Wills and Estate Administration - Collecting and Realising Assets, Post-Death Changes, Payment of Legacies and Ascertaining Residue

Question 1

Solvent Estate

Answer 1

Sufficient funds to pay all debts, expenses and creditors

Secured debts discharges from property against which it is secured (subject to will stating otherwise)

For unsecured debts there is a specified order for payments:

• Property not disposed of in the will
• Property which forms part of the residue

If the deceased has provided in will that debts shall not be paid out of residue:

• Property given for payment of debts
• Property specificlly charged with debt payment
• Fund for pecuniary legacies
• Property specifically bequeathed or devised

Can be set aside by a contrary provision in the will

Whether legacies can be satisfied in full is irrelevant to solvency

Question 2

Insolvent Estate

Answer 2

Insufficient funds to pay all expenses, debts and liabilities

Beneficiaries receive nothing and creditors will not be paid in full

Specific order in which creditor need to be paid (if PR gets this wrong they have personal liability to wronged creditors):

• Funeral, testamentary and administration expenses
• Preferred debts (wages and salaries of deceased employees in the 4 months prior to death, max. £800 each)
• Ordinary debts (includes money owed to HMRC and balance of preferred debts)
• Interest on preferred and ordinary debts
• Deferred debts: loans from deceased’s spouse

Each creditor ranks equally within a category and if there are not sufficient funds to pay all of the creditors within a category the creditors will receive a proportion (abatement)

Liability of PRs

• Payment of a lower level debt is an implied warranty that there are sufficient assets to meet all the higher level debts
• PRs are not liable if they pay a creditor in an inferior category without notice of a debt in a higher category (provided they did not do so with undue haste)
• PRs protected if payment to a creditor in one class made in full before payment to others and estate later turns out to be insolvent (provided PRs acting in good faith with no reason to believe estate was insolvent)

Question 3

Disclaimers

Answer 3

Beneficiary can disclaim gift unless they accepted any benefit from it

Can be orally or in writing (should be in writing to be effective for tax purposes)

Gift falls into residue (or into partial intestacy if gift is the residue) and beneficiary cannot control who gift goes to

Does not prevent person disclaiming from receiving the gift under the intestacy rules

Question 4

Variation

Answer 4

Allows a beneficiary to change who receives their inheritance

Requirements:

• In writing
• Made within 2 years of death
• Not made for monetary consideration

Can be made even if original beneficiary has accepted a benefit

Deemed a disposal of a capital gain by the original beneficiary

Question 5

Payment of Legacies

Answer 5

• Pecuniary legacies usually paid from residue (carry interest if not paid within 12 months of death)
• Undisposed residuary property held under intestacy provisions this will be used for payment of legacies before other residuary gifts
• Abatement: when assets are insufficient debts and legacies reduce proportionately
• Appropriation: A beneficiary can ask the PRs to use a particular to satisfy a pecuniary legacy (PRs should obtain a receipt from the beneficiary unless they are a minor and PR does not accept alternative view that anyone with parental responsibility can give a valid receipt)

Options for gifts to minors

• Hold property until minor reaches 18
• Use power of appropriation with minor’s parent or court giving consent
• Appoint trustees to hold property until child reaches 18
• Pay legacy into court

Question 6

Certificate of Discharge

Answer 6

Discharge from further inheritance tax liability except where:

• Fraud
• Failure to disclose material facts
• Subsequent discovery of further assets
• Changes in IHT liability due to a liability

Limited certificate of discharge: issued when there is still some IHT due, occurs where PRs have chosen to pay IHT in instalments. Only available for certain qualifying property such as houses and shares.

No certificate required for excepted estate

Automatic discharge 35 days after grant of representation unless circumstances change

Question 7

Remuneration of PRs

Answer 7

Must be authorised to charge for their services

Question 8

Doctrine of Marshalling

Answer 8

• Can be invoked by a beneficiary whose legacy has been used by PRs to pay a debt
• Beneficiary will be compensated out of residue

Question 9

‘Free of mortgage’

Answer 9

A gift free of mortgage means mortgage must be paid out of the residue

Question 10

Methods of transferring legacies

Answer 10

• Chattels: delivery in return for receipt
• Company shares: stock transfer form
• Land: requires an assent in writing, beneficiary must register interest with HMLR