Wills and Estates 4 & 5* Flashcards
What does a ‘Grant of representation’ do?
Establishes the:
- Authority of the PR’s to act,
- Validity of the deceased’s will
NB: only covers assets in the succession estate
What date can an executor act from?
Executors are PRs appointed by the Will.
Can act from the date of death.
The grant confirms their authority.
What date can an administrator act from?
Administrators are PRs appointed by the Grant.
They have NO authority until the grant is issued
What is the role of a PR?
- collect deceased assets
- ensure deceased’s debts are paid
- ensure tax is paid
- distribute assets to beneficiaries
NB: fiduciary in nature
When will PR’s become trustees?
- The will expressly appoints them,
- There is an intestacy (the estate is held on trust with a power to sell)
- A statutory trust arises under intestacy where there is a minor beneficiary
NB: will NOT automatically be a trustee
Is a Personal Representative personally liable for a breach of duty?
Yes
What are the duties of a Personal Representative before the issue of Grant?
- dispose of the deceased’s body
- Provide information about the estate to HMRC and pay IHT (grant will not be issued until tax is paid)
What’s involved in ‘collecting in’?
- identify and locate the deceased’s estate.
- Identify the deceased’s liabilities and creditors.
- Obtain control, possession or legal ownership of the assets.
What’s involved in ‘administering the estate’? Name 5
- Keep assets secure
- Pay deceased liabilities
- Meeting administration expenses,
- Paying legacies,
- distributing the residue to those legally entitled.
NB: only succession estate
Duty to provide inventory & account
PRs must keep Estate accounts (show assets & values, record of steps taken whilst administering).
Beneficiaries/creditors may ask to see & court can order PR’s produce an inventory and accounts.
- What are the general duties on PR’s?
- When should they complete administration?
- act with due diligence,
- act within a reasonable time
- administration should be completed within 12 months i.e. the executor’s year (if longer PR’s are required to justify the delay).
Does the appointment to be a PR end once the administration is finalised?
No - the appointment is life long, so
if any assets discovered post-administration, PRs have duty to administer them
& PRs may be personally liable if unknown beneficiaries come forward post-administration.
Statutory duty of care - are PRs subject to same duty as trustees?
YES
& higher standard for professional PRs than lay PRs, as well as those possessing special knowledge or PURPORTING themselves as having such knowledge.
Applies when PRs exercise power to invest, delegate, insure & purchase land.
Can PR’s purchase assets from the estate at fair value?
Not unless they have an order from the court or with agreement of fully-informed beneficiaries.
PR’s must not place themselves in a position of conflict of interest.
Transaction would be VOIDABLE
Can PR’s profit from their position?
No - but payments will not be a breach if the PR acts in a professional capacity and the payments are authorised under the will or s.29 TA 2000
Not unless they have an order from the court or with agreement of fully-informed beneficiaries.
If the deceased died intestate, which powers will apply?
Statutory only
If the deceased left a will, which powers will apply?
- Statutory to the extent that these do not conflict with express provisions.
- Will may confer additional powers that go beyond/exclude/modify statutory powers - will take PRIORITY.
Powers granted by Statute take precedence over powers granted by the will true or false?
False - The will takes precedence.
Do PR’s have a statutory power to sell, charge or lease?
Yes
When do PR’s have the statutory power to appropriate an asset in satisfaction of a beneficiary’s entitlement? 3 rules
As long as:
- A specific beneficiary must not be prejudiced (e.g. was the asset promised to someone else)
- The recipient beneficiary has consented
- The value of the asset is considered at the date of transfer, NOT the date of death
Can PR’s appropriate an asset valued in excess of the beneficiaries entitlement (at date of appropriation)
No
Can PRs appropriate an asset valued less than the beneficiary’s entitlement (& date of appropriation)
Yes + make a balancing cash transfer to meet amount
Do PR’s have a statutory power to insure?
Yes - PRs are authorised take out insurance to insure estate assets at full value,
& to pay the insurance premiums out of either estate income or capital.
Do PR’s have a statutory power to invest?
Yes, they have a duty to preserve the estate and actively invest
- must have regard to the standard investment criteria (suitability & diversification)
- have a duty to obtain advice unless they reasonably conclude that it is unnecessary or inappropriate.
- must regularly review investments
What does a professional PR need in order to charge for services? 3 points
- Must be reasonable remuneration
- Cannot be acting alone
- Co-PRs must give written consent
Can a lay PR charge for their services?
Not unless given express power in the will to do so
- applies to a professional PR acting alone too.
