Wills and Administration - Administration

Question 1

Obtaining the Grant of Representation: Initial Assessment

If the deceased left a will appointing____ , they will obtain a grant of ____ (Form…)

If the deceased left a valid will but there are no persons able or willing to act as executors, the ____ will obtain a grant of ____ (Form…)

If the deceased left no will or no valid will, the ____ will obtain a grant of ____ (Form…)

Answer 1

Executors; grant of probate (Form PA1P).
Adminstrators; grant of letters of administration with the will annexed (Form PA1P)
Administrators; grant of letters of administration (Form PA1A)

Question 2

Obtaining the Grant of Representation: Initial Assessment

(1) What is the minimum number of PRs who can obtain a grant? What about if the estate includes land?

(2) One difference between executors and administrators is that two adminstrations are required where…

(3) Authority before grant

An executor derives authority to act in administration from…

Administrators derive their authority from… which is not____ therefore they have very limited powers before a grant is made.

Once the administrators do obtain it, this is conclusive evidence of three things:

Answer 2

(1) One, even where the estate includes land.

(2) …one of the beneficiares is an infant or only has a life interest.

(3) Authority before grant

…the will.
…the grant, which is not retrospective to the date of death.
The administrator’s title to the deceased’s assets; the validity and content of any will.

On (1) c.f. trustees only, for a trust of land there needs to be either two or a trust corporation.

Question 3

Obtaining the Grant of Representation: Initial Assessment

To ensure that a will is admissible, it is necessary to check the following four things:

If there is a will, the solicitor must establish the identity of… and the nature and extent of…

In obtaining details of the deceased’s propety/debts, enquiries will be made to the deceased’s bank, and other relevant institutions. What would the bank require before giving such information?

The beneficiaries

Answer 3

• That the will is the last will of the testator;
• It has not been validly revoked;
• It is executed validly;
• It contains an attestation clause, raising a presumption of due execution.

The beneficiaries; entitlements.

Sight of the death certificate.

Other things to check: failed gifts; if intestate, establish the surviving family members.
Inform beneficiaries that you are holding personal date on them, the purposes for that, and rights of the beneficiaries as data subjects.

Question 4

Obtaining the Grant of Representation: Initial Assessment

There are three types of assets that may pass to the PRs without a grant:

Within (a), give three examples.

Assets for which a grant is not required

Answer 4

a. Certain assets not exceeding £5000 at the discretion of certain institutions.
b. Chattels.
c. Physical cash.

Within (a), three examples are:
- Money in National Savings Bank and Trustees Savings Bank
- National Savings Certificates and Premium Bonds;
- Money in building societies and friendly societies.

Question 5

Obtaining the Grant of Representation: Initial Assessment

Some assets do not pass under the will or intestacy, and are therefore irrelevant to the PRs. They are (3 categories):

Answer 5

• Joint property
• Insurance policies assigned/written in trust.
• Pension benefits

Question 6

Obtaining the Grant of Representation: Initial Assessment

After details of all of the deceased’s assets have been gathered and a value attributed IHT will be calculated.

(1) As a separate matter to determine whether it is necessary to submit an____ to HMRC or whether it is an…

(2) Before IHT is payable, some of it is likely to be due before the grant is obtained. Before the PRs apply for grant, what will they need to do?

(3) HMRC wil then email a receipt (IHT421) to HMCTS and informs the PRs that this has been done. The grant will not be issued until…

Assessment of IHT

Answer 6

(1) IHT account; excepted estate.

(2) Send the IHT account IHT400 and pay any IHT due before grant to HMRC.

(3) The Probate Registry receives the receipt.

On (2) it is IHT401 for a person domiciled outside of the UK.

Where IHT is payable before grant, it is necessary to find way s to fund IHT, given that most of the deceased’s assets will be inaccessible (see later)

Question 7

Obtaining the Grant of Representation: Initial Assessment

Apart from a few limited exceptions, applications by legal professionals for ____ must be made online.

Applications for grants of letters of administration are made ____ but can be made online if certain conditions are met.

Postal applications are made by sending a completed form ____ if there is a will (ie. for grants of probate or letters of administration with the will annexed) or form ____ where there is no will.

There is a fee payable unless the estate is below…

Preparing the application for grant

Answer 7

(1) a grant of probate.
(2) By post.
(3) PA1P.
(4) PA1A.
(5) £5000

Question 8

Obtaining the Grant of Representation: Initial Assessment

If the probate registrar requires further evidence of the validity of a will, evidence can take the form of ____sworn before a solicitor or a witness statement verified by…

In relation to execution, capacity and knowledge/approval, what might raise validity concerns?

