Wills/Trusts Flashcards
If someone declares a trust over property which they already own in writing, and appoints a 2nd trustee, what is the status of the trust?
The trust is constituted as the legal title already belongs to the 1st trustee.
It is not necessary to register a deed of trust
If someone signs a deed of trust and asks their solicitor to transfer legal title to a house to the 2 trustees, but. the solicitor forgets, is the trust valid?
No, as they have not done everything necessary to transfer the property and ensure the trust is valid.
You must do everything you could possibly have done for the trust to remain valid.
If a couple purchase a house together in one’s sole name, but the legal owner makes a declaration of trust in writing, who owns the beneficial interests?
If the trust states the legal owner holds the property on behalf of them both, the declaration means the beneficial interest is held jointly in undivided shares.
It will rebut a presumption of sole ownership where only the legal owner contributed to the purchase price.
If a trustee of a discretionary trust wants to appoint a second trustee, but the will is silent on this, will they be able to appoint them?
Yes.
If the beneficiaries have no interest in possession in any event, the existing trustee may appoint a second trustee as they are a continuing trustee.
What formalities must be complied with to create an express trust of land?
S.53(1)(B) Law of Property Act 1925 - The declaration of trust must be evidence in writing, signed by the person creating the trust.
It does not need to be done by deed.
When do constructive trusts operate instead of resulting trusts?
Constructive trusts operate where there is some unconscionability (unfair/unjust) which prevents a legal owner from denying the interests of some other person.
Where someone makes a direct contribution to the purchase price of a property but it is registered in the sole name of another contributor, what happens?
The legal owner holds the property on an implied resulting trust for the benefit of themselves and the contributor (in non-domestic settings).
In the family home situation, it will be a common intention constructive trust.
For a claim of knowing receipt of misappropriated trust property, what constitutes “knowledge”?
Actual knowledge.
Wilfully shutting one’s eyes to the obvious.
Wilfully and recklessly failing to make enquiries as an honest and reasonable person would have.
Knowledge of circumstances which would indicate the facts to an honest and reasonable person.
Knowledge of circumstances which would’ve put an honest and reasonable person on enquiry.
If you have a remainder interest in a life interest trust, and the life tenant is still alive, is your interest vested or contigent?
It is vested in interest (you have a guaranteed future right to capital).
Your interest is not contigent on the life tenant dying.
If a testator intends to set up a discretionary trust for distribution between his “best friends”, is this enforceable?
No, it fails and is void for uncertainty of objects.
Where property has been transferred to a trustee but the trust fails, what happens?
The trustee holds the legal title to the trust property on an automatic resulting trust for the settlor.
For a non-charitable purpose trust to be valid, what provision must be included?
An express provision that the trust will come to an end within the common law perpetuity period of 21 years.
It must be certain when the trust is made that it will end within that time.
Where a trustee misappropriates trust property, and 2 different trusts’ property is mixed, withdrawals from innocent mixtures are attributed in what way?
Withdrawals from innocent mixtures are attributed rateably to the contributors to the mixture.
E.g., if 40% of the money comes from trust A & 60% comes from trust B, then 40% of the withdrawal is attributed to trust A and 60% from trust B.
Where a family home is legally registered in joint names but there is no express declaration of trust, what happens?
Equity is presumed to follow the law and they are viewed as equitable joint tenants.
This presumption can be rebutted by evidence of different common intention, ascertained by reference to the whole course of dealings (intention can change over time).
Common intention is likely to have changed when one moves out. Couples’ interests probably crystallise when they move out and any subsequent interest in value dilutes the share of the person who moved out.
What is the difference between a mirror will and a mutual will?
Mirror wills are commonly used where couples’ wills mirror each other (usually give everything to each other and the children if the spouse does not survive them).
Mutual wills is where both testators agree that neither will amend their will without the consen tof the other (equity may impose a constructive trust over the testator’s property if they attempt to amend).
Mutual wills are uncommon and require strong evidence of intention.
What is the inheritance tax annual exemption available if the giftor (person gifting) is still alive?
£3,000 per year.
You can also use unused annual exemption from the previous year (ONLY).
Is a remainder interest in a life interest trust included in your taxable estate?
No, it is not.
To be an excepted estate (low value or exempt), what are the requirements for the estate?
To be excepted the estate must not include:
- A gift with a reservation of benefit that subsists at death
- 2+ Trusts or 1 Trust worth more than £250,000
- Foreign Assets worth £100,000+
- The value of transfers exceeding £250,000
- Or a claim for Residence Nil Rate Band
What is the difference between a low value excepted estate and an exempt excepted estate?