Can PR’s charge for expenses when acting on behalf of the estate
Yes - but not for time (e.g. if could have earned elsewhere if not working for the estate)
- must be properly incurred
What 3 powers can’t a PR delegate?
- How and whether assets should be distributed
- Whether fees or costs are payable from income or capital
- The appointment of trustees/nominees/custodians
Limitations on who the PRs can delegate to?
Not a beneficiary
Can do one of the PRs if they are sufficiently qualified
What 3 formalities are required for PR’s to delegate?
- must be done in writing
- agent must be provided with a written policy statement which the agent must agree to.
- the use of an agent and the policy doc must be kept under review.
What are PRs statutory powers in respect of sole trades run by the deceased
There is a common law power to sell the business as a going concern within 1 year of death.
PRs are personally responsible to business creditors.
NB: may only access business assets at date of death.
How do joint PRs make decisions? 2 points & 2 exceptions
They are required to make decisions together and agree unanimously.
Exception: if the PRs are appointed by will and it states otherwise.
However, when using the power to sell or transfer, they usually have the authority to act alone.
Exception: a sole PR cannot deal with stocks & shares that are registered in joint names of PRs.
Can PRs distribute to minors?
No - they cannot give good receipt.
However, they can distribute to a trust set up for the minor’s benefit, OR
they could appoint trustees of the legacy and give the legacy to trustees rather than retaining it.
From what age is an express clause within a will which permits PRs to accept receipt from a minor beneficiary effective?
16 or older
What 2 general things could a PR be liable for?
- Loss caused by breach of duty (claim called a ‘desvastatit’)
- Breaches committed by other PRs if they did NOT make a reasonable effort to monitor their conduct.
What could claimants seek in a claim (devastatit) against the PRs? (for loss caused by breach of duties & fiduciary duty (even if no loss))
Loss caused by breach of duties:
- Court order that the PR make good the loss using their personal assets.
Even if no loss, breach of fiduciary duty:
- Account of unauthorised profit and/or
- A transaction to be set aside
NB: a PR could also be removed
2 ways that a PR can be removed by for failing to carry out their duties properly?
- Court under appointing replacement PR
- Administration action, where court takes over administration itself
What 4 things could a claim against a PR be based on?
- Negligence
- Maladministration
- Misuse of assets
- Breach of fiduciary duty
- e.g. self-dealing, unauthorised profit, conflict
NMMB (number)
How can a PR protect themselves from liability for a breach? 10 points
- Court direction
- s.48 order (distribute in accordance with a written legal opinion, Q over construction of will)
- s27 notice (only protects from unknown beneficiaries and creditors & beneficiaries may still be liable).
- Benjamin Order - (used where there is a known but missing beneficiary)
- Presumption of Death Act - PRs apply for a court order that someone thought to have died for 7 years is dead
- Insurance
- Indemnity from beneficiaries (who promise to reimburse PRs for loss)
- Payment into court - e.g. where beneficiary can be located but won’t accept their inheritance
- Exoneration by the court
- Exemption clauses (in will)
S 27 notice - requirements, timings & liability protection
Trustees may publish notice of their intention to distribute to known beneficiaries 2 MONTHS after date of advertisement.
Must place a notice in:
- London Gazette
- Newspaper circulating the area in which any trust land is situated, and
- Any other appropriate newspaper (e.g. trade paper)
NB: disappointed creditor/beneficiary may still claim against beneficiaries, and PRs who are also beneficiaries may be claimed against.
Benjamin Order - effect & liability protection
Known but missing beneficiaries.
Permits PRs to distribute the estate on the basis that the missing beneficiaries have died, or other assumptions.
Relieves PRs from personal liability if they administer in accordance with court order and assumption is correct.
Disappointed beneficiary/creditor can still claim against other beneficiaries.
What must the PRs do before a Benjamin order is granted?
Must make full enquiries to attempt to establish the true position
AND
demonstrate there is no reasonable prospect of knowing the true position without disproportionate expense
When might a PR be exonerated by the court?
- PR acted honestly and reasonably,
- PR ought fairly to be excused for:
– The breach of trust, and
– Omitting to obtain a direction from the court on the matter
NB: can be exonerated in whole or in part.
What can’t you exclude liability for in exemption clause?
Fraud
what information is contained in a grant? 4 things
- identity and date of death of the deceased.
- Deceased left a valid will.
- Identity of executors appointed.
- Value of estate to which the grant applies.
When is a grant not required?
If the estate contains ONLY assets not requiring a grant
what are the 3 types of Grant?
- Grant of Probate.