When else might the probate registrar raise issues of validity? (3 other cases)

Additional Documents for validity

Answer 8

an affidavit; statement of truth.
…absence of attestation clause.

Where there is evidence as to:
- remote witnessing
- plight and condition
- lost previous will.

Question 9

Obtaining the Grant: IHT 400 required vs Excepted Estate

If the estate is not an excepted estate, the PRs will prepare the IHT400 and other supporting schedules.

(1) What is the IHT400?
(2) IHT400 is the form used to claim… and calculate…
(3) When should it be delivered? When do PRs usually aim to deliver it, to comply with IHT time limits for interest?
(4) If it is not submitted, what is the consequence?
(5) If an estate appears to be excepted, but is subsequently found not to be so, when must the PRs submit the IHT400?

Answer 9

(1) An inventory of assets to which the deceased was beneficially entitled and their liabilities.
(2) …reliefs and exemptions, and to calculate IHT payable.
(3) Within 12 months of the end of the month of death. Within 6 months.
(4) No grant of representation can be issued.
(5) Within 6 months of the discovery.

On (3) note that IHT is payable 6 months after death, so that is why the IHT400 form ideally should be sent at that time as well, otherwise interest is charged on the delay.

Question 10

Obtaining the Grant: IHT 400 required vs Excepted Estate

There are three categories of excepted estates, all of which do not require IHT400 to be submitted.

What are the three categories of excepted estates?

Excepted Estates

In categories 1 and 2, the NRB can be increased for the purposes of increasing the excepted estate thresholds.

Answer 10

1. Small estates
2. Exempt estates.
3. Non-domiciled estates.

Question 11

Obtaining the Grant: IHT 400 required vs Excepted Estate

Broadly speaking, “small estates” are those where:

There are some specific requirements. See if you can remember some of them:

(1) The deceased must have died domiciled…
(2) No more than £250,000 of the estate represents property which, immediately prior to death, was…
(3) The deceased made no chargeable transfers in the seven years prior to death other than ____ where the aggregate value transferred (ignoring reliefs) was more than…

Excepted Estates: Small Estates

Answer 11

The gross value of the estate for IHT purposes + the value of specified transfers and specified exempt transfers in the seven years prior to death does not exceed the current NRB (£325,000).

(1) …in the UK.
(2) …settled property.
(3) specified transfers; £250,000.

Give yourself 3 if you can remember the broad definition (otherwise 1-2). For any of the others, give 4+.

Question 12

Obtaining the Grant: IHT 400 required vs Excepted Estate

What are specified transfers? (list of 4)

Excepted Estates: Small Estates

Answer 12

(1) Chargeable transfers of:
- cash
- chattels or tangible moveable property
- quoted shares or securities,
- an interest in land (unless the land becomes settled or is subject to a reservation of benefit).
…made in the seven years prior to death.

Question 13

Obtaining the Grant: IHT 400 required vs Excepted Estate

What are specified exempt transfers? (6 types)

(relevant also to Category 2)

Answer 13

Transfers of value made in the seven years prior to death which are:

(a) Transfers between spouses;
(b) Gifts to charities;
(c) Gifts to political parties;
(d) gifts to housing associations
(e) maintenance funds for historic buildings;
(f) employee trusts

Question 14

Obtaining the Grant: IHT 400 required vs Excepted Estate

Category 2 “excepted estates” are those where: (5 conditions)

Category 2

Answer 14

• The gross value of the estate does not exceed £3 million.
• Chargeable transfers (other than specified transfers) 7 years prior to death did not exceed £250,000.
• The total trust property, exceeding exempt amounts, did not exceed £1 million.
• Chargeable trust property does not exceed £250,000.
• The net chargeable estate after deduction of liabilities, spouse and charity exemption + specified transfers and specified exempt transfers made in the seven years prior to death did not exceed the nil rate band.

The crucial point is that the bulk of category 2 estates attract spouse or charity exemption.

Question 15

Obtaining the Grant: IHT 400 required vs Excepted Estate

In this category the deceased was never domiciled or treated as domicilied in the UK, and…

Category 3

Answer 15

…owned only limited assets in the UK.

Question 16

Obtaining the Grant: IHT 400 required vs Excepted Estate

(1) Davina has died, leaving in her will £50,000 to her son Ernst; the residue to her husband Fernando. She was UK domiciled. Her only specified transfer was made two years ago when she gave £200,000 to Ernst.

