Wills 5: Dealing with Assets Flashcards
What are the steps required for dealing with assets
- collect assets
- pay funeral and testamentary expenses and debts
- pay legacies
- complete administration (tax)
- transfer assets to residuary beneficiaries
- prep estate accounts
What administrative powers should be included in all wills?
-Power to charge remuneration (for anyone OR professional)
-Extended power to appropriate assets without consent of legatee
-Power to insure assets (add express)
-Power to accept receipts from or on behalf of minors
-Self- dealing
Can executors charge fees?
If no charging clause in will, same rules as trustees:
may charge for time reasonably spent if co-executors consents
why might you add the power to accept receipts from or on behalf of minors into the will?
-General law=minor cant give good receipt but their parents/guardian can
-Can prevent by leaving legacy to trustees to hold for minor rather than leaving for child directly
-Or amend to child over 16 can give good receipt
When MUST the rule against self dealing be amended in a will?
Where executors/trustees also beneficiaries
What administrative powers should be included/could be amended for trustees?
-appropriate assets
-investment
-purchase land
-sell personalty
-maintenance/advancement
-control of trustees by bens (eg. exclude saunders & Vautier)
-of land: to consult beneficiaries/rights of occupation
What professional conduct issues may arise when dealing with assets?
-DONT takeinstructions from a third party
-Legacies to the solicitor drafting the will=conflict, only ok if eg. drafting for fam
-Appointment of the solicitor as executor: own conflict as will charge=fully advise dont encourage unless in best interests, record advise
When does the administration period begin and end
-Starts: immediately following death
-Ends when PRs in position to vest residue of estate to beneficiaries or trustees
How long do PRs hold office for
life
Whats the primary duty of PRs?
to ‘collect and get in the real and personal estate of the deceased and administer it according to the law’
What happens if theres a loss to the estate resulting from a breach by a PR
Personally liable
Are PRs liable for breaches by co-PRs?
no
What are the types of breach by a PR?
(a) failing to protect the value of assets;
(b) failing to pay the people entitled to assets.
How can PRs be relieved from liability for a breach?
-At courts discretion if satisfied that the PR ‘has acted honestly and reasonably and ought fairly to be excused for the breach’
-Clause in will protecting liability for mistakes made in good faith
What issues may be faced by PRs for which theyll be liable?
- Unknown beneficiaries and creditors
- Don’t know whereabouts of beneficiaries
- Successful claim against estate under Inheritance (Provision for Family and Dependants) Act 1975
How can PRs protect against liability for unknown beneficiaries and creditors
- Notice of intended distribution in London Gazette, local paper, requiring creditor/beneficiary to send particulars of claim
- Wait at least 2mo before distributing
- Make searches a prudent purchaser of land would make
If a beneficiary can’t be traced, what can the beneficiaries consider doing?
- Keep back assets
- Indemnity from the beneficiaries that they will meet any claims
- Insurance to provide funds (if shortfall, PRs liable for it)
- Apply for Benjamin order-authorising PRs to distribute estate on basis C dead
What evidence does the court need before giving a Benjamin order?
evidence that the fullest possible enquiries have been made to trace missing person
What is the effect of a Benjamin order?
- PRs can distribute estate on basis C dead
- Protects from PRs from liability but C can recover assets from beneficiaries
How can the PRs protect against a successful claim against estate under Inheritance (Provision for Family and Dependants) Act 1975
Wait more than 6mo from date of grant of representation before distributing assets
- collect assets:
How do assets passing under will/intestacy pass to the PRs?
Automatically devolve:
-Real prop-s1 AEA 1925
-Personal prop-common law
- collect assets:
When do assets pass to PRs
- Executors-on death
- Administrators-when grant issued
- collect assets:
What are PRs duties with regards to collecting assets:
- to collect as soon as practicable
- to preserve pending completion of administration (same powers and duty as trustees)
- collect assets:
Do assets passing outside will/intestacy pass to PRs?
No, PRs have no obligation/power to deal with them
- Pay funeral and testamentary expenses and debts:
What should PRs consider when deciding what assets to sell and in what order?
-Provisions of will (If no direction, follow statutory rules for incidence of liabilities and Generally incorrect to sell prop given specifically by will unless all other assets used up)
-Beneficiaries wishes (consult before sale takes place)
-Tax (CGT, exemptions, loss relief) (inc annual)
- Pay funeral and testamentary expenses and debts:
What funeral expenses are PRs liable to pay?