- Grant of letters of administration (with will).
- Grant of letters of administration.
When is a grant of probate made?
- the deceased left a valid will.
- the will appoints executors.
- at least one of the executors appointed is going to act.
Do you still need a grant of probate if the will does not dispose of any/all of the deceased’s property?
Yes
When is a Grant of letters of administration (with will) appropriate?
- the deceased left a valid will
- but the will appoints no executors who are willing to act
Administrators are appointed.
Rule 20 lists those in order of priority who can apply for the grant
NB: correct EVEN IF the will fails to dispose of all the estate.
When is a Grant of letters of Administration appropriate?
The deceased died without making a will (intestate).
Administrators appointed under NCPR 22 (order of priority).
Will partial intestacy suffice for a Grant letters of Administration
NO
Which assets do not require a grant to deal with them?
- Assets outside succession estate
- Certain exceptions within succession estate
Assets in succession estate that don’t need a grant for the PRs to deal with them?
- Assets distributed under the Administration of estates (Small Payments) Act.
- Personal household possessions
- Cash
What assets are covered by the Administration of Estates (Small Payments) Act?
- National Savings
- Friendly, Industrial and Provident deposit accounts.
- Arrears of salary and wages
- Pensions where the deceased was police, fire, air force or army.
- Building society accounts
What is the upper financial limit of assets in the Administration of Estates (Small Payments) Act 1965?
£5,000 per asset (if exceeds this, a grant is needed for the whole sum, not just the excess).
What are the PRs duties to HMRC?
- Deliver an account to HMRC regarding the deceased’s estate.
- Pay any IHT due
What is included in the account delivered to HMRC?
- all property and the value of each item at the date of death.
- the exemptions and reliefs that apply.
What’s the deadline for the submitting the account to HMRC?
12 months from the end of the month in which the death occurred
What is the deadline for paying IHT due?
6 months from the end of the month in which the death occurred, after which interest becomes payable on the unpaid tax.
What are the rules regarding instalment payments?
Tax can be paid in 10 instalments, the first due on the normal payment date and the remainder on each anniversary date. Interest is charged.
What assets can the instalment option be used for?
- land and buildings,
- Comapny shares/securities giving the deceased control.
-Some unquoted shares without control but where payment would cause undue hardship. - farms / interest in farming business.
- business or interest in a business
- Timber
what happens if an asset which is the subject of an instalment plan is sold?
The tax becomes due immediately.
Which form is used to account to HMRC about an estates assets / liabilities?
IHT 400
What are the two types of excepted estates?
- Low value
- Exempt
What is a ‘Low Value’ estate?
- No IHT payable because the gross value of the estate is below NRB
(gross value = taxable estate + specified transfers- those made in the last 7 years)
(NRB includes any transferred NRB but does not include RNRB).
What is an ‘Exempt excepted estate’?
- Gross value is no more than £3m but no IHT is payable because after debts, spouse/charity exemption the net value of the estate is below the NRB.
(note: ONLY spouse/charity exemption count).
(gross value = taxable estate + specified transfers- those made in the last 7 years)
(NRB includes any transferred NRB but does not include RNRB).
What factors prevent an estate from being ‘low value’ or ‘exempt’ excepted estates?
- trusts: more than one trust, or a single trust worth more than £250k
- Foreign assets worth more than £100k
- specified transfers exceeds £250k
- gift with reservation
- RNRB claim.
When is form C4 used?
- additional assets liabilities are discovered.
- corrections to values.
changes to exemptions / reliefs - a variation of the original beneficiary entitlements which affect the IHT liability.
Is there a legal duty for the PRs to follow the funeral wishes set out in a will? Who will pay?
No.
Payment is made from the post-death administration expenses payable from estate funds.
When should a formal valuation be sought?
For items valued over £500
Where does the entitlement to act as an executor derive?
from the will
Can an executor give their right to take out the grant to someone else?
No - although they may appoint someone to act on their behalf.
When is an executor unable to act? 4 situations
- They pre-deceased the testator.
- Are a minor.
- Lack capacity
- Are the testators former spouse/civil partner and the divorce/dissolution took place after the will was made (though will can override).
NB: remaining executor(s) will need to explain to probate registry why they are not applying.
How many executors are required?
How many executors can be named on the grant?
- One.
- A maximum of 4 can be named on the grant
What if more than 1 executor is appointed, but not all will apply for grant of probate?
the remaining executor(s) may continue with the application,
but will need to explain to the probate registry why not all of those named are applying
What happens if the sole executor dies after grant?
