Wills: Realising Assets

Question 1

What happens to claims of deceased?

Answer 1

Cause of action vested in deceased survives for benefit of estate
- PR has wide power to settle claims
- Eg action to recover damages on behalf of dependant of deceased if they were killed by wrongful act

Damages recovered do not form part of the estate (and PR have no obligation or power to deal with assets passing outside of will or intestacy)

Question 2

What is a solvent vs insolvent estate?

Answer 2

Solvent estate = where reasonable funeral, testamentary and administration expenses (including IHT, cost of obtaining grant, cost of collecting and preserving assets and admin costs), debts and other liabilities can be paid in full

Insolvent is opposite.

Question 3

How are secured and unsecured debts paid in solvent estate?

Answer 3

Secured Debts
- (eg. Mortgage etc.) should be discharged from the property against which it is secured
- Unless “free of mortgage” then from residue as much as possible

Unsecured
To be paid from the estate in this order:
- Property undisposed of by the will (eg. In partial intestacy)
- Residue

Question 4

When mights debts of solvent estates not be paid from residue? How should they be paid?

Answer 4

Where will provides that debts shall not be paid from residue debts paid from:
- Property specifically given for payment of debt
- Pecuniary legacy fund – proportionately (unless provided otherwise in will)
- Property that has been given in will (rateably according to properties value)

Question 5

What is marshalling?

Answer 5

• Used when PR used property to pay debts not in accordance with statutory order (ought to have used another class of property first)
• Disappointed beneficiary will be compensated for loss out of residue

Question 6

What does it mean for gift of residue to be given “subject to” or “after” payment of debt?

Answer 6

• Residue can be used to pay debts

Question 7

What is a gift of property free of mortgage

Answer 7

• Mortgage on property must be paid out of residue to the extent of the residue

Question 8

What do beneficiaries receive in an insolvent estate?

Answer 8

Nothing

Question 9

How are secured creditors paid in insolvent estate?

Answer 9

• Have priority over unsecured for value of property securing debt
• If this does not cover the debt they become ordinary unsecured creditors

Question 10

When might a PR be liable in an insolvent estate? Is there any relief?

Answer 10

Personally liable if they pay inferior debt (as this amounts to warranty that there is enough money to pay superior debts)

Not liable if:
- not liable if they pay inferior debt without notice of debt in higher category provided this was not done with undue haste
- May be protected if pay one creditor in category fully before another in same category and estate later turns out to be insolvent, provided they had acted in good faith and with no reason to believe estate was insolvent

Question 11

In what order are unsecured creditors paid in insolvent estate?

Answer 11

• Preferred debts – wages and salaries of the deceased’s employees in 4 months pre-death (up to £800 each)
• Ordinary debts – (also includes HMRC, balance of preferred debts)
• Interest on preferred and ordinary debts
• Deferred debts (loans from family members)

Creditors in same category rank equally and paid proportionately

Question 12

What are disclaimers and what formalities must be followed?

Answer 12

Beneficiaries can disclaim gifts which then fall into residue or partial intestacy (if already part of intestacy)

Formalities
- orally or in writing (but must be in writing to be effective for inheritance tax and cap gains purposes)
- cannot disclaim if they accepted any benefit from the gift
- All or nothing/can only disclaim whole gift

Question 13

If a beneficiary disclaims a gift can it revert back to them?

Answer 13

Disclaimer does not prevent gift going back to same beneficiary under intestacy rules

Question 14

What is variation of a gitf?

Answer 14

• Allows beneficiary to change who receives their inheritance
• Even if beneficiary has accepted benefit
• Can be done for only part of a gift

Question 15

What are the formalities (forms or time limit) of variation of a gift and what effect might this have?

Answer 15

Generally
- treated as transfer for value for IHT
- treated as disposal for cap gains

Through Deed of Variation

If done in writing, within 2 years of death and not for monetary consideration
- treated as if left to new beneficiary from outset

Question 16

How are specific legacies paid to beneficiaries (chattels, shares and land)?

Answer 16

Chattels
- Transfer achieved delivery, in return for receipt
- Insurance should be cancelled

Company Shares
- Stock transfer form completed and sent with office copy of grant and the share certificate

Land
- Transfer requires assent in writing
- Insurance should be cancelled
- Beneficiary must register interest at HMLR

Question 17

How are Pecuniary Legacies typically paid?

Answer 17

• Starting point is residue paid from residue (unless provided otherwise)
• if residue is insufficient beneficiaries are paid in proportion
• appropriation may be used (with beneficiaries consent)

Question 18

Why must a PR obtain valid receipt from beneficiaries?

Answer 18

PR must obtain receipt from beneficiary to prove they have satisfied their obligation

Question 19

What is the presumption in regards to tax for pecuniary and specific legacies?

Answer 19

Specific Gifts
- If UK property then presumption that it is ‘free of tax’
- Overseas assets presumption that it is subject to tax

Question 20

When must a PR file a corrective account?

Answer 20

Filed when the incorrect amount of inheritance tax was initially paid

Question 21

When might a certificate of discharge not protect a PR?

Answer 21

Certificate not effective where:
- Fraud;
- Failure to disclose material facts;
- Subsequent discovery of further assets; or
- Changes in inheritance liability

Question 21

What is a certificate of discharge? Are there different types?

Answer 21

• PRs should apply for this to avoid further inheritance tax liability
• Limited certificate given if PRs have to pay future instalments of inheritance tax
• No certificate needed for excepted estates

Question 22

Are there rules to how much probate solicitors can charge?

Answer 22

A solicitor’s charge in non-contentious probate matters must be fair and reasonable in the circumstances, taking into account complexity, time spent, value of estate and number and importance of documents

Question 23

Can PRs be remunerated?

Answer 23

Generally cannot charge for services.
- will can authorise payment
- can agree payment with beneficiaries
- Court can authorise renumeration for PRs past, present or future

Presumed that any specific or general legacy left to executor is conditional on them accepting role

Question 24

Can an executor lose their right to a gift?

Answer 24

Presumed that any specific or general legacy left to executor is conditional on them accepting role

Question 25

When must PR deliver accounts to HMRC?

Answer 25

PR must deliver accounts to HMRC within 12 months (starting at end of the month of death)

Question 26

Does HMRC charge interest on IHT?

Answer 26

Interest on inheritance tax for estate will begin after 6 months (starting at end of the month of death)

Question 27

How are assets for estate valued for IHT purposes?

Answer 27

• At open market value at date of death (to work out tax due)

Exception
- Land that is co-owned with someone other than spouse will have value discounted for tax purposes
- Typically, 15% if residential and 10% if commercial

Question 28

What estates are exempt from IHT?

Answer 28

Small estates
- Estates under £325k (nil rate band); and
- Estates under £3 m, which is under £325 after deducting liabilities, spouse or charity exemptions (net chargeable estate)

Estates with Transferable Nil Rate Band
- Unused Nil Rate band can use transferred to surviving spouse:
- Up to a mx of £650k – where predeceased leaves everything to spouse and pays to IHT

Non-UK Domiciliary
- Where deceased was non-UK domiciled estate is excepted if UK estate consisted solely of cash and/or quoted shares which do not exceed £150k