Wills (Post-Grant)

Question 1

What are the post-grant duties of a Personal Representative?

Answer 1

• Collecting and administering the estate,
• Paying IHT,
• Reporting to HMRC.

Question 2

Can an administrator intermeddle therby removing the ability to renounce?

Can they reserve power?

Answer 2

An administrator is not prevented from renouncing even if they have intermeddle with the estate.

It is not possible for an administrator to have power reserved.

They CAN appoint an attorney to act on their behalf but do not have to do so as renouncing is an option for them.

Question 3

What is the priority between specific legacies and pecuniary legacies?

Answer 3

Specific legacies take priority over general and pecuniary legacies.

If the estate’s value is insufficient to cover all legacies, the specific legacy is paid first and the remaining funds are applied towards the pecuniary legacy. In such a situation, the residuary beneficiary, receives nothing because the estate funds are depleted.

Question 4

Which asset from an estate are eligible for the inheritance tax to be paid by instalments under the Inheritance Tax Act 1984?

Answer 4

Land (e.g. a home) qualifies for instalment option

If the property were sold, instalment option would cease to be available on this asset.

Note, cash savings do not qualify for instalment option, nor do tangible movable asset.

Question 5

What assets can be administered without a grant of representation per the Administration of Estates (Small Payments) Act 1965?

Answer 5

Individual assets valued up to £5,000

For example, a bank account with a balance of £4,000 and premium bonds valued at £1,000 would fall under the act.

Question 6

A testator’s will includes a specific gift of a valuable painting to his nephew.

The will does not include any express relieving provisions addressing the burden of inheritance tax, expenses, or charges.

The painting will be stored in a professional art storage facility pending distribution to the nephew.

Who bears the stroage fees?

Answer 6

The nephew, because the specific beneficiary bears the burden of storage expenses in the absence of a relieving provision.

In the absence of any express provision, specific beneficiaries bear the burden of expenses such as storage fees incurred since the date of death.

Question 7

What is the duty to collect the estate?

Answer 7

Identify and locate assets, debts, liabilities, and gain control of the assets.

Question 8

What is the duty to administer the estate?

Answer 8

PRs must secure assets, pay debts, meet expenses, and distribute legacies and residue to beneficiaries.

Question 9

What is the duty to provide an inventory and account?

Answer 9

PRs must list assets and values, keep records of administration, and share accounts with beneficiaries if requested.

Question 10

What is the duty of due diligence?

Answer 10

PRs must complete the administration within 12 months and act with due care as trustees under s.1 TA 2000.

If the administration takes longer than 12 months, the PR must justify any delay.

Question 11

What are the fiduciary duties of a PR?

Answer 11

PRs must…
* avoid conflicts of interest
* must not profit from their position unless authorized.

Question 12

What powers does a PR have when the deceased dies intestate?

Answer 12

Only statutory powers apply; no additional powers from a will.

Question 13

What is the PR’s power to sell, charge, or lease?

Answer 13

PRs have wide powers to sell estates and assets under s.33, 39 AEA.

Question 14

What is the power to invest under s.3-8 TA 2000?

Answer 14

PRs must preserve the estate and invest assets, reviewing regularly per s.4 TA 2000 and obtaining advice per s.5 TA 2000.

Question 15

What is the PR’s power to insure?

Answer 15

PRs can insure estate assets for their full value and pay premiums from the estate.

Question 16

What is the power to appropriate under s.41 AEA?

Answer 16

PRs can use an asset to satisfy a beneficiary’s entitlement with consent and proper valuation.

For example, T left £25,000 in a will to F. F wants the antique desk worth £18,000 (£20,000 at the time of death) rather than the cash. The PR can do this provided F consents, and F receives a further £7,000.

Question 17

What is the power to charge for services and reimbursement?

Answer 17

• Professional PRs can claim reasonable remuneration with consent, and all PRs can be reimbursed for expenses.
• A lay PR, needs to be given express power in the will to charge for services.

Question 18

What is the power to delegate under s.11 TA 2000?

Answer 18

PRs can delegate powers but cannot delegate decisions on asset distribution or appointment of trustees.

Question 19

What is the power to appoint trustees for minors?

Answer 19

PRs may appoint trustees to hold assets for minors under s.42 AEA.

Usually the parents

Question 20

What is the power to accept receipt from a parent under s.3 Children Act?

Answer 20

A parent can give a good receipt for a minor unless excluded in the will.

Question 21

What power does a PR have to run a business?

Answer 21

If a testator ran a business as a sole trader, there is a common law power to enable PRs to sell the business as a going concern within a year of the death.

Question 22

Can a joint PR act alone?

Answer 22

Joint PRs must make decisions together, but one PR may act alone in certain sales or transfers.

However, a sole PR may not deal with stocks and shares registered in joint names of the PR.

Question 23

What is PR liability?

Answer 23

PRs are personally liable for losses from breaches of duty, and claims for devastavit may be made for estate mismanagement.