- Chain of representation applies (essentially the PR of the deceased PR take over - no additional grant needed), or
- Grant of letters of administration de bonis non is issued.
There is no will. Where does an administrator get their authority?
Administrators are appointed under the NCPR and their authority to act derives from the grant.
When will a Grant of Letters of Administration (with Will) apply?
Where the deceased left a will but there are no executors willing/able to act.
What is the statutory order of entitlement to be appointed as administrator under a grant of letters (with will)?
a) executor
b) trustee of the residuary estate,
c) any residuary beneficiary or, where there is a partial intestacy, a beneficiary of the estate under intestacy.
d) the PRs of anyone in (c) other than a trustee of a life tenant of the residue.
e) any other beneficiary or a creditor.
f) PRs of anyone in (e).
NB: those within the same category have an equal right to apply
NB: A person in one category cannot apply if anyone in a higher category is able and willing to act
Exception to the rule that those within the same category have an equal right to apply
beneficiary with a vested interest is preferred over one with a contingent interest
what is ‘clearing off’
The applicants for administrator of grant of letters (with will) must explain why anyone with a better right to apply is not doing so.
Note - no need to clear off people in the same category.
When will a Grant of Letters of Administration apply?
Where the deceased dies without a will
What is the statutory order of entitlement to be appointed as administrator under a grant of letters? (same as intestacy)
Must have a beneficial entitlement under the estate:-
a) surviving spouse/civil partner
b) children of the deceased
c) father and mother of deceased
d) whole blood siblings.
e) half-blood siblings
f) grandparents
g) Uncles/Aunts of whole blood
h) Uncles/Aunts of half blood
What if no one else can apply under a grant of letters?
- The crown
- If the crown does not apply, a creditor, or person who does not receive a benefit (but would have done had the estate been larger).
What else must applicants demonstrate for Rule 22?
the nature of their familial relationship with the deceased (to evidence which category they fall within).
- beneficial entitlement
what if an applicant survived the deceased but dies before the grant?
The applicant’s PRs can apply, but living person in that category is preferred.
Can a minor act as an administrator?
No, but someone can apply for a grant on their behalf (appointment is still valid).
- However, an adult of equal entitlement will take preference.
When might it be appropriate for an adult to apply for a grant on behalf of a minor?
Where:
- no adult of equal or greater entitlement will act, or all people within the most entitled category are children.
How many administrators are required under letters of administration / letters of administration (with will)?
1
How many administrators are required under letters of administration / letters of administration (with will) if there is a life interest in the estate or a minor?
2
i.e. if any part of the estate is passing to a minor beneficiary or is to be held on a life interest trust.
What is the maximum number of applicants to be administrators are required under letters of administration / letters of administration (with will)
4
What are the options if an executor is unwilling to act?
- Renunciation
- Reserving power
- Appointing an attorney
What is a good option if the executor is a minor or lacks capacity?
Reserve their power until a later date e.g. reaching 18.
An application could be made by a competent adult on their behalf.
How does an executor formally renounce their right?
- Sign a form of renunciation.
- Those applying for the grant must submit the form to the probate registry as evidence
- The renunciation will be noted on the grant
Can an executor change their mind about renunciation?
NO - it is final
Cannot change mind without court approval
When can’t an executor Renounce?
When they have intermeddled - taken steps to indicate that they have accepted their appointment.
Exception: acts of common humanity e.g. arranging a funeral or taking steps to secure assets.
When considering when can’t an executor Renounce, is arranging a funeral Intermeddling?
No
What is ‘Reserving Power’ by an executor?
An executor who may want to act later can reserve the power.
To act later the executor can apply for a grant of DOUBLE probate (if administration is not yet complete).
What is required to ‘reserve power’ by an executor?
- No form of reservation.
- Must be at least 1 other executor who does take out the grant of probate.
- Must be an original grant of probate
- Other executors must notify the reserved executor that they are applying for probate.
- grant will note the reservation.
Can an executor who has intermeddled still reserve power?
Yes
How is an attorney appointed by an executor? (before & after grant)
After grant:
- PR may delegate for a max of 12 months (can be renewed).
- notice should be given to other executors.
Before grant:
- other executors apply for a grant of probate & attorney applies for letters of administration (with will) - attorney can’t apply for probate as he is not named on the will.
NB: POA must be provided to probate registry with application.
What can an administrator do if they are unwilling to act?
- Renounce
- Appoint an attorney
ADMINISTRATORS CANNOT RESERVE POWER
How does an administrator renunciate?
- A form of renunciation must be signed and submitted to the probate registry with the application for grant (will be noted on grant).
