🖋️Wills 5: Dealing with Assets Flashcards
1
Q
What are the steps required for dealing with assets
A
- collect assets
- pay funeral and testamentary expenses and debts
- pay legacies
- complete administration (tax)
- transfer assets to residuary beneficiaries
- prep estate accounts
2
Q
5
What administrative powers should be included in all wills?
A
- 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
3
Q
Can executors charge fees?
A
If no charging clause in will, same rules as trustees:
may charge for time reasonably spent if co-executors consents
4
Q
why might you add the power to accept receipts from or on behalf of minors into the will?
A
-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
5
Q
When MUST the rule against self dealing be amended in a will?
A
Where executors/trustees also beneficiaries
6
Q
What administrative powers should be included/could be amended for trustees?
A
- 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
7
Q
What professional conduct issues may arise when dealing with assets?
A
- 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
8
Q
When does the administration period begin and end
A
-Starts: immediately following death
-Ends when PRs in position to vest residue of estate to beneficiaries or trustees
9
Q
How long do PRs hold office for
A
life
10
Q
Whats the primary duty of PRs?
A
to ‘collect and get in the real and personal estate of the deceased and administer it according to the law’
11
Q
What happens if theres a loss to the estate resulting from a breach by a PR
A
Personally liable
12
Q
Are PRs liable for breaches by co-PRs?
A
no
13
Q
What are the types of breach by a PR?
A
(a) failing to protect the value of assets;
(b) failing to pay the people entitled to assets.
14
Q
How can PRs be relieved from liability for a breach?
A
-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
15
Q
What 3 issues may be faced by PRs for which theyll be liable?
A
- Unknown beneficiaries and creditors
- Don’t know whereabouts of beneficiaries
- Successful claim against estate under Inheritance (Provision for Family and Dependants) Act 1975
16
Q
How can PRs protect against liability for unknown beneficiaries and creditors
A
- 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
17
Q
If a beneficiary can’t be traced, what can the PRs consider doing?
A
- 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
18
Q
What evidence does the court need before giving a Benjamin order?
A
evidence that the fullest possible enquiries have been made to trace missing person
19
Q
What is the effect of a Benjamin order?
A
- PRs can distribute estate on basis C dead
- Protects from PRs from liability but C can recover assets from beneficiaries
20
Q
How can the PRs protect against a successful claim against estate under Inheritance (Provision for Family and Dependants) Act 1975
A
Wait more than 6mo from date of grant of representation before distributing assets
21
Q
- collect assets:
How do assets passing under will/intestacy pass to the PRs?
A
Automatically devolve:
-Real prop-s1 AEA 1925
-Personal prop-common law
22
Q
- collect assets:
When do assets pass to PRs
A
- Executors-on death
- Administrators-when grant issued
23
Q
- collect assets:
What are PRs duties with regards to collecting assets:
A
- to collect as soon as practicable
- to preserve pending completion of administration (same powers and duty as trustees)
24
Q
- collect assets:
Do assets passing outside will/intestacy pass to PRs?
A
No, PRs have no obligation/power to deal with them
25
2. 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)
26
2. 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
27
2. Pay funeral and testamentary expenses and debts:
What do testamentary expenses include?
Expenses incidental to the proper performance of the duties of a PR:
1. Cost of obtaining grant
2. Cost of collecting/preserving assets
3. Cost of administering estate
4. IHT payable on death on deceased prop in UK which vests in PRs
28
2. 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
29
2. 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)
30
2. 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')
1. **Property undisposed of by will** subject to retention of a fund to meet pecuniary legacies
2. **Residuary estate** subject to retention of a fund to pay pecuniary legacies not already provided for
3. **Property specifically given for payment of debts** (but no direction on what to do with leftover)
4. **Property charged with the payment of debts** (with leftover given to beneficiary)
5. The**fund retained to meet pecuniary legacies** (if any)
6. **Specific gifts** proportionatley to value.
7. **Property appointed by will under a general power** proportionatley to value.
