
* PRs required to pay reasonable expenses of a funeral conducted in a manner suitable to the deceased’s position and circumstances
* Are only liable insofar as they have available assets of the deceased to make the payment
* Reasonableness - question of fact to be determined in the circumstances of the case
26
What are testamentary expenses?
* Testamentary expenses - expenses which are incidental to the proper performance of the duties of a PR
* Will include:
o costs of obtaining the grant
o costs of collecting in and preserving the deceased’s assets
o costs of administering the deceased’s estate, e.g., solicitor’s fees for acting for the PRs, valuers’ fees incurred by PRs in valuing the deceased’s stocks and shares or other property; and
o any IHT payable on death on the deceased’s property in the UK which vests in the PRs (s211 IHTA)
27
What is a solvent estate?
there are sufficient assets to pay all the expenses, debts, and liabilities in full (irrespective of whether there remains anything with which to pay the legacies)
28
Who pays secured debts?
* s35 AEA - a beneficiary taking the asset takes it subject to the debt and will be responsible for paying the debt
o secured debts = debts owing by the deceased which are charged on particular items of property
* Application - s35 applies subject to any contrary intention shown in the will, deed, or other document
o Intention is not signified by a general direction to pay debts out of the residue
Such a direction would be construed as a direction to pay those debts other than the secured debts
o Contrary intention for s35 purposes - must be an express reference to the mortgage
29
Unsecured debts and expenses?
* s34(3) AEA - assets must be applied in the statutory order which the PRs must follow when deciding which part of the deceased’s estate should be used for the purposes of payment of funeral and testamentary expenses and unsecured debts
30
s34 order?
1. Property undisposed of by will subject to retention of a fund to meet pecuniary legacies
2. Property included in a residuary gift subject to retention of a fund to pay pecuniary legacies not already provided for
3. Property specifically given for the payment of debts
1. Property is given for the payment of debts where the testator directs in the will that a particular asset is to be used for this purpose, but leaves no direction as to what is to happen to any money left over,
2. eg ‘my debts are to be paid from the proceeds of sale of my shares in X Co’
4. The fund, if any, retained to meet pecuniary legacies
5. Property specifically devised or bequeathed, rateably according to value
6. Property appointed by will under a general power rateably according to value
31
When does s34 apply?
* s34(3) applies subject to a contrary intention shown in the will - 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
o e.g., Will may provide for a gift to be ‘subject to the payment of tax’ with the result that the inheritance tax attributable to the subject matter of the gift is payable from the asset itself.
o e.g., If the gift was silent or expressed to be ‘free of tax’, the inheritance tax attributable to the subject matter of the gift is payable as a testamentary expense
32
What happens when an estate is insolvent?
* Insolvent estate = if the assets are insufficient to discharge in full the funeral, testamentary and administration expenses, debts, and liabilities
o assets will be applied to pay the debts until they have been used up
o creditors will not be paid in full (or at all)
o Bs under will or intestacy rules will receive nothing
33
Insolvent estate priority?
o Secured creditors are in better position than unsecured creditors
o unsecured creditors will have to look to any remaining assets for payment
funeral and testamentary expenses are paid BEFORE ordinary unsecured debts and liabilities
⚠️ If in doubt, PRs should administer the estate as if it is insolvent.
* Failure to administer an insolvent estate in accordance with the statutory order is a breach of duty by the PRs
34
When to pay legacies?
- Once funeral, testamentary and administration expenses and debts have been paid or adequately provided for, PRs should consider discharging the gifts arising on the death, *other than the gifts of the residuary estate*
35
When to transfer a specific legacy?
o Once PRs are satisfied that property will not be so required, they should transfer it to B or to Ts if a trust arises
36
Method of transfer of specific legacies - legal estate?
legal estate in house or flat should be vested in B by a document known as an ‘assent’. It is B’s responsibility to send the assent to the LR for registration
37
Stock transfer - specific legacy
stock transfer form
38
Timing of specific legacy?
vesting of the asset in B is retrospective to the date of death
o means that any income produced by the property, e.g, dividends on shares, belongs to B
o Tax implication - since B is entitled to the income, they will be liable to be assessed for any income tax due on that income since the death
39
Specific legacy - costs?
any costs of transferring the property to a specific legatee, and the cost of any necessary insurance cover taken to safeguard the property are the responsibility of the legatee who should reimburse the PRs for the expenses incurred
o NB this is subject to any contrary direction in a will indicating that such expenses should be paid from residue
* Conflicts - if deceased’s title to asset is disputed by a 3P, the specific legatee will be responsible for the cost of litigation to establish ownership
40
Pecuniary legacies - provision for payment in the will?
