Wills + probate Flashcards
Valid will requires the testator to have:
- Capacity at the time the will was made
- Intended to make a will
- Executed the will in accordance with the formalities
Capacity in executing a will
Must be at least 18 and have mental capacity (Person presumed to have mental capacity unless someone challenging the validity of a will proves the testator lacked capacity)
Mental capacity => testator must have understood, at the time of the execution of their will:
- The nature of the act (ie that they were making a will and its effects);
- the extent of their property; and
- The claims to which they ought to give effect
Time of execution (‘material time’) =
- Usually when will was executed/signed
- If eg testators does not have capacity at time of signing but did when giving instructions to will drafter, court will deem to have acted with capacity
Intention to execute a will (general)
Present if testator had:
- General intention to make a will; and
- A specific intention to make the particular will
Intention to execute a will (rebutting presumption)
ie rebutting presumption testator had knowldge and approval
Challenger has burden of showing lack of proper intention
BUT presumption does not apply where:
- Testator is blind/illiterate, or will is signed on testator’s behalf (usual to incl a clause saying will was read to them); or
- There are suspicious circs (eg where will drafter substantially benefits from the will), gift will fail unless evidence of the testator’s knowledge and approval of the gift is offered by the person putting forward the will
Factors to consider:
- Whether will is short and easy to understand
- Whether testator was literate
- Surrounding facts (eg whether testator acts 2 people to witness it)
- Any suspicious circs surrounding the will
Intention to execute a will (gifts to sols)
Should refuse to act when client proposes to make a sig gift unless client seeks independent legal advice
Intention to execute a will (duress)
ie will made as a consequence of force or fear
Admitted to probate only if a court pronounces that it is valid and issues a grant in solemn form
- Executor (or any person interested in the will) takes legal action to have it authenticated (ie ‘propounds’)
- All IPs will be parties to the claim
- If court pronounces will as valid, it will order the issue of a grant of probate
Intention to execute a will (undue influence)
Ie something that overpowers the volition of the testator
Not presumed, but court will intervene if the testator surrendered to intolerable pressure
Court more inclined to find UI when the testator is physically or mentally weak
Formalities to execute a will (general)
Will must be:
- In writing
- Signed by the testator (or some other person in the testator’s presence)
- Signed or acknowledged by the testator in the presence of 2 + witnesses present at the same time; and
- Signed by each witness in the presence of the testator
Formalities to execute a will (role of attestation clauses)
Attestation clauses often incl to confirm the above requirements re valid execution of will
Not incl => proponent of will must offer proof that formalities were followed (often by having one of the witnesses testify)
Special attestation clause needed for blind or illiterate testator (to evidence read to them, they understood and approved contents, and they signed/another signed)
Formalities to execute a will (signature requirements)
Usually actual sig used but can be mark, following prev found to be valid:
- Intials
- Stamped sig
- Mark eg a cross
- Unfinished sig
- Sig in pencil
- Words ‘your loving mother’
Sig may appear anywhere on will (though usually at end)
Another may sign on testator’s behalf
- Provided they signed IN THEIR PRESENCE and at their direction
- May be one of witnesses but need not be
Formalities to execute a will (witness requirements)
No formal capacity requirements but must be capable of understanding the significance of being a witness to a sig
Do not need to see the contents or even know testator is signing a will
Blind person incapable as must be able to witness visible act
Mentally unsound person cannot be a witness, but later loss of mental capacity does not affect validity if competent at time
Illiterate person capable but must know testator is signing a doc
B (or their spouse) should not be a witness
Incorporating external doc into will
Will may identify another docs that becomes part of the will
Doc must exist at date of the will and be referred to in the will as so existing
Future intention to make a doc does NOT suffice
Alteration/amendments of wills
Time made key:
If it can be proved made BEFORE execution => valid (Eg through statements of witnesses to initials of T/witnesses adjacent to alteration, provided will reads naturally after the amendment)
Made after execution => must be made with proper formalities
- Can’t be proved made before => presumed to have been made after execution (unless it is filling in a blank space in a will form)
- Valid if signed and intialled by testator by amendment in presence of 2 witnesses
- Sol start by seeing if they can make out original words by ‘natural means’ (eg using magnifying glass)
- Original words apparent => may be admitted to probate rather than amendment
- Original words not apparent (‘obliterated’) => court will admit the will with a blank space where the words are obliterated
Role of codicils
Ie brief doc that adds to/amends/partially revokes an existing will
Note:
- Must make reference to the will
- Requirements for a valid will also apply
- Clause should be incl in the codicil confirming the unamended part of the will; and