Her estate consists of:

A jointly owned house of £1,400,000.
Quoted investments of £100,000
Bank and building society accounts of £50,000
Chattels of £15,000
Specified Transfer of £200,000
Debts £5000.

Is this an excepted estate and under what category if so?

(2) Fred died leaving his estate to his two children. His wife Gemma died last year and left everything to Fred.

Fred’s gross estate is £600,000 and consists of a house and money in the bank. He has made no lifetime gifts.

Is this an excepted estate and under what category if so?

(3) Adam has just died. His will leaves his estate to his wife Brenda and daughter Clare, in equal shares. He was UK domiciled and had made no lifetime transfers.

His estate = £210,000:

Jointly owned house with Brenda - £80,000
Building Society account - £100,000
Chattels - £2000
Life interest in a trust fund from his father’s will - £30,000
Debts £200

Is this an excepted estate and under what category if so?

Answer 16

(1) This is a Category 2 excepted estate. The aggregate value of the estate + the chargeable value of specified transfers does not exceed £3 million; Davina did not make CLTs in the seven years before death that exceeded £250,000. The net chargeable estate after deduction of liabilities and the spouse exemption + value of specified transfers and specified exempt transfers does not exceed the NRB of £325,000.

(2) This is a Category 1 excepted estate: Fred’s NRB is increased as a result of inheriting the whole of Gemma’s NRB.

(3) This is a Category 1 excepted estate: The gross value of Adam’s estate (i.e. before debts, exemptions and reliefs) is £212,000 and there were no lifetime gifts. The PRs will not submit IHT400.

Question 17

Obtaining the Grant: Paying the IHT

(1) The general rule is that IHT is due…
(2) However, for some types of property, there is the right to pay by ten instalments. Those types of property are: (4 types)

(3) For the last prong, what is the meaning of “sufficiently large”?

Answer 17

…six months after the end of the month in which the deceased died.

Instalment option properties:
(a) Land
(b) A business or interest in a business;
(c) Shares which immediately before death gave the deceased control of the company;
(d) Unquoted shares which do not give control if either:
- the holding is sufficiently large;
- HRMC is satisfied the tax cannot be paid in one sum due to undue hardship;
- IHT attributable to those shares + any other instalment option property amounts to at least 20% of the IHT payable on the estate.

(3) A holding of at least 10% of the nominal value of the company’s shares and worth more than £20,000.

Question 18

Obtaining the Grant: Paying the IHT

As above, what is the date for payment for non-instalment option property:

What about for instalment option property?

How is IHT apportioned between instalment and non-instalment option property?

Answer 18

Within six months of the end of the month in which the death occurred, and must be paid before the grant.

First instalment within 6 months of the end of the month of death. The nine subsequent instalments are due at annual intervals.

Using the estate rate formula.

Late payments attract interest.
For non-instalment, if the PRs elect not to pay by instalments, it is due wtihin 6 months in which the death occurred, and before the grant.

Question 19

Obtaining the Grant: Paying the IHT

Jane, who never married, died 8 November, leaving her entire estate to her sister. Jane owned a house, worth £400,000, and personalty (comprising savings in banks and building societies and small shareholdings in various quoted companies) worth a total of £200,000. She had no debts and made no lifetime gifts.

1. Do any of her assets attract the instalment option?
2. How much IHT is payable?
3. When is IHT on the non-instalment property payable, and how is it apportioned?
4. When is IHT on the instalment property payable, assuming the right is being exercised, and how is it apportioned?

Answer 19

1. Yes: the house.
2. Value payable = £600,000.
   No exemption/relief.
   £325,000 @0% £275,000 @40% = £110,000.
3. £200,000 before the grant as follows: £200,000 x (110/600,000) = £36,667.
4. £400,000 x (110/600,000) = £73,333 by instalments. The first instalment is due six months after end of month of death, but the remaining instalments are due at annual intervals thereafter.

Question 20

Obtaining the Grant: Funding the IHT

Funding IHT before the grant is problemati as institutions will want to see the grant before releasing money.

Provide 5 options to fund the IHT.
3 other options for bonus points:

Answer 20

(a) Direct payment scheme (voluntary system for institutions).
(b) Use life assurance policy payable to the estate (if one exists)
(c) Use assets that may be realised without a grant.
(d) Loan from beneficiary.
(e) Bank borrowing

(f) National Savings accounts or Government stock
(g) Offer a heritage asset in lieu of tax.
(h) Obtain a grant of credit.

