Wills 5 - Dealing with Estate

Question 1

Administration period

Answer 1

Commences at moment immediately following death ends when PRs in a position to vest the residue of the estate. PR hold office for life (future assets or liabilities)

Question 2

Duties

Answer 2

S25 Administration of Estates Act (1925) AEA - must collect and get in the real and personal estate of the deceased and administer it according to the law.
Personally liable for loss for any breach of duty they commit ‘destavit’

Question 3

Destavit commited?

Answer 3

• failure to protect against the value of assets
  -failure to pay the people entitled to the assets
  S61 Trustees Act - honestly and reasonably and ought fairly to be excused for the breach’
  Or a clause in the will excusing the breach.

Question 4

Failure to pay to someone entitled as a creditor or beneficiary

Answer 4

Personally liable
Problems-
Unknown
Whereabouts
Successful claim under Inheritance (Provision for Family and Dependant Acts 1975).

Question 5

Unknown beneficiaries and creditors

Answer 5

S27 Trustee Act 1925.
-Protected if an unknown claimant appears
-Must wait two months
-Claimant will have right to claim back assets from the beneficiaries

Question 6

Advertising?

Answer 6

Require particulars of their claim;
- advertisement in the London Gazette
-advertisement in newspaper circulating in district in which land owned by the deceased is situated
-such other like notices, as would have been directed by a court of competent jurisdiction

If in doubt - apply to court.
- Creditor/beneficiary will send particular of claim within at least two months.

• Searches on Land Registry, Land Charges and Local Land Charges Registry - reveal interests such as mortgages.
• Time limit expired, may distribute with actual knowledge and knowledge from their endeavours. No personal claim but may claim back from beneficiaries.

Question 7

Missing beneficiafies/creditors (s27 TA 1925)

Answer 7

No protection
Should
-keep back assets in case claimant appears
-indemnity from beneficairies they will meet the claim
-insurance to provide funds (if shortfall PRs must pay)
-apply to court for order authorising on basis the beneficiary is dead. Re Benjamin 1902 - must have made fullest enquiries possible.

Question 8

Inheritance (Provision for family and dependants act) 1975

Answer 8

If claim will be personally liable.
Waiting more than six months after grant of representation before distributing. If earlier required keep enough cash.

Question 9

Collecting the assets

Answer 9

-Pass under will or intestacy automatically devolve to PRs
-Real property by S1 AEA 1925 and personal property by the common law.
Executors on death administrators when grant of representation issued.

PRs must preserve them with same reasonable care and skill (S1 TA 2000).

-Pass independently outside scope of PRs (joint tenancy)

Question 10

Debts

Answer 10

• Money from banks should be paid towards debts
  -If loan for IHT and first proceeds undertaking pay money first.

Question 11

Sale of assets

Answer 11

Selling assets to raise funds.
BE CAREFUL;
- provisions of the will
-beneficiaries wishes
- tax consequences (CGT)

Question 12

Payments to make

Answer 12

• Settle debts with due diligence (will be liable for loss for example interest)
  -Reasonable funeral expenses conducted in a manner suitable to the deceased’s circumstances.
  -Testamentary expenses (grant costs, collecting assets, cost of administering e.g. solicitor fees, IHT payable).

Question 13

Solvent debts

Answer 13

• S35 and 34(3) AEA 1925

Secured debts - Legal mortgage, debts on specific property.
Subject to contrary intention. Express reference.

Unsecured debts and expenses -
Statutory order-
- Property undisposed of by will subject to retention of a fund to meet pecuniary legacies (lapsed)
-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
-The fund to meet pecuniary legacies
- Property specifically devised or bequeathed rateably according to value
-Property apportioned by will under a general power rateable according to value.

Subject to contrary intention

Question 14

Insolvent estates

Answer 14

Not enough to pay debts. Creditors do not receive all beneficiaries receive nothing.

Secured creditors first (e.g. by exercising power of sale)

Unsecured creditors - look at remaining assets for payment. Funeral and testamentary expenses first.
Abate equally if cannot meet all creditors.

Question 15

Paying legacies

Answer 15

Done before residue and after expenses.

Specific legacies-
Land - assent (beneficiary sends assent to Land Registry) shares (stock transfer form)
Income on shares belong to beneficiary (might pay income tax).
Cost of disputes of transferring legatee liable to PRs for reimbursement.

Pecuniary legacies -
From residue before it is adminstered.
If no provisions must decide which assets used. Personalty in preference to realty.
Partial intestacy if B dies - paid from property undisposed of.

Question 16

Time of payment

Answer 16

End of executors year (one year from testators death)
If delayed by one year for the legatee interest in will or payable on money paid into court.
If payable at some future date from then

Question 17

Exceptions where interest payable from date of death

Answer 17

-satisfaction of a debt
-charged on land owned by the testator
-payable to the testators minor child
-payable to any minor where intention is to provide the maintenance for that minor.

Question 18

Completing the administration

Answer 18

Considering distribution of the residuary

Question 19

Adjustment to IHT

Answer 19

May be necessary if;
-discover additional assets since IHT account submitted
-discover lifetime transfers within 7 years
-agreement of provisionally estimated values (e.g. shares)
-agreement with HMRC of tax liability or repayment (income and CGT)
-sales made after which give rise to IHT loss relief

Question 20

IHT loss relief

Answer 20

Selling at undervalue.
Qualifying investments sold within 12 months for less than market value. Sale price substituted
- Shares or securities which are quoted on a recognised stock exchange at the date of death and also holdings in authorised unit trusts. Must be claimed.