NB: executors who renounce their right to apply for grant do NOT automatically renounce their right to apply as an administrator (may need to renounce under both).
NB: this is FINAL.
When may a potential administrator renounce their right?
Any time before grant is issued -
INTERMEDDLING RULE DOES NOT APPLY.
How does an administrator appoint an attorney?
After the administrator has been appointed under grant:
- PR may delegate their functions for max of 12 months (can be renewed).
Before a grant has been issued:
- The power to apply for grant can be delegated.
- POA must be provided to the probate registry as part of the application.
Can a PR just do nothing if they are entitled to act but decide not to?
NO - they should not o nothing
Should take formal steps to give up their right to apply.
What can be done if those entitled to apply refuse to act/renounce? Or what if an executor intermeddles but refuses to apply for grant?
Possible to obtain a court direction (using the citation process) to:
- Require a person to take out a grant
- Remove their right to apply
- Authorise another person to take on the administration
What must be supplied to the Probate office
- Registry fee (no fee if estate worth less than £5k)
- A certified copy of the death certificate (not photocopy)
- Original will (probate confirms validity, same for codicils)
- If IHT 400 required (goes to HMRC), HMRC will send confirmation to probate registry.
- POA docs (if required, e.g. Form PA11).
- Forms of renunciation (if applicable).
- Affidavits (if applicable)
What is an affidavit?
A formal statement of fact which a person signs under oath, swearing it to be true.
NB: can be admitted as evidence in legal proceedings if requirements met.
3 legal requirements for affidavit
- signed by all parties and dated,
- completed and signed by the person witnessing (independent solicitor/commissioner for oaths) inc. name/address & qualification.
- must follow on immediately from the text and not on a separate page.
What 4 things will an affidavit often relate to?
- Compliance with s.9 Wills Act
- Knowledge & Approval
- Date
- Physical condition of the will
Affidavit used where the PR believes the will to be valid but it is not clear that the execution requirements set out in s.9 Wills Act 1837 have been complied with? Who makes it?
Affidavit of due execution
Will usually be made by one of the witnesses
Although there is a presumption of knowledge & approval where a will has been properly executed and contains a standard attestation clause, what affidavit would be required if there is reason to doubt this, e.g. testator was blind? Who would it be made by?
Affidavit of due execution
Usually made by one of the witnesses
NB: can be avoided if original attestation clause was drafted to reflect circumstances.
If the Probate Registry are not clear on the date on which the will was signed, which affidavit should be used? Who will make it?
An affidavit of due execution made by one of the witnesses to confirm the correct date can be submitted with the original will
What if there are doubts as to when a document was altered? How can the probate registry be sure as to when alterations were made etc.?
An affidavit as to alterations could be submitted by one of the witnesses to establish the timing of the alteration.
In the absence of affidavit evidence, PRs will have to rely on the presumptions regarding timing and interpretation in s 21 Wills Act 1837 and the common law when deciding how to distribute the testator’s assets
What physical signs may suggest a will may be incomplete or tampered with?
- Pin holes (indicating staples removed)
- Paperclip indentations (indicating another document was attached)
- Non-consecutive page/clause numbering
- Signs that an attempt had been made to revoke the will e.g. burning or tearing
What can be done where there are concerns about the physical condition of the will?
An affidavit of plight and condition or attempted revocation may be required
Should be signed by someone who is able to confirm the condition of the will when it was executed, and its condition later when it was found following the death of the testator.
If there is evidence to suggest that another testamentary document was supposed to be attached to the will, it is possible that an affidavit of search may be required.
What can be done if the original will or codicil copy is missing?
NCPR 54 permits a copy of the will or codicil to be admitted to probate if there is a court order approving this.
An affidavit including the following should be used when applying for a court order:
- Evidence that the will/codicil existed after the deceased’s death
○ or facts which rebut the presumption that the missing will was revoked during the testator’s lifetime - Confirmation the will/codicil was correctly executed, and
- That the copy document submitted accurately records the testamentary wishes of the deceased.
When are affidavits not an option?
Where a suitable deponent cannot be located or is not willing and able to provide the required evidence.
An alternative to an affidavit?
From November 2020, in non-contentious probate matters, a witness statement supported by a Statement of Truth can be submitted.
SA rule re estate money held in firm account - what must the firm provide
Credit interest of a “Fair and reasonable” sum
Where should money collected be paid into?