* gift of the residuary estate will be ‘subject to’ or ‘after payment of’ the pecuniary legacies
* the pecuniary legacies should be paid from the fund of residue before the division of the balance between the residuary beneficiaries
41
Pecuniary legacies - no provision by will for payment?
* If will does not contain an express provision, PRs will have to decide which assets are to be used to pay the pecuniary legacies
* Generally - pecuniary legacies are paid from the residuary estate, with personalty being used in preference to realty
42
Partial intestacy
likely outcome is that legacies will be paid from the property which is undisposed of, with ready money being used first
43
What is the general timing for payment to pecuniary legacies?
a pecuniary legacy is payable at the end of ‘the executor’s year’ (one year after testator’s death)
o so PRs are not bound to distribute the estate to Bs before the expiration of one year from death (s44 AEA)
44
What if there is a delay of payment of pecuniary legacy?
if payment is delayed beyond the end of the executor’s year, the legatee will be entitled to interest by way of compensation
o Interest rate: will be either
rate prescribed by the testator’s will; or
in default of such provision, the rate payable on money paid into court
o If the testator stipulates that the legacy is to be paid ‘immediately following my death’, or that it is payable at some future date, or on the happening of a particular contingency, then interest is payable from either the day following the date of death, the future date or the date the contingency occurs, as may be appropriate.
45
* Four occasions when interest is payable on a pecuniary legacy from the date of death ?
o payable in satisfaction of a debt owed by the testator to a creditor;
o charged on land owned by the testator;
o payable to the testator’s minor child (historically this was so that provision was made for maintenance of the child, and interest is not payable under this provision if other funds exist for the child’s maintenance); or
o payable to any minor (not necessarily the child of the testator) where the intention is to provide for the maintenance of that minor
46
When will IHT have to be adjusted?
o discovery of additional assets or liabilities since the IHT account was submitted;
o discovery of lifetime transfers made by the deceased within the 7 years before death;
o agreement of provisionally estimated values (e.g., with the shares valuation division of HMRC (private company shares) or the district valuer (land))
valuations may require long negotiations and can often delay reaching a final settlement of IHT liabilities
o agreement between the PRs and HMRC of a tax liability or repayment, in relation to the deceased’s income and capital gains before the death
o sales made by PRs after the deceased’s death which have given rise to a claim for IHT ‘loss relief’
47
What is IHT loss relief? What is the effect?
* Where PRs have to sell assets in order to meet debts, tax liabilities or legacies, they may find that the assets sell for less than their value at the date of death (e.g., shares, land, all fluctuate in value)
* loss on sale relief can reduce the IHT liability of the estate in such cases
* where ‘qualifying investments’ are sold within 12 months of death for less than their market value at the date of death (probate value), then the sale price can be substituted for the market value at death and the IHT liability will be adjusted accordingly
48
What is a qualifying investment for the purposes of loss relief?
shares or securities which are quoted on a recognised stock exchange at the date of death and also holdings in authorised unit trusts
49
How and when can IHT loss relief be claimed?
o NB relief must be claimed - it is NOT automatic
* Availability - only when PRs make the sale, and not where a B to whom assets have been transferred does so
50
Are PRs always liable for instalment property iHT?
* PRs continue to be liable for the remaining instalments on property that attracts the instalment option even after it has been transferred to those entitled
o would be risky to transfer the assets to Bs in reliance on a promise that the Bs will pay the tax because Bs could go insolvent or disappear, leaving the PR still liable but without any assets to meet the liability
o Safe practice - PRs should retain sufficient assets in the estate to cover the remaining tax
51
IHT on lifetime transfers - general rule? Is there any limitation on PR liability?