-Reasonable expenses of a funeral conducted in a manner suitable to the deceased’s position and circumstances
-Only liable so far as they have available assets of the deceased to make payment
- Pay funeral and testamentary expenses and debts:
What do testamentary expenses include?
Expenses incidental to the proper performance of the duties of a PR:
-Cost of obtaining grant
-Cost of collecting/preserving assets
-Cost of administering estate
-IHT payable on death on deceased prop in UK which vests in PRs
- Pay funeral and testamentary expenses and debts:
Admin of solvent estate: What is a solvent estate and what is an insolvent estate?
-Solvent estate=there’s sufficient assets to pay all expenses/debts/liabilities in full (even if nothing left to pay legacies)
-Insolvent estate=assets are insufficient to pay funeral/ testamentary/administration expenses, dents and liabilities
- Pay funeral and testamentary expenses and debts:
Admin of solvent estate: How are secured debts paid?
Beneficiary taking the charged asset takes it subject to the debt and will be responsible for paying the debt.
Subject to contrary intention in will/deed (ie. express reference to not pay secured debt NOT just a general direction to pay debts out of residue)
- Pay funeral and testamentary expenses and debts:
Admin of solvent estate: How are unsecured debts paid?
According to statutory order
Subject to contrary intention in will (Eg specifying assets are ‘subject to tax’/’free of tax’)
- Pay funeral and testamentary expenses and debts:
Admin of solvent estate: What is the statutory order for payment of 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.
- 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
- Pay funeral and testamentary expenses and debts:
How are insolvent estates administered?
If being administered out of court, apply order of distribution in Administration of Insolvent Estates of Deceased Persons Order:
1. Secured creditors can (inter alia) realise the security
2. Funeral and testamentary expenses
3. Unsecured debts (rank and abate equally)
- Pay legacies (after debts paid):
For specific legacies, whats the nature of assets vesting in beneficiaries?
Retrospective to date of death:
=income must be paid (when prop vests not before)
=beneficiary liable for income tax due since death
- Pay legacies (after debts paid):
What are specific legatees responsible for?
-Cost of transfer/ insurance to safeguard (subject to contrary direction in will indicating it should be paid from residue)
-Cost of litigation to establish ownership to asset where title disputed by 3rd party
=should reimburse PRs
What may testators provide for in will concerning payment of pecuniary legacies?
Typically gift of residuary will be ‘subject to’ or ‘after payment of’ pecuniary legacies
=legacies should be paid from residue before giving to residuary beneficiaries
What happens if theres no provision in will regarding payments of pecuniary legacies?
- PRs must decide which assets to use to pay
- Usually residuary estate (personalty preferred over realty)
Time limit for payment of pecuniary legacies
General rule: end of ‘executors year’(1y after testators death)
What happens if payment of pecuniary legacies are delayed?
Legatee entitled to:
1. Compensation
2. Interest
RATE:
a. in will
b. OR rate payable on money paid into court
FROM: when the testator says legacy is to be paid
EXCEPTIONS where interest is always payable from date of death. Occur when legatees are:
1. Payable in satisfaction of debt
2. Charged in land
3. Payable to testators minor child
4. Payable to any minor where intention is to provide for their maintenance
Why may IHT need to be adjusted when dealing with assets?
◊ discovery of additional assets or liabilities
◊ discovery of lifetime transfers made within 7y pre death
◊ agreement of provisionally estimated values
◊ agreement between the PRs and HMRC of a tax liability or repayment
◊ sales made by PRs after deceased’s death which have given rise to a claim for IHT ‘loss relief’.
When does IHT loss relief apply?
Where ‘qualifying investments’ are sold within 12 months of death for less than ‘probate vale’= sale price can be substituted for market value at death and IHT adjusted accordingly
‘Qualifying investments’ inc:
◊Shares/securities quoted on recognised stock exchange at date of death
◊ Holdings in authorised unit trusts
What are PRS continuing IHT liabilities
- Instalment option prop
- Lifetime transfers (death within 7y PET/LCT) if tax remains unpaid for 2mo after end of mo donor died HOWEVR PRs liability limited to assets they have received/would have received in administration of estate but for their neglect/default
Who is liable for IHT if deceased gave away prop during lifetime but reserved benefit?
Donee of gift primarily liable for tax UNLESS it remains unpaid for 12mo after end of mo of death, then PRs liable
What is a corrective account?
When variations in extent/value of deceased’s assets and liabilities known AND all reliefs to which estate entitled have be quantified
=PRs must report all outstanding matters to HMRC via corrective account
What is IHT clearance and when will it be given and whats the effect of it?