(g) can only be used if Secretary of State agrees and the item is “pre-eminent for its national, scientific, historic or artistic interest”.
(h) is rare, and the PR must demonstrate that it is impossible to pay IHT in advance.

Question 21

Obtaining the Grant: Forms PA1P and PA1A and online applications

In filling out paper applications for the grant, the applicant will state whether IHT400 and IHT421 were completed. Additionally, the PRs must specify the gross and net figures for the estate passing under…, which is known as the “…”

Why is this not the same as the IHT value?
What may reduce IHT, but are irrelevant for probate purposes?

Answer 21

…the grant; the probate value.

Because the IHT value includes property that the deceased had an interest in, which do not vest in the PRs. For example, joint tenancies, life policies written in trust, pension schemes and a life interest in trust property.

• Business and agricultural relief.

Question 22

Administration: Dealing with the Estate

The administration period commences at the moment… and ends when the PRs…, or the trustees if…

Answer 22

…immediately following death; are in a position to vest the residue in the beneficiaries; a trust arises under the will or intestacy.

Question 23

Administration: Dealing with the Estate

The primary duty imposed on PRs is to…

The duties are onerous, but are PRs personally liabble for loss to the estate resulting from their breach of duty? Are they generally liable for breaches of their co-PRs?

Name two types of breach of duty:

Section 61 Trustee Act 1925 gives the court the discretion to relieve a PR from liability if satisfied that the PR has…

Answer 23

…collect and get in the real and personal estate of the deceased and administer it according to the law.

Yes; No.

1. Failing to protect the value of assets.
2. Failing to pay those entitled to assets.

…acted honestly and reasonably and ought fairly to be excused for the breaches.

Question 24

Administration: Dealing with the Estate

How can PRs protect themselves from unknown claims?

What could the claimant do in such a scenario?

Answer 24

By waiting two months before distributing the estate, and advertising for claimants.

Claim back assets from the beneficiaries who received them.

Question 25

Administration: Dealing with the Estate

1. In view of the minimum notice period of two months, PRs should advertise as early as possible. If they are executors, when may they advertise? When may administrators advertise?
2. The PRs must give notice of the intended distribution of estate, requiring any person interested to send in particulars of their claim (whether as creditor or beneficiary) by doing three things:
3. Each notice 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…

Answer 25

1. Executors: Any time after death.
   Administrators: any time after obtaining the grant.
2. Giving notice:
   a. Advertise in the London Gazette;
   b. Advertise in a district newspaper; and
   c. Such other notices elsewhere in England and Wales as would, in any special case, have been directed by a court.
3. …two months from the date of the notice.

If PRs are unsure what notices should be given, they should apply to court for directions.

Question 26

Administration: Dealing with the Estate

Section 27 Trustee Act 1925 does not give protection to PRs who know there is a person with a claim but cannot find them. Therefore, where PRs cannot trace the beneficiary, they will need to consider one of the 4 following options:

The last of these is known as a Benjamin Order. Before making an order, the court will require…

Answer 26

(a) Keeping back assets in case the claimant appears.
(b) Taking indemnity from beneficiaries.
(c) Taking out insurance to provide funds.
(d) Applying to court for authorisation to distribute on the basis that the claimant is dead.

…evidence that the fullest possible enquiries have been made to trace the person.

Question 27

Administration: Dealing with the Estate

What can the PRs do to protect themselve against personally liability in Inheritance (Provision for Family and Dependants) Act claims?

Answer 27

Wait more than 6 months after obtaining the grant of representation before distributing.

If earlier distribution is required, they need to retain sufficient assets.

Question 28

Administration: Collecting Assets

What do PRs need to do to acquire ownership of assets passing under the will or intestacy?

Once the assets are devolved on the PRs, the PRs have a duty to collect them as soon as is practicable. Having collected them, the PRs must preseve them pending the completion of the administration.

In preserving the assets, the PRs have the same powers as… in terms of …. and are subject to the same duty of…

What obligations/powers do the PRs have in relation to assets that do not pass under the will or intestacy? Give an example.

Answer 28

Nothing. Such assets automatically devolve on the PRs.
…trustees; management and investment; reasonable care and skill.

None. The deceased’s interest in property held as a joint tenant passes to the other joint owner under survivorship.

Question 29

Administration: Testamentary Expenses

As soon as monies are collected or realised through insurance policies, the PRs should begin to pay…
These include four types:

Answer 29

…the deceased’s outstanding debts and the funeral account.

a. Costs of obtaining grant.
b. Costs of collecting in and preserving the deceased’s assets.
c. Costs of administering (e.g. solicitor’s fees and valuer’s fees)
d. IHT that vests in the PRs.