* General rule - donees of lifetime transfers are primarily liable for IHT payable on those transfers, but the PRs of the donor’s estate may become liable if the tax remains unpaid by the donees 12 months after the end of the month in which the donor died
* Limitation on PR liability - limited to the extent of the deceased’s assets which they have received or would have received in the administration of the estate, but for their neglect or default
52
What is a corrective account?
* When all variations in extent or value of the deceased’s assets and liabilities are known, and all reliefs to which the estate is entitled have been quantified, the PRs must report all outstanding matters to HMRC
* Mode of report = corrective account
53
When can IHT clearance occur?
* If HMRC is satisfied that IHT attributable to a chargeable transfer has or will be paid, it can confirm that this is the case.
* HMRC must do so in the case of transfers made on death
54
How can PRs apply for tax clearance
* PRs can apply for such confirmation (using IHT30) in the form of a clearance certificate
* Effect - discharges all persons (in particular, the PRs) from further liability to IHT (unless there is fraud or non-disclosure of material facts)
55
When must the PRs make a return to HMRC for income tax/CGT?
* Immediately following the death, the PRs must make a return to HMRC of the income and capital gains of the deceased for the period starting on 6 April before the death and ending with the date of death.
o PRs can claim the same reliefs and allowances as the deceased could have if they had lived throughout the year
56
What is liability to tax
* Liability to tax is a debt which must be paid by the PRs during administration
o Debt = deductible when calculating the amount of IHT
57
What happens if a tax refund is obtained
* NB if a tax refund is obtained, this will represent an asset thereby increasing the size of the estate for IHT purposes
58
Income tax rate for PRs?
* PRs subject to income tax in their capacity as PRs on any income paid to the estate during the administration
* Rates depend on type of income:
o dividends - 8.75%
o other income = 20%
59
Income tax interest concession?
* Concessions/exception - where the only income of the estate is interest which does not exceed £500
o Outcome - interest will be paid to B, who will include the gross amount on their own income tax return
60
Bank loan concession?
in calculating income tax liability on income of the admin period, the PRs may be able to claim relief for interest paid on a bank loan to pay IHT
o If they use the bank loan to pay IHT on the deceased’s personal property in the UK which devolves on them in order to obtain the grant, income tax relief is generally available to them
61
What happens once PRs tax position is settled?
* Once PR’s tax position settled, remaining net income paid to B forms part of B’s income + gross amount should be included in their return of income for income tax year which it relates
* B receives credit for any tax already paid by the PRs.
o Whether there is any more to pay, or a refund can be claimed will depend on B’s own income tax position
62
What is the effect of death on CGT?
* Charged on - gains made on the disposal of a chargeable asset
* Annual exemption - £3000 in 2024/25
o On death, there is no disposal for CGT purposes, so that no liability to CGT arises.
The PRs acquire all the deceased’s assets at their probate value at death.
This has the effect of wiping out gains which accrued during the deceased’s lifetime so that these gains are not charged to tax.
Although there is no disposal, the probate value becomes the PRs’ ‘base cost’ of all the deceased’s assets for future CGT purposes
63
When do PRs pay CGT + what are the rates?
o If PRs dispose of any chargeable assets during administration to raise cash (ie pay IHT/outgoings/legacies), they are liable to CGT on any chargeable gains that they make
o PRs play flat late - 20% for all other property; 24% on residential property
64
Deductions?
o PRs can deduct incidental costs of disposal (e.g., stockbroker’s commission on sale of shares) and a proportion of the cost of valuing the deceased’s estate for probate purposes
65
How can the annual exemption be used to the PRs' advantage?
o Annual exemption of 3k available for tax year in which the deceased died and the following two tax years only – max advantage if PRs plan sales of assets carefully realised in stages of each of the three tax years
66
CGT tax calculation
disposal value - acquisition (probate) value = gain
gain - annual exemption of 3k = chargeable gain
chargeable gain x 0.2
67
When will an allowable loss apply
* If PRs sell assets for less than their value at death, an allowable loss for CGT will arise
o May be relieved by setting it against gains arising on other sales by the PRs in the same, or any future, tax year in the admin period
o Loss which is unrelieved at the end of the admin period cannot be transferred to the Bs
68
Loss unrelieved at end of admin period?
CANNOT BE TRANSFERRED TO BS
69
What if there is a possibility of losses being unused?