- PR’s bank account (opened specifically to hold estate money & not mixed with personal money)
- Law firm client account
PR duties in relation to payment of debts & liability
Must pay debts with DUE DILIGENCE
- Normally before the end of the ‘executor’s year’ (1 year)
If they fail to pay debts even though there are available assets, they will be liable to creditor/beneficiary for loss
Any loans the PRs took out should be paid ASAP & general admin expenses
Can all the deceased’s property constituting assets be made available for the payment of the deceased’s debts & liabilities?
YES
Any clause to the contrary in a will is VOID
Can PR’s liability to beneficiaries & creditors in relation to payment of debts be limited?
Liability to beneficiaries can be limited by an express clause in the will.
Will clause CANNOT relieve them of liability to creditors.
Complying with s 27 notice procedure may give them personal liability protection to unknown creditors.
When is an estate solvent?
If the assets are sufficient to pay all funeral, testamentary and administration expenses, debts and liabilities.
IRRELEVANT whether legacies can be paid in full.
ORDER only matters if estate is insolvent.
What are the rules regarding secured debts?
Charged property will bear primary liability for payment of the debt UNLESS a contrary intention is shown in the will (must be clear & specific).
If the debt is less than the value of the asset, no other estate assets can be used to repay the debt.
- If more, creditor will usually rank as unsecured creditor.
How are unsecured debts / expenses paid?
1) Property not disposed of by a will
2) Residue (subject to retention of a legacy fund)
3) Property the will set aside
4) £ in the Pecuniary legacy fund
-where gifts are in unequal amounts, debts are paid proportionately.
5) Property specifically given (e.g. chattels)
NB: assets in each category must be exhausted in full before moving to the next.
PRPPP
Can the statutory order be varied by the will?
YES
How can PRs protect themselves against a claim under 1975 against the estate
If a claim under IPFDA 1975 may be made,
PRs may wish to delay distribution until 10 months of the grant being issued (there is a 6 month deadline for issuing a claim and a further 4 months to serve notice of this).
How can PRs protect themselves from unknown creditors
Get a s.27 notice in the gazette (and local newspaper if estate includes land) and wait 2 months
General rule in relation to secured debts & whether it can be overridden by will?
Secured assets subject to the related debt
- can be overridden by express wording in will.
NB: a contrary intention is NOT shown by a general direction for debts to be paid out of residue.
- clear/specific intention for beneficiary to receive item free of debt must be shown
What if PRs pay debts out of order?
Beneficiary can apply for marshalling and claim against a beneficiary who received assets that should have been used to pay the debts.
NB: creditors NOT bound by the rules and under NO obligation to return them.
Which assets should PRs sell to meet debts/expenses?
Available cash
If insufficient, may need to sell non-cash assets
NB: must use statutory order
Where the PRs have a choice about which assets to sell, what 3 things must they consider?
- CGT implications of sale
- How easily or quickly a sale can be carried out
- Wishes of beneficiaries (PRs not bound to comply but should take into account)
4 CGT considerations
- PRs should consider selling assets which have not risen in value
- Assets falling rapidly in value should usually be sold to preserve the value of the estate
- If PRs sell an asset which has increased in value after death the ‘profit’ they make may be subject to CGT if the gain is greater than any tax-free allowance
- Assets that have risen in value may be transferred directly to a beneficiary without triggering a CGT charge (as it’s not treated as a ‘disposal’)
When might PRs make early payment of part of a residuary beneficiary’s share?
When they are confident that sufficient assets will remain within their control to meet any outstanding payments later.
‘Interim distributions’
What 3 things must PRs consider to ensure they fulfil their duty to accurately distribute the estate?
- Identity of beneficiaries
(construction rules, intestacy rules?) - Nature of interest
(vested/contingent/trust) - Property to which they are entitled
(general gift of chattels/collection)
Methods of transfer for chattels, £ legacies, shares & land & who bears cost of transfer
- Chattels: delivery to the beneficiary
- £ legacies: cheque or bank transfer
- Shares: stock transfer form
- Land: Assent for a legal estate in land (land registry form AS1)
UNLESS will specifically provides otherwise, beneficiary must bear cost of transfer of asset (but inherits free of IHT)
2 main responsibilities of PRs in relation to IT & CGT?
- Finalise deceased’s IT and CGT position for the tax year of death
- either owe to HMRC or due rebate (should fill tax return to HMRC)
- estate expense - Pay IT and CGT that becomes due during the administration period
(cgt - taxable gains following disposal & it - income received during admin.)
Are tax rebates an asset of the estate? Should they be included when valuing IHT estate?
- Asset of estate
- Should be included when valuing IHT estate
Are taxes owed at the date of death payable from estate assets?
are they deductible when valuing the estate for IHT?