Admin expenses (e.g. estate agents’ and valuers’ fees) arise during the course of administration.

Question 30

Administration: Solvent Estates

1. What is a solvent estate?
2. What are secured debts?
3. What is the effect of Section 35, Administration of Estates Act (AEA) 1925?
4. Section 35 AEA is subject to a contrary intention. To constitute this, there must be an express reference to…

Answer 30

1. An estate in which there are sufficient assets to pay all expenses, debts and liabilities in full.
2. Debts that are charged on particular items of property.
3. A beneficiary of charged property is responsible for paying the debt.
4. …the mortgage.

Question 31

Administration: Solvent Estates

What is the statutory order for the payment of funeral and testamentary expenses, and unsecured debts?

What is the effect of the will providing for a gift to be “subject to tax”?

Answer 31

1. Property undisposed of by will subject to a retained fund for pecuniary legacies.
2. Property in a residuary gift subject to a retained fund for pecuniary legacies.
3. Property specifically given for the payment of debts.
4. Property charged with the payment of debts.
5. The fund, if any, retained to meet pecuniary legacies.
6. Property specifically devised or bequeathed (rateably according to value)
7. Property appointed by will under a general power (rateably according to value).

The beneficiary will pay the IHT, so it will not be a testamentary expense.

Property specifically charged with the payment of debts = testator directs that the asset is to be used for this purpose but provides that any money left over is from that asset is to go to a beneficiary “My debts to be paid from the proceeds of sale of my shares in X, and the balance to John”.

Question 32

Administration of assets; insolvent estates

In insolvent estates, assets are insufficient to discharge in full…
The assets are used up on the debts alone. The creditors will not be paid in full (or at all) and the beneficiares receive nothing.

In such a case, the order of distribution in the Administration of Insolvent Estates of Deceased Persons Order 1986 should be followed. Broadly speaking, this ranks ____ in order of priority for payment.

Secured creditors are in a better position in that they may sell the property by exercising a power of sale as mortgagee. Unsecured creditors must look to remaining assets.

Funeral/testamentary expenses are paid in priority to ordinary unsecured debts and liabilities. By definition, an insolvent estate will be insufficient to pay all unsecured debts, and these will therefore…

Answer 32

…funeral, testamentary and administration expenses, debts and liabilities.
Debts and expenses.

…abate accordingly.

Question 33

Administration: Insolvent estates

Under the terms of Rashid’s will, his entire estate passes to his nephew. The estate comprises £10,000 in a bank account, personal effects of £2000, and his house £200,000, subject to a mortgage in favour of a bank of £175,000. Rashid has credit card debts of £15,000 and the cost of the funeral was £5000. At death, Rashid owed £25,000 to a builder in respect of works carried out at his house.

How are the assets distributed?

Answer 33

Mortage on house is a secured debt, considered first: the bank is entitled to be paid £175,000 from the proceeds of sale.

Funeral, testamentary and administration expenses are considered next. PRs must pay the funeral expenses £5000. This leaves £32,000 remaining.

The credit card bill and builder’s bill are ordinary unsecured debts, totalling £40,000 together. The unsecured debts abate equally: the builder was owed 62.5% of £40,000. Therefore he is paid 62.5% of £32,000 = 20,000. The credit card provider is paid £12,000.

Question 34

Administration: Paying legacies

Once funeral, testamentary and administration expenses and debts are paid, the PRs should discharge gifts other than…

Once PRs are satisfied that specific legacies are not needed for payment of expenses and debts, they should transfer to the beneficiary.

The legal estate in a house is vested in a beneficiary by a document known as an…

If there is a specific legacy of company shares, a ____ should be used.

For specific gifts, the vesting of the asset in the beneficiary is retrospective to… meaning that ____ produced by the property belong to… However, beneficiares are not entitled to it as it arises, but must wait until the PRs vest the property in them.

Answer 34

…the residuary estate.
…assent.
Stock transfer form.
…the date of death; income; beneficiary.

Question 35

Administration: Pecuniary Legacies

Often a testator expresses the gift of the residuary estate to be “subject to” or “after payment of” pecuniary legacies. In both cases, the legacies should be paid from the fund of… before the division of the balance between…

If the will contains no such express provision, the PRs will have to decide which assets are to be used to pay pecuniary legacies. In essence, pecuniary legacies are paid from ____ (same as above), with ____ being used before ____.