- Codicil may remedy a gift which was void because the B witnessed the will
Revocation of wills (general)
May be revoked at any time by testator provided they have retained testamentary capacity
Can be by:
- Law (ie through marriage or divorce)
- Deliberate act of the testator (ie executing later will/codicil, destruction)
- Dependent relative revocation
Revocation of wills - by law
- By marriage or civil partnership
- Revoked unless it appears from the will that, when it was made, the testator was expecting to marry a partic person and they intended that all or part of the will should not be revoked by that marriage - Divorce, dissolution or nullity (NOT merely separation)
- Will partly revoked (ie Law treats former spouse/civil partner as having died on the date of the divorce)
=> Gifts revoked and will not pass to them, but remainder of will remains valid
- Appointed as executor/trustee => appt will be ineffective
UNLESS contrary intention stated
Revocation of wills - deliberate act of the testator
- Executing a later will/codicil
- BUT will impliedly revoke only to extent that it is inconsistent with/repeats the terms of earlier doc
- For avoidance of doubt, usual for will to contain an express revocation clause - Destruction
- Requires:
a) Act of destruction; AND
- Writing cancelled/revoked/putting a line through it not enough
- Only part of will destroyed => treated as that part only having been revoked (unless sufficiently substantial or vital part destroyed)
- Destruction by someone other than testator => must be done in the presence of testator and at their direction
b) Intention to revoke
- Mental capacity the same as that required for the making of a will
- Will found mutilated at date of death => rebuttably presumed to have been done by testator with intention of revoking it
- Further rebuttable presumption that a last will known to have been in the testator’s possession, but which cannot be found at the date of death, has been destroyed by testator with intention of revoking it
Revocation of wills - dependent relative revocation
Occur when intention to revoke was dependent on future event (eg later execution of new will)
Event did not take place => original will may be valid (even if destroyed) if it can be reconstructed from a copy or draft
Mutual wills
Ie wills made by 2 or more persons, usually with the same clauses and conferring reciprocal benefits, further to an agreement between them to make such wills and not to revoke them without the consent of the other
Contract between the parties that wills are to be irrevocable and will remain unaltered
Agreement creates constructive trust in favour of the Bs
=> if one testator dies and other changes will, a B harmed by the change in will may apply to the court for an order to the recipient of the changed gift to transfer it to the person who would have been the B under the original will
Date from which the will speaks
= date of death
Takes effect as if the will had been executed immediately before death
Unless contrary intention in the will
Can be superseded by use of words ‘now’ or ‘at present’
BUT if gift is of car, contrary intention presumed (ie car owned when will written)
Bs determined as at the date of the will’s execution
Types of gift in a will
Legacy = gift of personalty (personal property) vs Devise = gift of realty (real estate)
- Specific legacy
- Gift of specified part fo the estate that is clearly identified at the time of the will’s execution
- Subject to doctrine of ademption (ie gift fails if testator no longer owns that item at date of death) - General legacy
- Does not identify a partic item
- Doctrine of ademption does not apply
=> if no item in estate, B is entitled to require the executors to purchase such an item if they have sufficient funds - Pecuniary legacy
- Ie gift of cash
- Usually general but can be demonstrative (eg paid from X amount owed to me by Y, or from Z account)
- Account closed at date of date/no longer has sufficient funds to meet legacy => B can look to executors to meet any shortfall from other cash or assets in the estate - Residuary legacy
- Ie everything that is left in the deceased’s estate after above and expenses for administering the estate
Failure of gifts (general)
By:
- Ademption
- Lapse
- Gift to witness (Will fail if B of B’s spouse is a witness (will itself remains valid))
Failure of gifts - ademption
Ie a specific gift will fail if it is no longer part of the testator’s estate/is subject to a binding contract for sale, or no longer meets description in the will
Change in substance of subject matter of a specific gift => will adeem
Change in name/form => will not adeem
Failure of gifts - lapse
Ie B has predeceased testator (BUT common practice to incl a substitutional gift in the will)
- Gift effective => will go to this B and will not lapse
- Not effective/not present => subject matter of gift will fall into the residue
- Residual gift lapses => falls into rules of intestacy
Will construed at date of execution (ie ‘eldest son’ is the one living at date will was made)
Gift to 2+ joint tenants will not lapse unless all the recipients die before the testator (ie ‘to A and B jointly’)
- Vs ‘in equal shares’ = words of severance so possible for individual share to lapse
Often conditional on survival of Bs
- For specified period of time, usually 28 or 30 days, after date of death of testator
- Gift fails if B fails to survive for the specified number of days
Simultaneous death
- Ie where impossible to determine who died first
- Law assumes young person survives the elder (law of commorientes)
Gift to deceased issue