Question 24

When can a PR be removed?

Answer 24

A court can remove a PR for failing duties under s.50 AJA or through administration action.

Question 25

How can a PR seek court direction?

Answer 25

Where there is question of construction of the will, a PR may make an application under s.48 for written legal opinion on the construction.

PRs can apply for court guidance on administration difficulties, but this can be expensive.

Question 26

What is a Benjamin Order?

Answer 26

Known but missing beneficiaries, the PR can seek a Benjamin Order permitting them to distribute the estate on the basis that the missing beneficiaries have died.

The order relives the PR from personal liability if they are incorrect.

The PR must first show there is no reasonable prospect of knowing the true position without disproportionate expense.

Question 27

What is the PR’s protection under s.27 TA 1925?

Answer 27

To prevent liability to unidentified beneficiaries and creditors, trustees can publish a notice of intention to distribute to known beneficiaries 2 months after the date of advertisement in

1. the London Gazette; and/or
2. a newspaper circulated in the area (needed in addition to the Gazette in the case of land or business owned); or (iii) any other appropriate newspaper.

Question 28

What if it is believed a beneficiary is dead?

Answer 28

The PR may apply for a court order under Presumption of Death ACt declaring that a person thought to have died or not known to have been alive for 7 years or more has died.

The order presumes the death and may be quicker than getting a Benjamin Order.

Question 29

Aside from court orders. what other methods can a PR take to protect themselves?

Answer 29

• Insurance (premiums expensive)
• Indemnity from beneficiaries they can trace to reimbure any loss
• Payment into court
• Exoneration by Court per s.61 TA

Question 30

When collecting assets, how is land transferred?

Answer 30

Land registered at Land Registry can be transferred into the name of the PR, if not directly to a beneficiary.

Question 31

When collecting assets, how is moeny paid?

Answer 31

Money should be paid into (i) a PRs bank account, opened specifically to hold estate money; or (ii) a law firm client account.

It should never be paid into a mixed bank account.

Question 32

When are debts paid?

Answer 32

As soon as assets are collected, the PR should pay the outstanding debt and funeral expenses.

There are rules which determine the order in which estate assets are used depending on whether (i) the estate is solvent or insolvent; and (ii) whether debts are secured or unsecured.

Question 33

What happens if an estate is solvent when paying debts?

Answer 33

The estate is solvent if assets are sufficient to pay all funeral, testementary and administration expenses, debts and liabilities.

It is immaterial whether legacies can be paid in full or not.

Question 34

What happens if an estate is insolvent?

Answer 34

If assets are insufficient, PRs must use the statutory order of repayment or the will’s express terms.

1. Secured Debts
2. Assets used to repay unsecured debts (e.g credit card debt, utility bills etc) are taken in statutory order unless varied by the will express:

• Property not disposed of by a will
• Residue
• Property the will sets aside
• £ in the pecuniary legacy fund
• Property specifically given (e.g. chattel)

Question 35

What if an estate is insolvent and the PRs take assets out of order to pay creditors?

Answer 35

The beneficiaries whose assets have been wrongly taken can use the doctrine of marshalling to compensate himself by going against the property which ought to have been used to pay the debts (eg. Claim against the assets inherited by another beneficiary if they were the assets that should have been used to repay the debts)

Question 36

What is the secured debt repayment rule?

Answer 36

A secured debt must be repaid using the secured asset unless the will shows contrary intention.

For example, if A owns a house and has a 30k mortgage outstanding and died, the beneficiary is not entitled to have the mortgage debt discharged with other assets - the house may need to be sold.

Question 37

What is the unsecured debt repayment rule?

Answer 37

Unsecured debts are repaid from estate assets in statutory order or will instructions.

Question 38

What is the doctrine of marshalling?

Answer 38

Beneficiaries whose assets are wrongly taken for debts may claim against other assets that should have been used.

Question 39

What must PRs consider when choosing an asset to sell?

Answer 39

Consider capital gains, ease of sale, and beneficiary wishes when selling estate assets.

Question 40

What must PRs do tax wise?

Answer 40

• Submit final Income Tax and CGT returns for the tax year after death
• Pay income tax at the basic rate for income generated by estate assets during administration.

Question 41

When are PRs liable for estate income tax?

Answer 41

PRs pay income tax at the basic rate for income generated by estate assets during administration.

Question 42

When are PRs liable for estate capital gains tax?

Answer 42

PRs pay CGT if estate assets are sold for a gain during the administration period.

Question 43

What are the key steps for distributing to beneficiaries?

Answer 43

Identify beneficiaries, establish shares, and distribute assets correctly.

Question 44

When should PRs distribute the estate?

Answer 44

PRs should complete administration within a year of death.

However…

Is there a claim against the estate? If so, PR may wish to delay distribution until 10 months of the grant being issued

Question 45

In what order are legacies paid?

Answer 45

Specific legacies first, followed by general and residuary legacies.