Low Value Excepted = No inheritance tax payable as it is under the nil rate band.
Exempt Excepted = Gross value of estate is no more than £3m, but debts/spousal exemption/charity exemption takes the net value under the NRB.
What does an excepted estate mean?
An excepted estate means you will not have to complete the IHT400 form.
What are the 2 exceptions to the general rule that you cannot act where there is a conflict of interest?
Paragraph 6.2 Codes of Conduct:
a. Substantially Common Interest in relation to the matter or an aspect of it
b. Competing for the same objective.
How is Testamentary Capacity assessed?
By verifying the testator understands the nature of the act and its effects, the extent of the property they are disposing of, and the claims to which they ought to give effect.
Testamentary capacity being present when the will is executed is essential.
What is required for agricultural property relief to apply?
Agricultural land and buildings used for agricultural activity.
Continuous occupation for 2 years and ownership/occupation for 7 years prior is needed.
What is the rate for agricultural property relief?
The rate is 100% (50% for pre-1995).
APR applies to the agricultrual value of the land, not the market value.
You cannot claim BPR for assets that qualify for APR.
If a chargeable lifetime transfer (CLT) is reassessed for inheritance tax on death, and the tax paid is greater than the tax due at re-assessment, what happens?
No refund of the tax paid is available.
Credit may be used to cover any tax payable on a re-assessment of the gift.
Credit can only be used to reduce the tax to nil - cannot use the excess credit against the wider estate.
For an estate with a value below £5,000 with a valid will, will a grant of probate be needed?
For simple estates below £5,000, a grant of representation is not normally required, whether there is a will or not.
What does the Administration of Estates (Small Payments) Act 1965 allow for?
It allows for the release of certain assets to those who appear to be beneficially entitled to them without formal proof of title.
The assets it applies to includes:
- National Savings (Bank Accounts, Saving Certificates, Bonds)
- Friendly Society and Industrial and Provident Society Deposit Accounts
- Arrears of Salary & Wages
- Deceased’s Pension (e.g., Police, Fire, Air Force, or Army Service)
- Building Society Accounts
If affidavit evidence is required when establishing a will was duly executed, what should be included in the application for a grant of probate?
The executors should include the original affidavit or witness statement with the documentation when applying for a grant of probate.
The original should be included, NOT a copy.
If the trustees of a fixed trust have 4 beneficiaries, all with contigent interests upon turning 18, what are the beneficiaries’ entitlement to the trust income?
The trustees have a discretion to use the trust income for the benefit of each of the 4 beneficiaries immediately.
The capital is contigent on them reaching 18.
Trustees may use the income for their maintenance, education, and benefit immediately.
What is the statutory legacy under intestacy for a spouse in a post July 2023 death?
£322,000.
If a gift in a will is for capital in a trust to be paid to all current and former employees of a company, and there is a complete list of them, is the gift valid?
Yes, even if there are concerns over tracing them all, if there is a complete list, the gift is valid.
If a life interest trust specifies the beneficiaries entitled to the remainder must attain the age of 21 and must survive the life tenant, when do their interests vest?
When they survive the life tenant and reach the age of 21.
Both conditions must be fulfilled.
What is the statutory order of intestacy?
- Spouse
- Issue
- Parents
- Siblings of whole blood on statutory trusts
- Siblings of half blood on statutory trusts
- Grandparents
- Uncles/Aunts of whole blood
- Uncles/Aunts of half blood
- The crown as bona vacantia
What are the 3 main forms of protection for personal representatives when administering the estate to protect from other potential creditors/beneficiaries?
s.27 Trustee Act 1925 Notice:
- Unknown beneficiaries and creditors
- Notice in the London Gazette, local news and other newspapers
Benjamin Order:
- Known but missing beneficiaries
- Distributes estate on basis that missing beneficiaries are dead
Presumption of Death Order:
- Court order declaring presumed death for beneficiaries missing over 7 years
If a life interest trust has a life tenant, a conditional remainderman (meeting all conditions except surviving the life tenant) and a substitute remainderman, whose consent is needed to collapse the trust?
All - the life tenant, the conditional remainderman, and the substitute remainderman
Who can bring a claim under the Inheritance (Provision for Family and Dependants) Act 1975?
Spouse/Civil Partner
Former Spouse/Civil Partner (who has not remarried)
Cohabitees of the Deceased
Children of the Deceased (includes adopted children and those treated as a child)
Persons maintained by the Deceased
How long does someone have under I(PFD)A 1975 to bring a claim?
Claims must be made within 6 months of the grant of representation.
What is a trust?