- Ie testator’s child (/grandchildren) who die before the testator and leave living issue => living issue will receive the gift
- Incl children who are conceived but unborn
- Unless other intention will take effect ‘per stirpes’ (ie issue of deceased person will split the deceased person’s share) and if more than one in equal shares
- BUT does not apply to other Bs, ONLY issue
Gifts to children - class gifts
(incl legitimate, illegitimate, and adopted children, but not stepchildren)
Class gifts
= gift of property to be divided among Bs who fulfil a general description
- Problem as number of Bs in this class may not be known definitely until many years later (eg X amount to children of Y, cannot be known until Y also dies)
Class closing rules
- where gifts are contingent on something
- Close when any member of class satisfies the condition (eg reaches 25), so that the interest is now vested
- Class closes => no new members can be added to class, but anyone who is alive and within the class will share in the gift if they eventually satisfy the condtion
Intestacy - definition
= statutory method of distributing assets that are not disposed of by will
Apply when:
1. Deceased died with no will; or
2. Deceased’s will does not dispose of all of their property (partial intestacy) because the gift of all/part of residue fails
What happens if someone dies intestate - general
PRs hold their estate on trust with power to sell
Must pay funeral, testamentary, and admin expenses, debts and other liabilities from cash and the proceeds of sale of assets
Residuary estate (ie what is left after above) then shared among those entitled according ot the statutory rulesO
Order of intestacy
- Spouse (with no issue) = whole estate
- must survive the deceased by at least 28 days - Spouse + issue
- spouse takes:
a)Personal chattels (other than money and other assets used for business purposes/held for investment purposes) absolutely
b) £322k; and
c) One half of the residue absolutely
- D’s issue take other half of residue absolutely
- BUT spouse can require PRs to give the spouse the couple’s matrimonial home in partial or total satisfaction of their interest (home worth more than their share => have to pay over the difference)
No spouse =>
- D’s children
- Parents (equally if both alive)
- Brothers and sisters of the whole blood on stat trusts
- Brothers and sisters if the half blood (on stat trusts)
- Grandparents (equally if more than one)
- Uncles and aunts of the whole blood on stat trust
- Uncles and aunts of the half blood on stat trusts
- The crown as ‘bona vacantia’
Rules re intestacy order of entitlement
Earlier classes take to the exclusion of later classes
Class members take equally (if reach 18 or marry before that age)
Adopted children = taken as children of their adopted parents (and not their natural parents)
Statutory trusts - intestacy order
Ie for all classes (other than parents and grandparents), a class member’s issue takes their parents share ‘per stirpes’ if the class member has predeceased (provided the issue attain 18 or marry earlier)
Potential Bs living at intestate’s death but subsequently die before attaining a vested interest
- => their issue take their deceased parent’s share on stat trusts
- Potential B dies without issues => estate administrated as if that B had never existed
Property passing outside the will/intestacy
- Property owned as beneficial JTs
- Passes under survivorship
- Does not apply for TiCs – share passes via the will/intestacy rules
- may be subject to IHT - Life assurance policies
- Held on trust for, or assigned to, Bs
- Or T may express policy to be for spouse and/or children
=> policy belongs to Bs and is payable directly to them (or trustees) on proof of death
- Proceeds will not form part of D’s estate for inheritance tax purposes - Pension scheme death benefits
- Nominated property
- Ie in friendly societies, national savings bank, and national savings certificates directlto chosen Bs by way of statutory nomination in writing - Life interests in trust property
- Will pass according to the terms of the trust
- May be subject to inheritance tax - Gifts where donor has received a benefit
- Inheritance tax concept
- Ie D has given something away but retained some benefit in the gifted property (asset does not belong to D for succession purposes)
Personal representatives - appointment
Executors (will) vs administrators (intestate)
Executor appointed by a will or codicial to administer the estate according to the will/law
Express provision should be incl in the will appointing named executor, or more than one
- Appoints only 1 => will should appoint a substitute
Personal representatives - persons who may be executors
Anyone (except minor/person who lacks mental capacity who will not be granted probate)
Spouses often appointed
- BUT if marriage is dissolved/annulled => appt will usually be defective (but contrary intention can be incl in the will)
Personal representatives - renunciation
Free to renounce their rights to a grant of probate PROVIDED THEY HAVE NOT ACCEPTED OFFICE
Accepts office (+ loses right to renounce) by (1) taking a grant of probate or (2) ‘intermeddling’ in the estate (ie doing something which shows an intention to accept office)
Formalities
- Renunciation must be in writing, signed by executor, and contain a statement that the person has not intermeddled
- Must be signed by a disinterested witness
Renunciation is all or nothing
Must be filed at probate registry (usually by someone else who is applying for a grant of probate)
Once renounced, cannot be reclaimed (unless court allows them to do so)
