Wills 14

Question 1

Why are multiple official office copies of the grant of representation necessary?

Answer 1

They will be necessary when dealing with institutions over the estate. Photocopies are not acceptable evidence.

Question 2

What should the PR’s priority be in the context of collecting and realising assets?

Answer 2

To realise sufficient funds to pay off any loan taken out by the PRs to cover the estate IHT liability.

Question 3

When might the PRs need to take legal action in order to collect and realise assets?

Answer 3

If necessary to collect unsecured debts owed to the deceased, which should be collected as soon as possible

Question 4

Do damages recovered on behalf of dependants of the deceased if the deceased was killed by a wrongful act form part of the deceased’s estate?

Answer 4

No

Question 5

Are the PRs responsible for any assets passing outside the will or intestacy?

Answer 5

No, they have no obligations or powers in relation to such assets

Question 6

In deciding to sell assets of the estate, what are the 3 key considerations should PRs have?

Answer 6

• Terms of the will (i.e. any specific legacies of property should not be sold unless all other assets have been exhausted)* Wishes of beneficiaries* Tax considerations (IHT loss on sale reliefs and CGT)

Question 7

Why is CGT relevant to a PR’s sale of assets?

Answer 7

• If capital losses are made, these can be offset against capital gains made by the PRs. * If an asset is vested in a beneficiary, the beneficiary acquires it at the date of death. This is not a chargeable event under the tax laws.

Question 8

What is a solvent estate?

Answer 8

• An estate where the reasonable funeral, testamentary, and administration expenses, debts, and other liabilities can be paid in full. * Whether the legacies under the will can be satisfied in full is irrelevant to solvency.

Question 9

What are testamentary and administration expenses?

Answer 9

• IHT payable on death on property which vests in the PRs* Costs of obtaining the grant,* Costs of collecting in and preserving the deceased’s assets, and * Costs of administering the deceased’s estate e.g. solicitors and valuer’s fees

Question 10

How should secured debts of a deceased’s estate be dischared?

Answer 10

From the property against which it is secured e.g. mortgage - subject to the testator showing any contrary intention in the will.

Question 11

A testator leaves a holiday home to her nephew. The home has a mortgage against it. Does the nephew have to pay the mortgage?

Answer 11

• No, the PRs must sell the home and use the sale proceeds to pay off the mortgage. The nephew would then receive any remaining money from the sale of the home. * Alternatively, the PRs could ask the nephew if he wants to pay the mortgage subject to the will saying otherwise.

Question 12

How should unsecured debts of a deceased’s estate be dischared?

Answer 12

From the estate’s assets in the following order: * Property undisposed of by the will (e.g. in a partial intestacy); and * Residue

Question 13

If the deceased has provided in the will that debts are not to be paid from residue (‘exonerated the residue’), how should debts be paid?

Answer 13

Statutory Order: (can be set aside by the will)* Property specifically given for the payment of debts (if any)* Property specifically charged with the payment of debts - this occurs when the testator has directed what happens to any surplus arising after using such assets* The pecuniary legacy fund - unless the testator has specified otherwise, such legacies will abate proportionately so that each legatee bears a share of the burden of payment and * Property specifically devised or bequeathed, rateably according to the property’s value.

Question 14

If it is required to use the pecuniary legacy fund in order to discharge debts of the estate, what happens to any pecuniary gifts left to beneficiaries under the will?

Answer 14

Unless the testator has specified otherwise, such legacies will abate proportionately so that each legatee bears a share of the burden of payment

Question 15

What is the doctrine of marshalling?

Answer 15

It can be invoked by a disappointed beneficiary (i.e. one whose legacy is used by the PRs to pay a debt when the legacy is with- in a category which is not, as between the beneficiaries, liable to the burden of that debt). The disappointed beneficiary will be compensated from the residue for their loss.

Question 16

When a gift of a property is ‘free of mortgage’, where is the mortgage paid from?

Answer 16

Residue

Question 17

What is an insolvent estate?

Answer 17

• An estate that, after realisation of assets, has insufficient assets to pay expenses, debts, and liabilities in full. The beneficiaries will receive nothing. * If the estate is insolvent, that secured creditors enjoy priority over unsecured creditors to the value of the property securing the debt.

Question 18

In what order must unsecured creditors be paid when the deceased’s estate is insolvent?

Answer 18

• Reasonable funeral, administration and testamentary expenses* Preferred debts - wages and salaries of the deceased’s employees in the four months prior to death, up to a maximum of £800 each* Ordinary debts - including money owed to HMRC and the balance of preferred debts* Interest on preferred and ordinary debts and * Deferred debts - i.e. loans from the deceased’s spouse. Each creditor ranks equally within a category, and they abate proportionately.

Question 19

Why is it important that PRs pay unsecured creditors in the correct order?

Answer 19

They will be protected from a claim, provided they have acted in good faith and not preferred one creditor over another in the same category.

Question 20

A PR has been able to pay the funeral and administration expenses and the preferred debts in full, but is now faced with several creditors in the ordinary debt category. The estate owes £6,000 to a credit card company, another £5,000 to a bank, and £1,000 to HMRC. That’s a total of £12,000 of claims in this category. The estate has only £6,000 remaining in total. How should the remaining money in the estate be distributed?

Answer 20

The PRs must treat these creditors equally so the PRs can’t pay one creditor in full and leave the others with little or nothing. Because the estate has only half of the money necessary, the PRs must pay each of the creditors half of what they’re owed. So the credit card company receives £3,000, the bank receives £2,500, and HMRC receives £500.

Question 21

What are the consequences of PRs paying a category of debt, knowing that there are higher ranking debts?

Answer 21

The payment is an implied warranty that there are sufficient assets to meet all the higher level debts of which they have notice. If there are not sufficient assets, the PRs are personally liable (note this will not apply if the PRs did not have notice of the debt and did not act in undue haste).

Question 22

If what situation will PRs who prefer a creditor over another in the same category not be liable?

Answer 22

They are protected if payment to a creditor in one class was made in full before payment to others, and the estate later turns out to be insolvent. To be protected from liability, the PRs must have been acting in good faith at the time and with no reason to believe the estate was insolvent.