- Confirmation from HMRC theres no further IHT
- HMRC will confirm if satisfied IHT for chargeable transfer has/will be paid and transfer is one made on death
- Effect: to discharge everyone, in particular PRs from further IHT liability (unless fraud/non disclosure of material facts)
What is form IHT30 used for?
To apply for IHT clearance to be in form of clearance certificate
What must PRs do in respect of income tax/CGT?
◊ On death, PRs must make return to HMRC of income/CGT from 6 April before death to date of death
◊ can use same reliefs/allowances deceased could have claimed if they lived through whole year
What is PRs income tax liablity?
Subject to income tax in their capacity s PRs on any income paid to estate during admin eg via:
1. Income producing assets already in estate
2. Generated by PRs actions during admin
What is the rate of income tax for PRs?
-Dividends: 8.75%
-Other income: 20%
When is income tax paid by PRs?
Income £500 or under= no tax
(Beneficiaries do not pay tax on income distributed to them within £500 limit)
Income over £500=PRs pay income tax on whole amount
What relief may PRs claim for income tax?
Relief for interest paid on bank loan to pay IHT on deceased’s personal prop in UK which devolves on them to obtain grant
Do beneficiaries receive credit for tax already paid by PRs?
Yes
When net income is paid to beneficiaries, must they pay more tax or receive a refund?
depends on beneficiaries own income tax position
Is CGT payable on death?
NO: No disposal on death as PRs and beneficiaries acquire assets at probate value=no gain but becomes base cost for future liability
When may PRs be liable to CGT?
If they dispose of chargeable assets
Rates of CGT for PRs?
Flat rate 20%
Residential property 24%
What should PRs deduct from gain when calculating CGT?
- Acquisition cost (probate value)
- Incidental costs of disposal
- Proportion of cost of valuing deceased’s estate for probate purposes
- Annual exemption
For how long can PRs claim the annual exemption for CGT?
3y only (cant carry over)
What can PRs do if they sell an asset at a loss in respect of CGT?
- Set against gains arising on other sales by PRs in same/future tax year during admin period
- CANT transfer to beneficiaries (=if asset likely to be sold at loss should sell other assets or transfer to beneficiary )
How often should PRs calculate CGT?
Each income tax year, PRs must calculate income tax and CGT liability for assets disposed of
How is CGT paid for not complex estate?
-Informal payment with no tax return
-Lump sum at end of admin period
-Except UK residential land-within 60d completion
When is an estate ‘complex’ and how is CGT paid for complex estate?
Is complex if:
1. Estate over £2.5 mill
2. Tax for admin period over £10k
3. Assets sold in tax year over £500k
Return to HMRC of income received on assets and gains made on chargeable disposals for admin purposes
- Transfer residuary estate:
What thing should be taken into account when figuring out what/how much beneficiary should get
Interim distributions
- Transfer residuary estate:
How are assets transferred to adult beneficiaries?
- Vested entitlement: -transfer
- Contingent-transfer to trustees
- Transfer residuary estate:
How are assets transferred to minor (u18) beneficiaries?
-Vested/contingent-probs held on trust till age o majority/contingency satisfied
-Vested-may be able to transfer to them if expressly stated in will OR to parents/guardians
- Transfer residuary estate:
how is personal property transferred?
◊ Assent: Bs title derives from will, assent just gives effect to gift by PRs, Generally no particular form needed as prop passes by delivery)
◊ Shares: stock transfer form
Conditions for valid assent?
} In writing
} Signed by PRs
} Name person its in favour of
- Transfer residuary estate:
Example of when a deed may be used
beneficiary to give PRs an indemnity covenant
- Prepare estate accounts:
Why are they prepared?
To show:
◊Assets of estate
◊ Payment of debts, admin expenses, legacies
◊ Balance remaining for residuary beneficiaries
- Prepare estate accounts:
why must residuary beneficiaries sign them?
◊ Indicate they approve
◊Release PRs from further liability (in absence of fraud/failure to disclose assets)
- Prepare estate accounts:
is there a prescribed form?
No but should be clear, concise and easily understood by residuary beneficiaries
- Prepare estate accounts:
what do they normally show?
◊Interim distributions
◊Capital assets
◊Income produced by those assets during administration
- Prepare estate accounts:
when must seperate capital and income accounts be produced?
◊Not a small estate
◊Will/intestacy creates life or minority interest
When is interest on a pecuniary legacy payable from the date of death rather than the end of the executors year as normal?
- Legacies payable in satisfaction of a debt owed by testator
- testators land
- legacy to testators minor child and theres no other funds for their maintenance
- legacy to any minor for their maintenance