Does not affect trustee position => would have to also disclaim trusteeship if they wanted to not act as such
Personal representatives - ‘power reserved’
Instead of renouncing
Means they will not be involved for now, but if circs change (eg another executor falls ill/dies) they can apply for a grant of probate at a later stage
No automatic substitution
Grants of representation - definition
= court document authorising the deceased’s PRs to deal with the estate and to transfer assets to Bs
Grants of representation - where dealt
Courts with jurisdiction =
- Non-contentious => conducted in family division of high court (either Principal Registry in LDN or in more local district probate registries)
- Contentious => chancery division of HC (or CC if estate below £350k) is involved
Grants of representation - non-contentious probate rules (NCPR)- accessing funds pre-grant
- Amounts up to £5k held in national savings bank accounts, national savings certs, premium savings bonds, or building societies => may poss obtain payment by producing just death certificate (at DISCRETION of institute concerned)
- Payment can be made to the person appearing to be entitled to the grant or to be beneficially entitled to the relevant asset
- Chattels/other assets can normally be sold without the PRS having to prove they are entitled to sell such items (just need production of death certificate)
Types of grant - grant of probate
Ie when deceased person leaves a valid will
Can only be made to executors (usually expressly appointed by the will)
One executor is sufficient, cannot be more than 4 (though different parts of the estate can have different executors)
Notice of app for a grant of probate is given to any executor to whom power is being reserved
Effect =
1. Confirms executors authority to deal with the estate
2. Grant will usually need to be produced as evidence of the executor’s authority to act (eg to be able to legally sell property, access bank account, sell shares etc)
Types of grant - letters of administration with will annexed
Ie where will but problem with appointment of the executors
NCPR set out prescribed order for who may apply:
1. Trustee of residuary estate
2. Any other residuary B (vested interests preferred to contingent ones)
3. PRs of anyone at (2), other than a life tenant of the residue
4. Any other B or a creditor
5. PRs of anyone in (4) other than a life tenant
Persons of equal rank => court prefers interest of vested rather than contingent B
Anyone entitled to apply for a grant of probate can renounce - Right NOT lost by intermeddling in the estate
A person applying for letters must CLEAR OFF anyone else having a higher entitlement by confirming in theri application that such persons have renounced
If a minor child is a B, at least 2 administrators must be appointed
Types of grant - letters of administration
ie if D died intestate or all gifts in will fail
Only on issue of grant does estate vest in PR (in interim vests in public trustee)
Order of entitlement broadly follows intestacy order, ie: surviving spouse, children, parents, siblings etc
PRs of person in above list have same right to grant of letters as person named in list
If a minor child is a B, at least 2 administrators must be appointed
Grant issued to a mx of 4 administrators
Same rules for renouncing and clearing off
Types of grant - grants ‘de bonis non’
= second grant made to allow the completion of the administration of D’s estate following death of sole/last PR (or when a prev grant is revoked)
Granted to person who would have been entitled had the original PR never taken the grant (ie same list as above)
BUT no second grant needed if one of several PRs has died or if a ‘chain of representation’ exists
- Chain of rep = a sole or last surviving executor dies and that executor’s executor takes a grant of probate
PRs - role of minors
Cannot take a grant
BUT if one of several executors/potential administrators, a grant is made to the adult PRs with power being reserved to the minor in the case of a grant of probate
Minor only/last surviving PR => limited grant of probate of letters of admin is made to minor’s parent or guardian for use and benefit of the minor until age 18
As prev, if a B in intestate estate, at least 2 PRs must be appointed
PRs - powers of the court
Court has discretion to make a grant to someone other than the person who is prima facie entitled under the NCPR
Eg if potential PR is bankrupt or in prison
Court can also remove an existing PR and appoint a substitute
Information required by sols pre-grant/while advising on distribution
Full personal details of D, family, dependents, PRs and Bs
Details of assets and liabilities
Lifetime gifts in the 7 years prior to the death
Death certificate
Original will and any codicils
Identifying nature and extent of Bs’ interests
Asset and liability paperwork
Details of any insurances
Immediate financial needs of any family members; and
Details of funds that can be accessed without a grant
Pre-grant tasks
- Registering the death (by sending death cert/letter certifying death) with banks and insurance companies, companies inw hich D owned shared, HMRC, D’s creditors
- Obtaining valuations of assets
- Considering validity of will and poss claims against the estate
- Will should:
a) Be last will of T
b) Not be validly revoked
c) Be executed in accordance with the stat formalities
d) Contain an attestation clause with raises the presumption of ‘due execution’ - Notifying Bs of potential entitlements
- Placing early advertising for unknown Bs and creditors
- Executors can do from date of death
- Administrators can do from date of obtaining the grant