A legal arrangement for the management of assets and a relationship between a trustee and a beneficiary that arises when property is held by the trustee for the benefit of the beneficiary.
- No max. number of beneficiaries
- Can have one trustee but is recommended that for a will trust (a trust set up and contained in a will) that you have at least 2 trustees
- You can have as many trustees as you like, but if it is a trust over land, there cannot be more than 4 trustees
- Any property can be held under trust
- The trust has no separate legal personality - the trustees are sued if they breach their duties (to manage and hold the property on behalf of the beneficiary), not the trust itself
Who owns property held under a trust?
The beneficiary owns the property - they have the equitable title, which represents true ownership.
The trustee holds the legal title on behalf of the beneficiary.
Who is the settlor?
The person who makes the trust - puts the trust assets into the trust by transferring the legal title to another and the equitable ownership to the beneficiary.
Settlor - transfers legal title to the Trustee and equitable ownership to the beneficiary
- The settlor can also declare the trustee and hold the property on trut for the beneficiary
- The settlor can determine how the assets in the trust will be held and sets outs the terms in a trust deed (or will for a will trust)
What is an express trust?
A trust deliberately set up by the settlor, by words or in writing, or by deed (by conduct).
Two kinds of express trust:
- Private Trust - Trusts set up for the benefit of individuals. They must comply with the three certainties. Can also be for private purposes (private purpose trust).
- Charitable Trust - Trusts set up for the public good/benefit. No need to comply with three certainties.
What is an implied trust?
Trusts implied by the law (i.e., not made expressly by any settlor).
No formalities apply; these trusts do not need to comply with three certainties.
Can also be made by conduct.
Three kinds of implied trusts:
- Resulting Trusts - When the equitable ownership in the property ‘results’ or jumps back to the settlor
- Constructive Trusts - Arise by operation of law (imposed by the courts) to achieve justice
- Statute - Trusts that Parliament have set up by Acts of Parliament
What is a bare trust?
A trust where the trust property has vested absolutely in the beneficiaries (because the beneficiaries have the right to exercise Saunders v Vautier rights).
In other words, the trust can be collapsed by the beneficiaries.
What is the rule under Saunders v Vautier?
If the beneficiary:
- Has an absolute entitlement to the property (this means there are no conditions allowing another potential beneficiary to make a claim);
- Is 18 years or over; and
- Is of sound mind and competent to make their own judgment (known as being sui juris).
Such a beneficiary is able to demand that the trustee transfers the legal title to them, meaning they have absolute ownership of the trust property (both legal and equitable title) and therefore collapse the trust.
What is a contigent interest?
The opposite of a vested interest. It means the beneficiary must fulfill a condition before being entitled to the trust assets.
What is a life tenant and what is a remainderman?
Both beneficiaries under a trust.
Life Tenant = Right to the income under a trust (or habitation of a property) but not the capital (the property itself) for the duration of life.
Remainderman = Right to the capital (property) - will inherit absolutely when the LT dies.
The LT and R can agree to collapse the trust using the Saunders v Vautier rights, provided both of them satisfy the conditions.
What is the difference between a fixed trust and a discretionary trust?
Fixed Trust = The trust and the beneficiaries are fixed. The trustee must abide by the terms of the trust.
Discretionary Trust = The trustees have discretion over;
a) Who the beneficiaries should be; and
b) How much they should get.
DT can usually be identified by the words ‘in their (the trustees’) absolute discretion’.
Saunders rights can be exercised for a DT if the DT is for a small group of “ascertainable” beneficiaries and all have been selected by the trustee.
What are the three certainties?
- Certainty of Intention
- Certainty of Subject Matter
- Certainty of Objects (Beneficiaries)
All three are needed to make a valid and enforceable express trust (for the benefit of the beneficiaries). If not all three are present, it will fail.
What is Certainty of Intention and how is it established?
It must be clear that there was meant to be a trust - that the settlor intended a trust to arise.
No set rules on how to show intention - use common sense.
Look at the wording of the settlor - is it clear there is an intention to make a trust?
Can intention to make a trust be shown by conduct alone?
Yes.
Certain conduction can show intention to make a trust - it does not have to be written down (unless it is a trust of land).
E.g., A settlor sets aside money for an individual, and repeatedly tells them it will be theirs until the point when the settlor dies, puts it in a separate account with their name, but the settlor forgets to make a will passing the money onto the individual.
What is Certainty of Subject Matter?
The property being held under the trust must be certain - individually ascertainable.