Question 21

IHT instalments

Answer 21

Consider retaining assets to meet instalments before giving to beneficiary.
Harris v Commisioners for HMRC - PR personally liable

Question 22

Lifetime transfers

Answer 22

• Donees liable for lifetime transfers - PRs liable if unpaid for 12 months after end of month in which donor died.
  Limited to extent of assets which they would have received in administration but for default.
• If donor reserved a benefit, donee liable for 12 months then back to PRs

Question 23

Corrective account

Answer 23

All oustanding matters to HMRC after reliefs and assets known

Question 24

Clearance

Answer 24

IHT30 for confirmation. Discharges all persons

Question 25

Liaibility of deceased

Answer 25

On death PRs must make a return to HMRC (income and CGT). On 6 April before death ending with date of death. Can claim reliefs and allowances. Liability is a debt which must be paid, reduces IHT estate.

Question 26

Income tax on PRs

Answer 26

Any asset generating income subject to tax.
Dividends 8.5%
Other income 20%
Does not exceed £500 interest interest paid to beneficiary who will include on their tax form.
Income tax relief for income paid on a bank loan.

• Payment then forms part of beneficiaries income, receives credits for tax already paid.

Question 27

CGT

Answer 27

• Probate value (base value for future CGT).
  Usual incidental costs and AE (6,000).
• If valued may deduct a proportionate cost

20% or
28% on residential property
AE in year deceased died and two following years (same as usual)

Can set loss against gains and in future years. However cannot be transferred to beneficiaires

Question 28

Complex estate

Answer 28

If estate complex- must make a return to HMRC of the income they received and gains on chargeable assets

Complex if-
value of the estate exceeds 2.5 million
tax due for the whole of the administration period exceeds £10,000
value of assets sold in a tax year exceeds £500,000

If not complex normally paid in lump sum at end of administration period. CGT on residential land due within 60 days of completion.

Question 29

Transferring to residuary beneficaries

Answer 29

May be interim distributions already to take account of
Adult - if vested can transfer, if contingent transfer to trustees.

minor - usually held on trust until age of majority of contingency satisfied. If vested transfer (if expressly authorised) to parents.

Question 30

Transferring

Answer 30

Personal - by delivery

Freehold or leasehold - by assent, which will become document of legal title. If trustees PRs vest in themselves through same procedure. Must be in writing, signed by PRs and addressed to person.
May use deed if wanting to give benefit of an indemnity covenant.

Question 31

Estate accounts

Answer 31

Show assets, payment of debts, expenses and legacies and balance remaining.
Residuary sign the accounts to approve them.
Unless fraud releases PRs from liability.

Normally show capital assets and income. Is necessary to do this (separate accounts) if creating life or minority interests.

Question 32

Administrative provisions

Question 33

Power in all all wills

Answer 33

-Power to charge; power to charge renumeration. Drafted in appointment clause.
-Extended powers to appropriate assets without consent of legatee; S41 AEA 1925; can do so for legacy or interest provided it does not prejudice a beneficiary of a specific legacy. Legacee must consent to appropriation if using different assets. Can be provision to exclude such consent.
-Power to insure assets - duty to preserve estate.
-Power to accept receipts from or on behalf or minors; parents give good receipt (may be provision for PR to hold onto).
-Self-dealing; cannot use self-interest. May be excluded in the will.

Question 34

Powers to include for trustees

Answer 34

-Power to appropriate; S41 AEA does not apply, needs express provision to permit trustees to appropriate beneficial interest without obtaining consent.
-Power to invest; duty to invest under law. Entitled to invest as if they were absolutely entitled. Excludes investment in land but purchase permitted under s8.
TA 2000 permits delegation to professionals. Trustee must appoint in writing and give written policy document.
-Power to purchase land; allows freehold or leasehold investment or for occupation. Not allowed land abroad or purchasing interest with another. Needs express clause.
-Power to sell personally; Personalty not included (land is), express clause needed
-Power to use income for maintenance of beneficiaries; s31 TA 1925 gives power to use income to minor maintenance. When aged 18 S21 requires income recieved to be paid. If they think too young will can postpone age.
-Power to use capital for advancement of beneficiaries; S32 power to advance. Beneficiares cannot compel still absolute discretion - when life interest common to allow capital to life tenant.
-Control of trustees by beneficiaries;
S19 of TLATA 1996 - sui juris (18 with full capacity) and entitled may direct trustees to retire and appoint new trustees. Can expressly refuse this.
-Trusts of land; TLATA 1996 interest in possession entiteld to claim income of fund as it arises. Duty to consult those beneficiares may be removed.
Right of occupation - no power to exclude but declaratoin can be made.
-Power to carry on testators business;
sole trader only have power to selling and selling assets. Can be altered by specific legacy of business.

Question 35

Attestation

Answer 35

Raises presumption of due execution.
Used if not standard procedure (testator did not sign himself).

Question 36

Ethics

Answer 36

3.1 - only take instruction from client or someone authorised.
6.1 Do not act if there is an own interest conflict or a significant risk of such a conflict. e.g. gifts to solicitor. Client must obtain independent advice.

Appointment as executor
-do not mislead client
-Client must be fully informed (sometimes better a non-professional does it).