- PRs unsure as to what notices should be given => should apply to the court for guidance
Pre-grant procedure - funding IHT liability
If due => must be paid by PRs to obtain the grant
Can be funded by:
1. Banks/building societies may release D’s account funds directly to HMRC to pay IHT before the grant is obtained (at their discretion)
2. Bank loan
3. Loan from a B
4. Sale of assets if no grant is needed prior to sale (eg chattels/quoted shares)
IHT can be paid in installments
IHT not due until teh expiry of 6 months from end of the month in which D died
Docs to send to court with probate
- 2 copies of will (+ codicils)
- Will accidentally destroyed/lost => probate may be ontained of a copy of a will or reconstruction of it (affadavit required to support the app)
- Official copy of the death certificate
- Further supporting docs (eg affadavit evidence if required)
- Relevant IHT form
- Form IHT205 if estate is exempted from IHT; or
- Form IHT421 (receipted probate summary from HMRC) - Payment for probate fees
Application for letters similar (if app for letters with will annexed, then will must be included with the application)
Further evidence (eg affadavits) that may be required to obtain grant
- affadavit of due execution (if will didn’t include attestation clause)
- affadivit to confirm whether alterations existed at date of execution or whether made after and => invalid
- An affadavit confirming D’s full name and explaining that they signed the will in a shorter name
- Documents referred to in the will
- Affadavit from a witness if there is uncertainty about the date the will was executed
- Attempted revocation => affidavit of ‘plight and condition’ may be necessary
Applications to court - what happens once docs are sent
Docs all in order => grant is prepared and sealed by the court
Then sent with the number of office copies requested on app to the ‘extracting sol’ (ie sol acting for the PRs), usually within 14 days of the application being lodged
Probate application forms
D left a will => Form PA1P used
D did not leave a will => Form PA1A used
Caveats
Can be lodged with probate registry to prevent the issue of a grant of representation
‘caveator’ may do this if they are a B and believe named executor lacks mental capacity to act or the will is invalid
Valid for 6 months
Matter cannot be resolved => judge may resolve issue
Citations
- Citation to take probate
- Used when an executor has lost their right to renounce probate by intermeddling in the estate but has not applied for grant and does not intend to do so
- IP asks probate registry to issue citation => executor must proceed with an app for a grant of probate
- Still refuse to act => citor can apply for a court order allowing the executor to be passed over
- Grant of letters with will annexed can then be applied for - Citation to accept or refuse grant
- Used to clear off a person with a prior right to any type of grant who has not applied, and shows no intention of applying, for a grant
- Cited person does not take out a grant => grant may be issued to the citor
- Alternatively (easier + quicker) to apply to probate registry for an order passing over an unwilling applicant in favour of someone else
HMRC requirements - account
PRs have to deliver an account to HMRC within 12 months from the end of the month of D’s death (UNLESS THE ESTATE IS EXCEPTED)
But usually happens before as IHT runs from 6 months and PRs cannot obtain a grant until they have paid tax due
HMRC requirements - co-owned property
Surveyors/experts may be required to ascertain the open market value of assets at the date of death
- Co-owned land
=> market value of their interest will usually be discounted to reflect the difficulty of selling a part interest in land - Usually 15% discount for residential property and 10% discount for investment property
- Not permitted for land co-owned with spouses/civil partners
- Discount not applicable where other assets are co-owned (ie co-owned land ONLY)
HMRC requirements - excepted estates
=> exempt from IHT and no formal account need be filed (unless HMRC requests one) where estate does not exceed:
(1) IHT threshold (‘nil rate band’, currently £325k); or (‘small estate’)
(2) £3m, and the net chargeable estate does not exceed the IHT threshold (‘exempt estate’)
(3) estate is worth £650k or less and any unused threshold is being transferred from a spouse who died first (ie transferable nil rate band)
(4) Non-UK domiciled excepted if their UK estate consist solely of cash and/or quoted shares which do not total more than £150k
IHT forms for excepted estates
Form IHT205 = ‘return of estate information’ and must accompany an application for grant in an excepted estate
Estate can claim 100% unused nil rate band and qualify as excepted estate => PR needs to complete Form IHT217 (‘claim to transfer unused nil rate band for excepted estates’)
Above forms sent with other papers to Probate Registry
Transpires estate not excepted => Form IHT400 must be submitted within 6 months of this coming to light
IHT forms for estates that owe tax
Form IHT400 = IHT tax account and must be completed and sent to HMRC if estate is not excepted
- Asset values rounded down, and liabilities are rounded up
Form IHT402 = used to transfer unused nil rate band from a spouse who died before D (results in % increase to survivor’s nil rate band)
Form IHT436 = used for claiming unused residence nil rate band
D made lifetime gifts => PRs must file IHT403
IHT421 = probate summary schedule
IHT422 = application for an inheritance tax reference, which is required before payment can be made