Question 46

Do beneficiaires need receipts post-distribution?

Answer 46

PRs must obtain confirmation of receipt from beneficiaries,

Question 47

What is the PR’s duty under s.25 AEA for estate accounts?

Answer 47

PRs must produce and sign estate accounts detailing the capital, income, and distribution of the estate.

Question 48

How to REPLACE trustees?

This is substituing trustee A for B.

Answer 48

This can be exercised by someone appointed in the trust instrument, or by the surviving or continuing trustees per s.36(1)…

1. On the death of a trustee;
2. If a trustee is abroad for over a year;
3. If an appointed trustee is a minor or lacks capacity; and
4. If a trustee wishes to retire, refuses to act or is unfit.

If all trustees have died, power exercisable by personal representative of last to die.

Question 49

How to appoint FURTHER trustees?

Answer 49

s.36(6) TA 1925 allows for either a person nominated by the trust deed, or the trustees themselves if none are named, to appoint further trustees in writing to act alongside the current trustees providing that the new appointment does not increase the number of trustees to more than four

Question 50

How to remove a trustee?

Answer 50

• Beneficiaries of a trust can agree and exercise their Saunders v vaulter rights to change the trustees of the trust (by collapsing the trust and declaring a new trust with new trustees) or simply collapsing the trust.
• The court can remove trustees where the trustee is bankrupt, lacks capacity or is a company which is in liquidation or dissolved under s.41.
• Court has inherent jurisdiction to remove trustees where it is not appropriate for them to remain.

Question 51

How should trustees deal with income for a Minor Beneficiaries with a Contingent Interest

Statutory power of maintenance (s.31 Trustee Act 1925)

Answer 51

Accumulate income until they turn 18.

Accumulated income is added to the capital and distributed same time as capital

Question 52

What should a trustee do if a minor beneficiary with a vested or contingent interest in capital want income prior to turning 18?

Answer 52

The trustees have a statutory power of maintenance under s.31 that allows trustees to pay trust income (including any previously accumulated income) for the maintenance, education or benefit of minor children

It must be paid to the minor’s parents or guardian, or applied directly to a provider of goods/services (e.g. the school that will provide the education)

Question 53

What if a beneficiary of a trust wants to recieve capital before it vests in possession or interest?

Answer 53

Section 32 TA 1925 gives trustees the power to use capital for the ‘advancement or benefit’ of a beneficiary before the beneficiary becomes absolutely entitled to the property.

• It can used by both adult and minor beneficiaries
• It can be used to pay to up to 100% of the beneficiary’s presumptive share of capital
• Payments can be made directly to adult beneficiaries. Payment can be made to parent, guardian or directly to the providers for minors
• The power can only be exercised with written consent of beneficiaries with prior interest.

Question 54

For gifts made during lifetime, who pays IHT on the gift?

Answer 54

Primary liability to pay the tax falls on the donee rather than the estate.

Question 56

When calculating CGT post-death, what happens to gains during the deceased lifetime?

Answer 56

Gains accrued during the deceased’s lifetime will drop away as there is a tax free uplift on death.

Disposals of assets during the administration will be chargeable to capital gains tax on any increase in value since the date of death.

Question 57

For post-death CGT, what is the base cost for a beneficiary?

Answer 57

The beneficiaries will take assets at probate value for capital gains tax purposes when they are transferred.

Question 58

Can a gift be disclaimed if it has been accepted (e.g. paid to their account)?

Answer 58

The option to disclaim is lost if the gift is accepted.

The will may be varied to direct the gift to someone else but not disclaimed.

Question 59

What should executors do if a beneficiary makes a variation?

Answer 59

The executors should notify HMRC of the variation and make arrangements to pay the inheritance tax from the estate.

Question 60

Are executors entitled to personal allowance or personal savings allowance for post-death income tax?

Answer 60

Executors (the estate) does not benefit from the personal allowance or the personal savings allowance.

Question 61

If tax has been paid by the estate, is it possible that a residuary beneficiary may have to pay tax and how does this work?

Answer 61

Where beneficiaries are entitled to a share of the residue of the estate, this will often include income of the estate on which the executors have paid tax.

For a higher or additional rate taxpayer, further tax may be payable since the receipt of income may tax them over their trheshold.

They should declare the additional income on their own return, claiming credit for the tax already paid.

Question 62

When does the special tax treatement of ISAs of the deceased end and become taxable?

Answer 62

The special tax status of an ISA held at the time of death continues during the administration period, or until the ISA is closed.

Simply, no tax will be payable on interest earned while it remains in the ISA. It is also possible to transfer an ISA to the surviving spouse or civil partner without losing the tax benefits.

Question 63

What is the de minimis level income threshold?

Answer 63

£500

Question 64

If there is less than £500 income in the estate, what effect does this have?

Answer 64

The trust and estate allowance has the effect of setting a de minimis level of income below which is it not necessary to report the income to HMRC, or to pay tax.