- yes
- yes
What 2 things will the PRs need to account for in relation to the deceased’s income?
- Untaxed income due and paid BEFORE death
- Some income paid AFTER death which relates to period before death
(E.g. rent, dividends)
How is bank interest taxed?
Paid BEFORE death - taxed as the deceased’s
Paid AFTER death - taxed as the PRs (even if part of it relates to a period prior to death)
Is death a disposal for CGT?
No.
Assets are valued at D.o.D.
Any gain is ignored (tax free uplift).
What happens to income/gains after death?
PR’s are liable at basic rate but with NO personal allowance.
When do PRs not have to account to HMRC for Estate income?
If total income is £500 or less (also not taxable income for beneficiary who receives it & not recorded in R185)
NB: if total income is over £500, IT is payable on WHOLE AMOUNT.
What happens to Estate income tax when distributed to beneficiaries?
If B pays no tax, they can request a refund,
If B pays higher rate, they will need to top-up the tax suffered by the PRs
What form is given to beneficiaries when the estate income is distributed? What if the beneficiaries don’t pay tax/subject to higher rate?
Form R185 (records income tax paid by PRs)
NB: beneficiaries who don’t pay IT can use this form to claim a tax refund.
NB: beneficiaries subject to higher/additional rate of IT will need to make a top-up payment to HMRC and use this form when completing their own tax return.
Estate Gains - do the PRs have a personal allowance?
Yes
(same as an individual, unlike IT)
Why can losses be useful for CGT purposes
The amount of the loss can be off-set against other gains made during the administration
What are the only kind of gains chargeable to CGT?
Post-death gains
Value of asset is re-set to DOD value.
Chattel exemption in relation to CGT
Gain made on the disposal of a tangible moveable asset is exempt from CGT if the disposal is for a consideration of £6,000 or less
Can PRs claim main residence relief?
NO
CGT - are transfers to beneficiaries taxable on the PRs?
No, they are not disposals for CGT purposes. B acquires the asset at Probate value (d.o.d) not the value when the asset was transferred.
Where assets are transferred to beneficiaries, do the PRs make a loss or gain?
NEITHER
- there is no disposal by PRs
What order are legacies paid in?
- specific
- general
- residuary
UNLESS the will states otherwise - PRs must comply
- otherwise general legacies paid from residue (considering expenses, liabilities etc.)
What if it is not possible to pay all the legacies?
They abate (reduce) in the following order
Within each category, they abate proportionately
When can PRs ascertain the value of the residue?
When all debts, testamentary expenses and other legacies have been paid.
What must the PRs obtain from the beneficiary when making a distribution?
Confirmation of receipt
Can minors give good receipt?
NO
What are 5 options for PRs where minor beneficiaries have a vested interest?
- Express clause in the will which gives PRs the power to accept receipt from a minor aged 16 or 17 (but no younger) is enforceable
- Parent/guardian provides receipt
- PRs to hold the gifted property themselves until the child is 18
- Appoint trustees to hold the property for the minor and make payment to the trustees
- Pay the legacy into court
EPPAP (PEPAP)
Which assets must PRs use to settle general and residual legacies?
PRs are free to choose.
-Cannot give an asset valued more than the entitlement of a beneficiary
-Can give asset valued less than entitlement and top-up.
Who prepares the estate account?
PRs or legal advisers
Who should the estate accounts be signed/approved by?
Both the PRs AND residuary beneficiaries
- should be clear & comprehensible
What 3 main sections usually comprise estate accounts? (NB no prescribed format)
- Capital account
- estate assets/liabilities at death
- what happened to each item during administration - Income account
- income re estate assets received during administration - Distribution account
- residuary beneficiaries’ entitlement
- includes distributions made during course of administration
If there is tax to pay, will the estate be excepted?
No
How can you get money to pay IHT and apply for grant?
- Send a copy of the IHT 400 to the bank so that they can pay HMRC directly.
- Then send the IHT400 to HMRC.
- HMRC will then forward the IHT 421 to the Probate office directly.
- Wait 14 days.
- Apply for grant with application fee and a fee per sealed copy.
Who signs off the trusts accounts off?
The PRs, the beneficiaries are entitled to a copy.
Are administration expenses deductible for IHT?
No - except reasonable funeral costs + Headstone
When do you get executors
If appointed by the Will. Otherwise, they will be administrators.
Are legal fees an administration expense?
YES - may be paid using the estate assets rather than PR’s personal funds
If a solicitor acts as executor, who are their duties owed to?