Duties of PRs - general
- Duty to collect D’s assets
- Duty to administer the estate
- Duty to act in best interest of Bs
Duties of PRs - duty to collect D’s assets
Within a reasonable time
Usually need to produce grant of rep to relevant persons in order to deal with such assets
PRs liable for loss only if it resulted from their unreasonable conduct
Duty to collect assets only relates to property which devolved on the PRs (not to assets which pass directly to Bs)
Duties of PRs - duty to administer the estate
Reasonable steps must be taken to preserve D’s estate (within the ‘executor’s year’ of 12 months) and realise any investments which it is not proper for them to retain
PRs then pay off debts and legacies and then distribute the residue per the will/intestacy rules
PRs duty of care
= to act with reasonable care and skill, taking into account any specialist knowldge (s1 TA 2000)
- PRs may be liable to the estate for losses resulting from their breach of duty (though will typically excludes liability)
- PR not liable for loss from fellow PR’s breach (unless PR was negligent in preventing other’s breach)
Administrative powers of PRs - general
- Power to sell/mortgage/lease estate property
- Helps pay various admin expenses - Power to appropriate
- Power to appoint trustees for minor Bs who are unable to give valid receipt for monies or assets transferred to them
- Power to insure property of the estate
- Power to delegate to agents
- Power to indemnify for expenses (ie reimburse themselves for all properly incurred expenses)
- Power to run D’s business
- Power to invest
- Power to maintain a minor (s31 TA 2000)
- Power to advance capital (s32 TA 2000)
- Personal powers
Administrative powers of PRs - power to appropriate
= use of asset to satisfy a legacy/interest in the estate, PROVIDED B CONSENTS (unless will provides otherwise) and no specific B is affected
Not permissible for a PR to make an appropriation in their own favour to satisfy a pecuniary legacy (unless asset used to do so is cash or equivalent – eg gov stocks) unless permitted by the will
Administrative powers of PRs - power to delegate to agents
To agents on such terms as they determine
Unless covered in the will, PRs must review arrangements with agents
Liable for the act or default of an agent only if they failed to adhere to their stat duty of care in appointing the agent
Administrative powers of PRs - Power to run D’s business
General rule = no authority to carry on D’s sole trade unless they do so to sell it as a going concern
BUT will may include express provisions allowing PRs to run the business as a going concern
Partnerships => partnership agreement must be consulted
D was shareholder => company’s articles of ass should be reviewed
Administrative powers of PRs - Power to invest
TA 2000 authorises Ts to make any kind of investment that they could make if they were absolutely entitled
Investment decisions must be reviewed under the standard investment criteria, ie:
(1) Suitability to the trsut of the investment; and
(2) Need for diversification of the trusts’ investments
Stat exceptions of land abroad and purchase of interest in land with someone else (eg B)
Testator permitted to restrict investment powers in the will
PRs invest in something not suitable/fail to diversify => could be liable to B who suffers loss
Administrative powers of PRs - exercise of PRs personal powers
Sole PR has same power as 2 or more and => can give valid receipt for proceeds of sale of land
Joint PRs have joint and several liability => act of one binds all others and the estate
BUT all PRs must join for the transfer of land and shares
PRs’ powers are fiduciary and must => be exercised in good faith in the interest of the estate as a whole
Protection of PRs - from claims by unknown Bs or creditors
PRs personally liable to any unpaid B or creditor, even if not known when a distribution is made
UNLESS they comply with s27 TA 2000
- ie by placing adverts in the London Gazette, a local newspaper, and any other appropriate newspaper
- Requesting any person interested to contact the PRs’ sol within a minimum of 2 months
PRs should also conduct searches for land held or creditors and for bankruptcy declarations against D and Bs
Protection of PRs - from claims by missing Bs or creditors
=> options are:
- Make the payment owed to the B or creditor into the court and distribute the rest of the estate;
- Distribute everything with an indemnity from the Bs;
- Seek a Benjamin Order
- Ie court order giving PRs leave to distribute the estate based on an assumption set out in the order (eg that missing B should be treated as having died before D)
- Full enquiries first required
- Gives full protection for the PRs - Purchase insurance against the risk of a missing C appearing
- Full enquiries may be required first
- Quicker and cheaper than applying to court
Don’t do one of above => remain potentially liable to a later claim
Protection of PRs - from claims for financial provision
Under inheritance (provision for family and dependents) act 1975, a person may apply to the court to set aside the terms of a will or vary an intestacy on the grounds that reasonable financial provision has not been made to them
To protect themselves, PRs should wait to distribute the estate until 6 months have passed from the issue of the grant
Protection of PRs - from future and contingent liabilities
Incl situations in which D had acted as a guarantor on a loan or there is a possibility of legal proceedings against the estate
PRs have following options to protect themselves:
- Estimate and set aside an appropriate amount