Example: A will leaves a legacy of £5000 to Des. There is no direction as to payment of that legacy. Residue consisting of personalty and realty is given by the will “to Errol if he shall survive me by 28 days”. Errol does survive by more than 28 days, so the residue is fully disposed of. How should the £5000 be paid?

A partial intestacy arises where….
In such a case the law is unclear, but the most likely outcome is that the legacies will be paid from the property which is undisposed of, with ready money being paid first.

Answer 35

residue; residuary beneficiaries.
…the residuary estate; Personalty; realty.
From the personalty. If necessary, the proceeds of realty can be used afterwards.
…part of a gift of residue fails because one of the beneficiaries dies before the testator.

Question 36

Administration: Time for payment of pecuniary legacies

The general rule is that a pecuniary legacy is payable at the end of “…”, i.e. …

Are PRs bound to distribute the estate before this time?

If the rate of interest is not prescribed in the will, what is the default rate?

Other than where the testator expressly provides, in what four situations is interest payable on a pecuniary legacy from the date of death?

Answer 36

The executor’s year, i.e. one year after the testator’s death.
No, but the legatee will be entitled to interest by way of compensation.
The rate payable on money paid to the court.

When legacies are:
(a) payable in satisfaction of a debt owed to a creditor;
(b) charged on land
(c) payable to testator’s minor child;
(d) payable to any minor where the intention is to provide for their maintenance.

Question 37

Completing Administration

Once the PRs have paid funeral and testamentary expenses, debts and legacies, they can consider the distribution of…

Before drawing up estate accounts and making the final distribution of (the above blank) PRs must deal with all outstanding matters. I.e. (three things)

Answer 37

…the residuary estate (in accordance with the will or intestacy)
IHT, income tax and CGT.

(primarily IHT)

Question 38

Completing Administration: Adjusting the IHT assessment

Adjusting IHT may be necessary, e.g. upon discovery of additional assets or liabilities or lifetime transfers within seven years; negotiations with HMRC about estimated values, tax liability for income and capital gains, etc.

Loss on sale relief is available where PRs needed to sell assets to meet debts, tax liabilities or legacies, but did so at a reduced rate, below the market value:

Where “qualifying investments” are sold within ____ of death for less than their probate value (the market value at the date of death) then the sale price can be substituted for…
and the IHT tax liability adjusted accordingly.

What are “qualifying investments”?

Is this relief automatic or must it be claimed?

Answer 38

12 months; the market value.
Quoted shares or securities and holdings in authorised unit trusts.
It must be claimed.

Question 39

Completing Administration: IHT on lifetime transfers

If donees do not pay IHT on an LCT or PET within 12 months after the end of the month in which the donor died, who will be liable, and to what extent?

Answer 39

The PRs, to the extent of the deceased’s assets which they have received or would have received but for their neglect/default.

Question 40

Completing Administration: Income Tax

When must the PRs make a return to HMRC of income and capital gains tax of the deceased, and for what period?

Even though the deceased died part way through the income tax year, the PRs may claim…

Income-producing assets (e.g. letting to tenants or dividends) are also subject to income tax. What are the two different tax rates the PRs will pay?

In what situation do PRs pay no income tax, in spite of the estate earning interest?

In caclualting income tax, the PRs may be able to claim relief for…

Answer 40

Immediately following death. Period starting 6 April before death until death.
…the same reliefs and allowances as the deceased could have claimed had they lived for the whole year.

Dividends = 8.75%
Other income = 20%

Where the estate’s only income is interest of £500 or less.
…interest paid on a bank loan to pay IHT.

Question 41

Completing Administration: Income Tax - Example

PRs’ only income is gross interest of £4000. They pay £1000 interest to the bank on a loan to pay IHT.

1. What is the income tax payable?
2. What is the net income for the beneficiaries?

Answer 41

1. £3000 x 20% = £600
2. 2400.

Question 42

Completing Administration: CGT

CGT is basically assessed on the difference between the purchase price and sale price (or market value where the asset is gifted)
1. The individual is allowed to deduct certain expenses and fees incidental to the sale, such as…
2. There is an exemption for the first part of the gains made by an individual each year known as the… How much is this?
3. On death, the PRs acquire all the deceased’s assets at… This has the effect of…
This value becomes the PRs’ base cost of all assets for future CGT purposes.

4. If PRs dispose of chargeable assets during administration, they are liable to pay CGT at a fix rate of…, or in the case of residential property…
5. What costs may the PRs deduct from the disposal consideration?