PRs should plan sales carefully to ensure they can obtain relief for all losses which they realise. If there is a possibility of losses being unused, the PRs should plan sales of other assets or consider transferring assets worth less than their probate value to the Bs.
70
CGT when vesting assets in the Bs?
- no chargeable gain or allowable loss arises – B or T DEEMED TO ACQUIRE ASSET TRANSFERRED AT PROBATE VALUE!! (Base cost for future disposal)
71
Non-complex estate?
PRs can make an informal payment without having to provide a tax return
72
Complex estate?
PRs must make a return to HMRC of the income they receive on the deceased’s assets, and any gains they make on disposals of chargeable assets for administration purposes
o An estate is considered complex if:
The value of the estate exceeds £2.5 million; or
Tax due for the whole of the administration period exceeds £10,000; or
The value of assets sold in a tax year exceeds £500,000
73
When is income tax/CGT paid and how
o Provided the estate is not complex, income tax and CGT are normally paid in one lump sum at the end of the administration period.
o However, CGT on the disposal of UK residential land must be paid within 60 days of completion
74
Residuary adult beneficiaries
* If Bs are adults with vested entitlement to property in the residuary estate, their entitlement can be transferred to them
* If Bs have contingent entitlement, the property cannot be transferred to them but will instead be transferred to trustees to hold on their behalf until the contingency is satisfied
75
Minor beneficiaries
* If any Bs are under 18, whether the interest enjoyed is vested or contingent, the property will usually be held in trust for them until the age of majority is reached or the contingency is satisfied
* if a minor B has a vested interest, the PRs may be able to transfer their entitlement to them (if expressly authorised in the will), or to parents and guardians on their behalf
76
Transferring personal property?
* Usually doesn’t require any form of assent - property passes by delivery
* B’s title derives from the will, so the assent is just the manner of giving effect to the gift by the PRs
77
Transferring shares?
* Company shares - share transfer form
o PRs must produce their grant to the company as proof of title
o B will apply to be registered as a member of the company in place of the deceased member after transfer to them
78
Transfer of freehold or leasehold land?
* PRs vest the legal estate in land in the person entitled (whether beneficially or as trustee) by means of an assent, which will then become a document of title to the legal estate.
* If Prs are to continue holding property in their changed capacity as trustees, an assent will be appropriate - should formally vest the legal estate in themselves as trustees to hold for Bs
79
Formalities of an assent?
o be in writing,
o be signed by PRs, and
o name the person in whose favour it is made
80
Is a deed necessary for an assent
assents operates to vest the legal estate in the named person
* NB a deed is not necessary, but may be desirable e.g., if the PRs require the beneficiary to give them the benefit of an indemnity covenant
81
What are estate accounts
shows all the assets of the estate, the payment of the debts, the administration expenses and legacies, and the balance remaining for the residuary Bs
82
Who signs estate accounts
the residuary Bs to indicate their approval
83
Effect of estate accounts
absent fraud or failure to disclose assets, the signatures will release the PRs from further liability to account to the Bs
84
Presentation of estate accounts
must be clear and concise so that accounts are easily understood by the residuary Bs
o NB if interim distribution payments were made to the residuary Bs during the admin period, these must be taken into account and shown in the estate accounts
85
Are separate accounts needed?
will be required if the will (or intestacy rules) creates a life or minority interest, since the different interests of the Bs in the capital and income need to be distinguished throughout the period of the trust, and when it ends.
86
Power to charge
* If T wishes to give the executors (and trustees) power to charge remuneration, the power can either be included:
o as part of the appointment clause, or
o with the other administrative provisions
* In drafting the clause, it must be clear:
o whether a person engaged in any profession or business can charge for time spent on the administration (e.g., a brain surgeon) or
o whether only a person whose profession involves administering estates and trusts can charge (e.g., a solicitor or accountant)
87
Extended power to appropriate assets without consent of legatee
* s41 AEA gives PRs power to appropriate any assets in the estate in or towards satisfaction of any legacy or any interest in residue provided that the appropriation does not prejudice any beneficiary of a specific legacy
o The legatee to whom the assets are appropriated (or their parent or guardian if they are a minor) must consent to the appropriation
* Practice note - common to remove the need for legatee’s consent
88
Power to insure assets?