- Seek indemnity from Bs (but carries a risk)
- Arrange insurance and distribute entire estate; or
- Apply to court for directions on what to do
Protection of PRs - from failed PETs or CLTs by D
Can arise if IHT still unpaid after 13 months
HMRC will not pursue PRs for these liabilities if they remain unpaid by the recipient(s), if PRs have made fullest enquiries and have obtained a certificate of discharge
Collecting and realising assets - general
PRs have no obligation or power to deal with assets passing outside the will or intestacy
PRs must pay estate creditors before distrubuting the estate to the Bs
PRs should NOT sell any property specifically gifted in the will to pay debts unless other assets have been exhuasted
Payment of debts in a solvent estate - general
Solvent estate = one where reasonable funeral, testamentary, and administration expenses, debts, and other liabilities can be paid in full
Whether legacies under the will can be satisfied in full is irrelevant to the solvency
Secured debts => Should be discharge from the property against which it is secured (subject to T showing any contrary intention in the will)
Unsecured debts => paid from
(1) Property undisposed of by the will (eg partial intestacy); then
(2) Residue
UNLESS will provides debts should not be paid from residue => specific order
If gift of property provides ‘free of mortgage’ will mean the mortgage must be paid out of the residue to the extent the residue is available
Payment of debts in a solvent estate - order where will provides unsecured debts not to be paid from teh residue
- Property specifically given for the payment of debts (if any)
- Pecuniary legacy fund (unless T has specified otherwise, such legacies will abate proportionately so that each legatee bears a share of the burden of payment); and
- (If no pecuniary or not sufficient), from specifically specifically devised or bequeathed property, proportionately according to the property’s value comapred to the whole
Payment of debts in an INsolvent estate - general
Ie one with insufficient assets to pay expenses, debts, and liabilities in full
Bs will receive nothing
Secured creditors enjoy priority over unsecured creditors to the value of the property securing the debt
Unsecured creditors to be paid in the correct order
Payment of debts in an INsolvent estate - order of payment of unsecured creditors
- Reasonable funeral and admin expenses
- Preferred debts (wages and salaries in the 4 months prior to death, up to a max £800 each)
- Ordinary debts (incl money owed to HMRC and balance of preferred debts)
- Interest on preferred and ordinary debts
- Deferred debts (ie loans from D’s spouse)
NOTE: Each creditor ranks equally within a category, and they abate proportionately
Payment of debts in an INsolvent estate - protection of PRs
If paid in correct order PRs will be protected from a claim provided they have acted in good faith and not preferred one creditor over another in the same category
BUT if pay a category of debt knowing that there are higher ranking debts => PR personally liable if the assets aren’t sufficient to pay the higher-ranking debts
BUT not liable if paid inferior debt without notice of a debt in a higher category (provided they did not do so with undue haste)
If seen to prefer one creditor to another in same category, they are protected if payment to a creditor in one class was made in full before payment to others, and the estate later turns out to be insolvent
- To be protected from liability the PRs must have been acting in good faith at the time and with no reason to believe the estate was insolvent
Post-death changes - disclaimers
Ie B may disclaim an inheritance orally or in writing (unless they accepted any benefit from the gift)
Disclaimer must be in writing to be effective for IHT and CGT purposes
Effect = disclaimed gift falls into residue or into partial intestacy if the gift is the residue
Disclaiming gift does not prevent B from receiving property under the intestacy rules
Disadvantage = original B has no control over ultimate destination of the gift
Post-death changes - variations
Allows B to change who receives their inheritance
Requirements =
(1) Variation must be in writing
(2) Made within 2 years of death
(3) And not made for monetary consideration
=> treated as if D had left property to new B
Treated as a transfer of value for inheritance tax and a deemed disposal for capital gains tax by the ORIGINAL B
Unlike a disclaimer:
1. a partial variation is poss (ie part of a gift)
2. Also can be made even if B has accepted a benefit
PRs vesting legacies in Bs - specific legacies
Methods PRs must use to vest such gifts in the Bs vary depending on the type of property being transferred
Procedures =
- Chattels – delivery, in return for a receipt. Insurance should be cancelled
- Company shares – stock transfer form should be completed and sent with an office copy of the grant and the share certificate
- Land – transfer requires an assent in writing. Insurance should be cancelled. B needs to register their interest at HMLR.
Any costs of transfer born by B unless will says otherwise
Bs entitled to income arising since D’s death
Payment of legacies by PRs - pecuniary legacies
Will usually states the source from which pecuniary legacies should be paid (normally the residue)
Procedure used for payment of unsecured debts is also used for paying pecuniary legacies
Eg residue may be left ‘subject to’ or ‘after payment of’ the ‘debts and legacies’, or on trust for sale with payment out of the proceeds of ‘debts and legacies’ before division
Estate funds/assets not sufficient to pay legacies in full?