Answer 42

1. …conveyancing fees.
2. …annual exemption. £12,300
3. …their probate value at death; wiping out gains which accrued during the deceased’s lifetime.
4. …20%; 28%.
5. For CGT purposes, PRs may deduct:
   - the acquisition cost (probate value)
   - incidental costs of disposal (e.g. stockbroker’s commission for shares)
   - a proportion of the cost of valuing the deceased’s estate for probate.

Question 43

Completing Administration: CGT Example

Prs realise they will need to raise £50,000 for administration expenses. They sell some investments for £50,000. The probate value of the investments was £27,700. There are no costs associated. The PRs have no unused losses.

What is the CGT payable?

Answer 43

Gain = Disposal value - probate value: £50,000 - £27,700 = £22,300.
Less annual exemption of £12,300 = £10,000.
CGT: £10,000 x 20% = £2000.

Question 44

Completing Administration: CGT

If the PRs sell assets for less than their value at death then an… will arise. This can be set against…
Can losses that are unrelieved at the end of administration be transferred to beneficiaries?
If, instead of selling assets, PRs vest the assets in the beneficiaries (or the trustees of a trust) do chargeable gains/allowable losses arise? Explain.

Answer 44

…allowable loss
…gains arising from other sales.
No.
No. The beneficiary/trustee is deemed to have acquired the asset at probate value.

Question 45

Completing Administration: CGT example

A testator by will leaves his residuary to Parvez. Among assets forming the residue are 1000 shares from XYZ. The testator had bought these shares for £1000 ten years before he died. The probate value of the shares was £5200 at death. When the shares were transferred to Parvez the value had risen to £10,000. Five years later Parvez sells the shares for £19,200.

What is the chargeable gain?
What is the CGT payable?

Answer 45

Gain = Disposal value - Probate Value: £19,200 - £5,200 = £14,000.
£14,000 - £12,300 = £1700.
£1700 x 20% = £340.

Question 46

Summing up CGT

The 5 key points about CGT and death:
1. Is CGT payable on death itself?
2. If PRs sell assets they make… Their acquisition value is the ____ i.e.
3. PRs have an annual exemption (collectively) equal to…
4. The tax rate payable is … or …
5. If PRs transfer assets to beneficiaries, they… The beneficiary acquires the asset at…

Answer 46

1. No CGT payable on death itself.
2. If PRs sell assets they make a disposal. Their acquisition value is the market value at death = probate value.
3. The PRs have an annual exemption (collectively) equal to an individual’s in the tax year of death and the two following tax years.
4. The tax rate payable by PRs is 20% or 28% on residential property.
5. If PRs transfer assets to beneficiaries, they do not make a disposal. The beneficiary acquires the asset at probate value.

Question 47

Completing Administration: CGT and Income Tax - Administration period

For each income tax year during the administration period, the PRs must calculate their income tax and CGT liability. Provided the estate is not classified as a… they can make an informal payment without having to provide a…

Otherwise, they do need to provide this.

An estate is considered “complex” if either: (3 bullets)

Provided the estate is not complex, income tax and CGT are normally paid in one lump sum at the end of the administration period. However, CGT on disposal of UK residential land must be paid within…

Answer 47

…complex estate; tax return.

(1) The estate value exceeds £2.5 million; or
(2) The tax due for the whole administration period exceeds £10,000; or
(3) The value of assets sold in a tax year exceeds £500,000.
…60 days of completion.

Question 48

Obtaining the Grant: Minor Executor

Where one of several executors is a minor, probate can be granted to the adult executors with…

If administration has not completed by the time the minor is 18, an application for a ____ can be made to enable the former minor to act as executor.

Where the minor is the only executor appointed by will, someone must take the grant on their behalf. A ________ will be made for the use and benefit of the minor, usually to the parent/guardian, until the minor reaches 18.

On reaching 18, the executor may apply for a ____ if the administration hasn’t been completed.

Answer 48

…power reserved to the minor at a later date.
…double probate.
…grant of letters of administration with will annexed.
…cessate grant of probate.

Question 49

Obtaining the Grant: Executor renunciation

Executors may renounce their right to take the grant. Their rights as executor then cease and administration proceeds as if they were never appointed.

Executors can renounce only if they have not ____. This consists of doing tasks a PR might do, such as…

A renunciation must be made using Form ____ signed by the person renouncing and filed at the ____ Registry.

Will executors who are also appointed as trustees remain trustees?

Answer 49

…intermeddled in the estate; notfiying the deceased’s bank of the death.

PA15; Probate Registry.

Yes. They would have to disclaim the trusteeship separately if they wanted to act in neither capacity.