31
2. 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)
32
3. 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
33
3. 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
34
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
35
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)
36
Time limit for payment of pecuniary legacies
General rule: end of 'executors year'(1y after testators death)
37
What happens if payment of pecuniary legacies are delayed?
Legatee entitled to:
1. **Compensation**
2. **Interest**
At a rate in will OR the rate payable on money paid into court
FROM: when testator says legacy is to be paid (normally end of executors year)
EXCEPT is payable from date of death if gift is:
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
38
# 5
Why may IHT need to be adjusted when dealing with assets?
1. discovery of additional assets or liabilities
2. discovery of lifetime transfers made within 7y pre death
3. agreement of provisionally estimated values
4. agreement between the PRs and HMRC of a tax liability or repayment
5. sales made by PRs after deceased’s death which have given rise to a claim for IHT ‘loss relief’.
39
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
40
What are PRS continuing IHT liabilities
1. **Instalment option prop**
2. **Lifetime transfers** (death within 7y PET/LCT) if tax **remains unpaid for 12mo** 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
41
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
42
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
43
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)
44
What is form IHT30 used for?
To apply for IHT clearance to be in form of clearance certificate
45
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
46
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
47
What is the rate of income tax for PRs?
-Dividends: 8.75%
-Other income: 20%
48
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
49
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
50
Do beneficiaries receive credit for tax already paid by PRs?
Yes
51
When net income is paid to beneficiaries, must they pay more tax or receive a refund?
depends on beneficiaries own income tax position
52
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
53
When may PRs be liable to CGT?
If they dispose of chargeable assets
54
Rates of CGT for PRs?
Flat rate 20%
Residential property 24%
55
What should PRs deduct from gain when calculating CGT?
1. Acquisition cost (probate value)
2. Incidental costs of disposal
3. Proportion of cost of valuing deceased's estate for probate purposes
4. Annual exemption
56
For how long can PRs claim the annual exemption for CGT?
3y only (cant carry over)
57
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 )
58
How often should PRs calculate CGT?
Each income tax year, PRs must calculate income tax and CGT liability for assets disposed of
59
When is an estate 'complex' and how does the affect how CGT is paid?
Is complex if:
1. Estate **over £2.5 mill**
2. **Tax for admin period over £10k**
3. **Assets sold in tax year over £500k**
**Complex**: Return to HMRC of income received on assets and gains made on chargeable disposals for admin purposes
**Not complex**:-Informal payment of lump sum at end of admin period with no tax return
-Except UK residential land-within 60d completion
60
5. Transfer residuary estate:
What thing should be taken into account when figuring out what/how much beneficiary should get
Interim distributions
61
5. Transfer residuary estate:
How are assets transferred to adult beneficiaries?
* Vested: transfer to beneficiary
* Contingent-transfer to trustees
Personal property: Assent (Bs title derives from will, assent just gives effect to gift by PRs, generally no particular form needed as prop passes by delivery)
Land: assent (becomes a doc of title to the legal estate)
Shares: stock transfer form
62
5. 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
63
# 3
Conditions for valid assent?
1. In writing
2. Signed by PRs
3. Name person its in favour of
64
5. Transfer residuary estate:
Example of when a deed may be used
beneficiary to give PRs an indemnity covenant
65
6. Prepare estate accounts:
Why are they prepared/what do they show?
To show:
1. Assets of estate
2. Payment of debts, admin expenses, legacies
3. Interim distributions
4. Capital assets and income produced by those assets during administration
5. Balance remaining for residuary beneficiaries
66
6. 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)
67
6. Prepare estate accounts:
is there a prescribed form?
No but should be clear, concise and easily understood by residuary beneficiaries
68
6. Prepare estate accounts:
when must seperate capital and income accounts be produced?
a. Not a small estate
b. Will or intestacy creates life or minority interest
69
What statutory powers do PRs have in relation to appropriating assets
Can appropriate any assets in estate in/towards satisfaction of any legacy or interest in residue provided it doesn’t prejudice any beneficiary of a specific legacy
Must get consent of legatee to who assets are appropriated