=> abate in proportion
Unless there is a priority given specifically to ny particular legacy
Recipt for legacy
PRs will typically obtain a receipt from a B to prove the PRs have satisfied their obligations
Minors cannot give good receipt (unless will specifies otherwise)
=> unless PRs accept view that anyone with parental responsibility for the child can give good receipt, PRs can:
- Hold the property until the child reaches 18
- Use the power of appropriation, with the minor’s parent/guardian/court giving any consent
- Appoint trustees to receive and hold the property until the child reaches 18; or
- Obtain their discharge by payment of the legacy into court
Ascertaining the residue - income tax and CGT during administration period
PRs must calculate any tax liabliity for which they are responsible and withold an amount to cover the liability (BEFORE distributing the residue to the Bs)
Succession law assumes a specific gift of UK property is deemed to be ‘free of tax’ unless the will states otherwise
BUT reverse is true in rel to overseas assets
Pecuniary legacy made ‘subject to tax’ => PRs withhold the tax and pay the net legacy to the tenant
PRs should use form IHT30 to obtain a certificate of discharge from HMRC, which avoid further IHT liability
- No certificate is required for an excepted estate
- Automatic discharge 35 days after a grant of rep unless circs change
Ascertaining the residue - other costs in admin the estate
- Reasonable funerable expenses (question of fact)
- Legal and professional costs
- Sol’s charges in non-contentious probate matters must be fair and reasonable in all the circs, taking into account factors eg complexity, time spent, value of estate, number/importance of docs involved - PR’s renumeration
- not entitled to charge for services unless authorised in some way ie:
(1) Will authorises it (routinely incl for professional PRs)
(2) Agreement with Bs
(3) Court
(4) Legacy to proving executors (ie presumed that any specific or general, but not residue, legacy is conditional upon them accepting office - unless rebutted by clause in will)
Estate accounts - purpose/format
= imp to show residuary Bs what is available to them
No prescribed format but often comprise the following accounts (accompanied by a commentary):
(1) Capital account (deal with assets in estate)
(2) Income account (keep track of dividends received by the PRs during the administration)
(3) Distribution account (keep track of amount each B is entitled to)
Estate accounts - commentary
= a doc that accompanies estate accounts
Assists Bs and:
- Identifies gross and net values of the estate
- Indicates the estate’s disposition
- Deals with any other relevant matters (eg interim distributions and distributions in specie)
Estate accounts - discharge
PRs usually endorse the accounts to indicate their approval
Accounts then sent to residuary Bs for them to endorse – and for them to formally discharge the PRs with an agreement to indemnify them agains all claims and demands
B refuses to approve the accounts => PRs may ask court to approve them or may pay B’s share into court
Assent - definition
An assent by the PRs vests the legal title to the asset in the B
Assents relates back to the date of death, so B is entitled to rents and other income form that date
HMLR must be notified of the change in land ownership from D to either the PRs or the B
Assent - requirements
Must be:
(1) In writing
(2) Signed by PRs
(3) And name the person in whose favour it is given
Assent - land
=> requirement to ensure that unregistered land is subject to first registration
Registered => PRs can:
- Apply to be registered as the owner in place of D, producing the grant when making the application, or
- Transfer the property by assent to a B who will then apply to be the registered owner, submitting a certified copy of the grant
Assent - protection for purchasers
Memo of the assent is endorsed on the original grant
Purchasers given protection when buying land from PRs or Bs who have been given an assent
Buying from PRs =>
1. Purchaser should insist on a statement in the conveyance that no previous assent has been made
2. Protects purchaser unless they had notice to the contrary
Buying from a B =>
1. An assent in their favour from PRs is sufficient evidence that the seller is the person entitled to the legal estate
2. Protects purchaser unless they knew the assent was given to the wrong person
B’s rights in administration of estate
Has a chose in action (right to have D’s estate properly administered) until it is completed
BUT until then have no legal or equitable interest in D’s assets
Specific gift recipients have the right to income accruing from death, and residuary Bs have the right to intermediate income whether their interest is immediate or contingent
Contingent pecuniary legacies do not have a right to income unless the gift is to a child with entitlement at age 18
Above income rules can be overridden in the will
B’s remedies in administration of estate
- Personal action against the PRs
- BUT PRs may be absolved under will if they acted ‘honestly, reasonably, and ought fairly to be excused’ or by agreement with the Bs - Tracing
- Ie to recover property of the estate
- Right is lost against a bona fide purchaser of if inequitable to do so - Other personal actions
- Eg against those who have wrongfully received estate assets
Claims against estates under Inheritance (Provision for family and dependents) Act 1975 - general provision and time limits
An app for family provision claim may be made to the court to set aside the terms of a will (or vary an intestacy) of a person who died domiciled in E+W on the grounds that reasonable financial provision has not been made for the applicant
App MUST be made within 6 months from issue of grant of rep (or later with leave of the court)
=> PRs protected from claims if they wait 6 months from grant before distributing
Claims against estates under Inheritance (Provision for family and dependents) Act 1975 - who can make a claim
- Surviving spouse or civil partner
- Former spouse or civil partner (who has not remarried – though may be disbarred from making a calim through ‘clean break’ divorce)
- Child of D or person treated as a child of the family
- Adult children unlikely to be successful in claim if able-bodied and in employment - Person who was being maintained (wholly or partly) by D
- D needs to have been making a substantial contribution towards the reasonable needs of A - Person who was living with D during the whole 2 years period before death as spouse/civil partner/same sex partner
Claims against estates under Inheritance (Provision for family and dependents) Act 1975 - standard of ‘reasonable financial provision’
Spouse applicant = such financial provision as would be reasonable in all the circs, whether or not required for maintenance
- Court has discretion to apply the surviving spouse standard to former spouses if death occurs within 12 months of the decree absolute and no final order has been made in those divorce proceedings
Standard for other applicants = such provision required for their maintenance such that they can live decently and comfortably according to their situation
Claims against estates under Inheritance (Provision for family and dependents) Act 1975 - types of order
Court approves application => estate devolves according to terms of court’s order and not in accordance with will/intestacy
Court has v wide discretion
Can make following orders:
1. Transfer of property
2. Payment of a lump sum (most common)
3. Payment of income
4. Settlement of property on trust