* PRs have a duty to preserve the value of the estate
* s19 TA 1925 - gives PRs and Ts power to insure assets against all risks, to the full value of the property, and to pay premiums out of income or capital
* Not necessary to amend provision, HOWEVER
o Good practice - including an express provision makes life easier for lay PRs who will be able to see from the will itself exactly what they can do
89
Power to accept receipts for or on behalf of minors?
* Under general law, infant cannot give good receipt for a legacy or share of the estate but their parents and guardians can do so under the Children Act 1989
* Issue - a testator may not be happy for a parent or guardian to give good receipt
* Solution 1 - the will should be drafted to leave a legacy to trustees to hold for the benefit of the minor rather than to the child directly
* Solution 2 - the will may include a clause allowing PRs to accept the receipt of the child if the child is over 16 years old
90
Self-dealing
* Fiduciary position of PRs and Ts prevents them from entering into any transaction where there duties and personal self-interest conflict
o e.g., purchasing property, which is part of the estate or trust, would breach their fiduciary duty
* Solution - an express clause in the will may permit self-dealing by the Ts
* Rationale - would be useful in situations where the executors or trustees are also beneficiaries
91
Powers to appropriate for trustees
* s41 AEA does not apply to trustees
* Solution - necessary to include an express provision to permit the trustees to appropriate trust property towards beneficial interests arising under the trust without obtaining B’s consent
92
Trustee power to invest
* s3 TA 2000 - gives Ts a ‘general power of investment’ allowing them to invest as if they were absolutely entitled to the trust property themselves
o includes - investment in land, other than by mortgage
o requires Ts to take proper advice and review the investments of the trust from time to time
o Ts must have regard to the standard investment criteria, i.e. the suitability to the trust of any particular investment, and to the need for diversification of investments
93
Delegation of the power to invest?
o T must appoint the delegate in writing and give them a written policy document setting out the investment objectives and restrictions on the choice of investments
o T must review the delegate’s work and policy statement from time to time
94
Trustee power to purchase land?
* s8 TA 2000 - gives Ts power to acquire freehold or leasehold land in the UK for ‘investment, for occupation by the beneficiary, or for any other reason’
o When exercising their power, they are given ‘all the powers of an absolute owner in relation to the land’
* NB this does not authorise:
o purchase of land abroad; or
o Ts purchasing an interest in land with someone else (e.g. a beneficiary)
* For ^ powers, an express provision of such power will be needed
95
Trustee power to sell personalty
* Ts holding land in trust have power to sell it under their powers of an absolute owner
* It is unclear whether trustees who hold no land have an implicit power to sell personalty
* Solution 1 - some wills continue to impose an express trust for sale over residue
* Solution 2 - include power in the will giving Ts express power to sell personalty
96
Trustee power to use income for maintenance of beneficiaries?
* s31 TA 1925 - where Ts are holding fund for minor B, they can use income they receive for the minor’s maintenance, education or benefit
o must accumulate any income not used for ^ purposes
o where B is 18, Ts have a duty to pay future income received from that B’s share of the fund to B
* If T feels that 18 is too young to receive trust income, the will can postpone the B’s right to income until a greater age if express provision ie substitute clause in will
97
Capital advancement
* s32 TA 1925 - allows Ts in certain circumstances to give a B a payment of trust capital sooner than they would receive it under the basic provisions of the trust
o could be for, e.g., paying university fees, or deposit on house purchase
o applies only to Bs who have an interest in trust capital
* s32 confers absolute discretion on the trustees - Bs cannot compel them to make an advancement
98
When is written consent needed by B for advancement of capital
When another b has prior interest
99
Limits to advancement of capital
o Wills before 1 Oct 2014 - advancements were restricted to 1/2 the beneficiary’s share of capital
(usually extended to whole share by clauses in the will)
o Wills after 1 Oct 2014 - Ts can make an advancement of the whole of a beneficiary’s share of capital
* Practice note - where the trust creates a life interest, it is common to extend s32 TA 1925 to permit trustees to make advancement of capital to the life tenant
Miriam is making her will; she wants to leave her estate on trust for her husband for life, remainder to her children. However, she is concerned that the trust income may not be sufficient for her husband’s needs. To address this concern, the will could extend s 32 by including the following express powers for trustees in the will:
Power to pay or apply capital money from my residuary estate to any extent to or for the benefit of the Life Tenant.