Estate creditors
Beneficiaries
How does title to personal household possessions pass?
By delivery and proof of ownership is not required when they are sold
Exception: cars where registration documents are needed
Can PRs dispose of chattels without having to produce formal proof of their authority?
Normally, yes.
Exception: if there was a joint owner they would need to consent before the PRs could effect a sale.
Which assets pass outside the succession estate?
- Property owned as joint tenants
- DMC
- Life policies written in trust, discretionary pension lump sums nominated for a third party, and other nominated assets
- Assets held in a trust in which the deceased had an interest
5 key pre-grant steps
- Death certificate / funeral
- Secure estate assets
- Locate will/codicil
- Basis of distribution & identify beneficiaries
- Schedule of assets & lifetime transfers
When must the death be registered
Before a funeral can take place
Will need official copies to send to institutions
How should PRs secure the estate assets
The PRs have a duty to preserve the value of the estate
Should take steps to ensure valuable items and documents are kept safe (incl. digital assets)
What if the PRs fail to secure the estate assets?
May be personally liable to account for loss or damage to the estate assets
Will a copy of the will suffice for the purposes of obtaining a grant?
NO
Unless special permission has been obtained from the Probate Registry
How can a will be searched for?
National wills register
NB: it is OPTIONAL to register a will on the national register
When does the will become a public document?
Once grant is issued
Why must the PRs compile a list of the deceased’s assets and liabilities?
- Identify and value the estate assets
- Identify the deceased’s creditors (to whom the PRs owe a duty as well as the beneficiaries)
- Work out what steps are required to manage the distribution of the assets
- Calculate the IHT due (this is done with reference to the date of death values)
- Establish whether the estate is solvent
- Estimate what each beneficiary is entitled to
How should bank accounts be valued?
PRs should request from the bank a summary of the account balance on the date of death plus any accrued interest.
How should joint accounts be valued?
PRs must establish what proportion of the bank account was owned by the deceased.
50/50 is often presumed but enquiries should be made to ensure that an alternative arrangement had not been made.
How should low-value chattels be valued?
It is usually acceptable to estimate their value
Probate value is what they would fetch if sold (normally lower than replacement cost)
How should single items worth more than £500 (or unusual items) be valued?
A formal probate valuation should be obtained
How should quoted shares be valued?
By taking the lower of the two prices on the Stock Exchange Daily List and adding 1/4 of the difference between the higher and the lower value
How should private co shares / partnership interests / sole trader business be valued?
Specialist valuer usually instructed
How should shares or other financial investments held through a financial services company be valued?
The broker will provide a list of shareholdings /investments and the date of death values
How should land be valued?
PRs will usually instruct estate agents to prepare a valuation
NB: if jointly owned, the deceased’s share should be identified.
What happens if a grant has been taken out and one of the PRs appointed before the administration is complete?
If more than 1 PR remains:
- remaining PRs may continue
- additional may be appointed if no. falls below min. needed
If no PR remains:
– Chain of representation applies (essentially the PR of the deceased PR take over - no additional grant needed), or
– Grant of letters of administration de bonis non is issued.
Chain of representation
Where the last surviving executor (E1) dies having appointed an executor of their own estate and this person takes out the grant probate for E1’s estate (E2).
E2 automatically becomes executor of the original testator’s estate as well as being executor for E1’s estate (no additional grant required)
3 requirements for Grant of letters of administration de bonis non to be issued
- the administration is incomplete;
- there are no remaining personal representatives; and
- there has been a previous grant of representation.
On to pre-grant procedure:
What must be paid by the PRs before a grant can be obtained?
Inheritance tax due on the estate
On to applying to the court:
What form is used (1) for probate or administration with will annexed and (2) for administration without a will?
- Form PA1P (valid will)
- Form PA1A (no will)
3 types of applications by professionals
- Mandatory online application
- most grants - Online application (possible but not mandatory)
- some simple apps. - Mandatory paper applications
- non-standard grants & more complicated apps.
What do all grant applications require?
- Confirm the identity of the deceased and the applicants (and any different names used)
- Justify the type of grant requested and their entitlement to act as PR
- Provide information about the value of the estate and inheritance tax (IHT) status of the estate
- including interests in settled land - Complete the legal statement on the probate form confirming the information provided is correct and they will administer the estate properly
NB: ORIGINAL will provided only
Purpose of legal statement
The applicants formally confirm they will comply with their obligation to collect in and duly administer the estate and that the contents of the form are true.
The form MUST be signed by each applicant or their legal representative acting for them