Question 50

Obtaining the Grant: Executors - Power reserved

Alan’s will appoints B, C, D, E and F to be his executors. All are willing and able to act. C, D, E, F apply for a grant of probate, while power is reserved to B. If F were to die, would B substitute him?

Is it possible to obtain a grant limited to only part of the estate?

Answer 50

Upon an application for a grant. There is no automatic substitution.

Yes.

Question 51

Obtaining the Grant: Administrators for a grant

Give four examples where the letter of administration with the will annexed is the appropriate grant.

Letter of administration with the will annexed

Answer 51

• Valid will but no executor able and willing to act.
• The will does not appoint executors.
• The executors predeceased or renounced.
• The deceased’s spouse was appointed sole executor, but divorced before deceased’s death.

Question 52

Obtaining the Grant: Letter of administration with the will annexed

What is the order of entitlement to the grant of letters of administration with the will annexed according to NCPR 1987, r 20?

Where the deceased died on or after 1 January 1926, the person or persons entitled is determined in accordance with the following order of priority:

Legatee includes devisee.

Answer 52

a. Executor;
b. Any residuary legatee holding in trust for another;
c. any other residuary legatee, or person entitled through partial intestacy.
d. the PR of any residuary legatee/devisee (other than one for life or holding in trust) or person entitled through partial intestacy;
e. any other legatee or devisee or creditor of the deceased.
f. the PR of any other legatee or devisee (other than one for life or holding in trust).

Question 52

Letters of administration with the will annexed

Unless a registrar otherwise directs, where there are residual legatees with a vested interest vs contingent interest, which one takes preference?

Can a person in a lower rank apply apply if there is someone in a higher rank?

The applicant must explain the basis of their entitlement by “clearing off”, i.e.

Answer 52

The vested interest.

Only if the higher rank person is not willing and able to take the grant.

Explaining why nobody in a higher rahnk is applying and why they are entitled.

Question 53

Obtaining the Grant: Administrators applying for grant

Damien’s will appoints Errol as his sole executor and (subject to 3 legacies) gives the residue to Errol. Errol died last month, and Damine has just died. Damine’s closest living relative is his mother Florence.

Who is entitled to take the grant of letters of administration with the will annexed?

Letters of administration with the will annexed

Answer 53

The sole residuary beneficiary predeceased, so there is partial intestacy. The residue is undisposed of, and will be distributed according to the intestacy rules. Damien left no spouse and no issue but is survived by his mother Florence. She is entitled

Question 53

Obtaining the Grant: Letter of administration with the will annexed

A dies leaving a valid will giving £1000 to Fraz (aged 6) contingent on reaching 21 and the residue to Pardeep and Parminder. Who should apply?

Quentin’s will fails to appoint an executor. He leaves his estate to his wife Rose for life, remainder to his son Sam. Who should apply?

If there are several people entitled to act as administators then, as with executors, the grant will…

Can administrators have power reserved for a later stage?

If there are two or more people entitled in the same category, can a grant be made through an application without notice to the others?

Anyone can renounce their right to apply for a grant. What is the difference, though, with renunciation of administators and executors?

Answer 53

Both Pardeep and Parminder.
Both Rose and Sam.
…not issue more than four in relation to the same property.
No.
Yes.
An administrator does not ose the right to renounce by intermeddling.

Note, this is not a requirement for executors, in which case 1 is suffic

Question 53

Obtaining the Grant: Administrators applying for grant

Can minors act as administrators? Can they apply for a grant?
Can their parents or guardians apply for a grant?

If there is a life interest or property passes to a minor, the court normally requires…

Answer 53

No. No.
Yes, if there are no adults in the same category.

…two administators to apply for the grant.

Question 54

Obtaining the grant: Grant of simple letters

This is appropriate where there is…
The entitlement is identical to the entitlement on intestacy - NCPR 1987, r 22 states that where the deceased died on or after 1 January 1926, wholly intestate the order for entitlement to a grant is:

Answer 54

…total intestacy.
1. Surviving spouse
2. Children of the deceased and their issue
3. Father and mother of deceased.
4. Brothers and sisters of the full blood and their issue.
5. Brothers and sisters of the half blood and their issue.
6. Grandparents
7. Uncles and aunts of the whole blood and their issue
8. Uncles and aunts of the half blood and their issue.
9. Treasury Solicitor, if he claims bona vacantia.

Question 55

Obtaining the grant: Grant of simple letters

If all persons entitled under the foregoing provisions are cleared off, a grant may be made to…

Answer 55

…a creditor.