Power to advance capital money from my residuary estate to the Life Tenant by way of loan to any extent upon such terms and conditions as my Trustees may in their absolute discretion think fit
These provisions would permit the trustees to give or lend capital from the trust fund to the life tenant even though he has an interest only in income, not capital. Such a clause will give more flexibility to supplement the life tenant’s income but the life tenant would be dependent on the discretion of the trustees.
100
Control of trustees by Bs
* s19 ToLATA - where Bs are sui juris (18 or over with full capacity) and together entitled to the whole fund, they may direct the Ts to retire and appoint new Ts of their own choosing
* Solution - testator can expressly exclude s18
o Rationale - if, under the terms of the trust, the position could not arise where all Bs are in existence and over 18 but the trust has not ended, testator may wish to prevent Bs from choosing their own Ts
101
Trusts of Land + interest in possession
* ToLATA gives special powers to a B who has an interest in possession, but these can be amended by the will’s terms.
o interest in possession = if Bs are entitled to claim the income of the fund as it arises
o when does ^ arise - normally either because they have a life interest, or because they are over 18 and entitled to claim income under the TA 1925 s31
102
Duty to consult beneficiaries in trusts of land
* s11 ToLATA - Ts exercising any function relating to the land must consult any B who is of full age and beneficially entitled to an interest in possession in the land
o Ts must, so far as consistent with the ‘general interest of the trust’, give effect to the wishes of any such beneficiary
* Solution - duty to consult may be excluded by the will and often is
103
Beneficiary's rights of occupation
* s12 ToLATA - B with beneficial interest in possession, even if not of full age, has the right to occupy land subject to the trust if the purposes of the trust include:
o making the land available for occupation by him, or
o if the trustees acquired the land in order to make it so available
* Solution- there is no power to exclude s12, but a declaration that the purpose of the trust is not for the occupation of land may be included in the will
104
Trustee Power to carry on the testator’s business?
* PRs have limited powers to run a business run by the deceased as sole trader
o e.g., can only do so with a view to selling it as a going concern, and may use only those assets employed in the business on the date of death
* Solution - powers can be extended by will, but in practice PRs are unlikely to wish to involve themselves
* Preferable - bequeath the business by specific legacy and appoint the legatee as a special PR of the business.
105
Attestation clause
* All wills should contain an attestation clause reciting that the formalities required by Wills Act 1837, s 9 have been complied with
* Effect - raises a presumption of due execution
* Example:
* Requirement - will be needed if the execution of the will did not follow the standard procedure (e.g., if the will was signed by someone other than the testator in the testator’s presence and by their direction)
106
Taking instructions from a third party
* Para 3.1 SRA Code - You only act for clients on instructions from the client, or from someone properly authorised to provide instructions on their behalf.
* Application to wills - dangers of misunderstanding or deceit are obvious. Solicitors should not take instructions from anyone but the client for the drafting of a will. It would not be in the best interests of the client to take instructions from an intermediary.
107
Legacies to the solicitor drafting the will
You do not act if there is an own interest conflict or a significant risk of such a conflict
* Application to wills - obviously the potential for such a conflict where the testator wishes to benefit the solicitor. Solicitors should not prepare a will giving significant amounts to themselves, their spouses, civil partners or family members unless the client has obtained independent advice
* SRA GUIDANCE: ‘Drafting and Preparation of wills’
dont need to tell t to have independent legal advice if for your parent and surviving parent wishes to leave residuary estate to u and sibling equally
108
Solicitor as executor
* Common for testators to ask solicitor drafting the will to appoint themselves to act as executor - potential own interest conflict because solicitor will charge remuneration for this
do not exploit lack of knowledge
best interests - not encouraging ur business
affairs complex/potential disputes - good to appoint solicitor but not if the estate is small and straightforward as professional executor expensive
explain options available,
ensure client understands that executor need not be professional person or business can be b
lay executors can instruct solicitor with indemnity for solicitors fees
recording advice