Certain rules you need to be aware of:
- A group of tangible assets (including those which are the same in nature) must be individually identifiable and categorised to be passed down in a trust. Saying a “bulk” or “amount of” of such objects does not create a valid trust.
- Exception: Shares in a company of the same class do not have to be separately identifiable or categorised - it is fine to pass on a number of these (but the actual number of shares must be specified) - Exception: "Reasonable criteria" can be used to define property, such as a "reasonable income" left on a trust.
What is a Certainty of Object?
The beneficiaries under a trust (whom the assets are being held for) must be certain - identifiable individuals).
What is the test for certainty of object for a fixed trust?
The Complete List Test - The trustees must be able to draw up a complete list of all the beneficiaries and there must be no doubt as to who they are.
To have a complete list, you need:
- Conceptual Certainty - You must be able to identify a particular group or class of people and define who they are as well as list members in it; and
- Evidential Certainty - Individuals within that class can be confirmed with evidence.
What is the test for Certainty of Object for a discretionary trust?
The Individual Ascertainability Test - The trustee need not to list all the beneficiaries, but they do need to know who is or isn’t within the class of potential beneficiaries so they know whom they can give (or can choose not to give) the property to.
What are formalities?
The requirements to transfer the equitable title of a trust asset.
What are the formalities required to make a valid trust?
None.
Unless you are making a trust in land or transferring an existing equitable interest.
To declare or make a trust in land, you need to comply with S.53(1(B) LPA 1925; a failure to do so will mean the trust will be unenforceable:
- There must be something in writing setting out the details of the trust in land; and
- This must be signed by the settlor.
To transfer an existing interest under a trust, you need to comply with S.53(1)(C) LPA 1925; a document in writing signed by the transferor must be executed.
What is constitution?
When legal title to the trust property (or gift) has vested in the trustee (or donee); in other words, legal title has been transferred to the trustee (or donee). A trust must be constituted to be valid and enforceable.
Equity will not assist a volunteer - If a settlor fails to transfer legal title, the law will not correct this or make a self-declared trust.
How is an asset constituted?
Depends what assets are being gifted or transferred into trust.
Either way, you need to effect a complete transger of legal title required at law.
Registered Land = Complete a transfer deed and register it at the Land Registry
Company Shares = Sign a stock transfer form and register the new owner in the register of members by sending the form and existing share certificate to Companies House
For any other gifts (e.g., a painting) = Transfer is simply by delivery
Are there any exceptions to the rule that “equity will not assist a volunteer”?
Yes.
These exceptions will mean that constitution (the transfer of the legal title) will be deemed to take place (even though it technically has not).
These exceptions are:
- The settlor/donor does all in their power to transfer the asset, but dies just before the asset is actually transferred.
- Donatio mortis causa - Deathbed gift
- The recipient of the gift or the trustee is appointed an executor under the will and the settlor/donor died just before they were going to make the gift.
What are the conditions for donatio mortis causa to operate?
- The gift must be made in contemplation of impending death (the donor must think they are going to die very soon).
- The gift itself, the means of control of the gift or some essential indication of title is delivered to the donee.
- There must be an intention to make the gift conditional on death.
How can a trustee be appointed?
- The trust deed (for a trust of land, max amount is 4).
- The trust deed gives the trustees a power to appoint.
- Subject to the trust deed, trustees can remove and replace trustees if that trustee:
a. Wishes to resign
b. Has died
c. Is outside the UK for more than 12 months
d. Is a child
e. Is unfit or incapable of being a trustee
f. Refuses to continue being a trustee - A retiring trustee can appoint a successor.
- Beneficiaries with Saunders rights can replace a trustee (subject to the trust deed).
- The court can replace a trustee if that trustee is bankrupt or lacks capacity.
How can a trustee be removed?
- Death
- Refusal to be a trustee
- Retirement
- Beneficiaries with Saunders rights can compel retirement
- Removal by other trustees, the beneficiaries, or the court (replacement)
What are the two kinds of trustee duties?
Appointment Duties - Duties when appointed a trustee.
These include:
- Understand the terms of the trust/trust deed and who the beneficiaries are
- Find out what the trust property is and make sure it is in their name
- Take any action if there has been a breach of trust
Continuing Duties - Duties throughout the life of a trust.
These include:
- To act unanimously (a majority decision does not bind the trustees)
- To be impartial towards all the beneficiaries
- To invest
- To keep accounts and records
- To distribute the trust funds to the right persons
- Keep trust assets separate from any personal assets of the trustee
- To be adequately informed before exercising their powers
- Overarching fiduciary duties (remember: all trustees are fiduciaries): no profit, no conflict.
What are the duties of care of a trustee?
Common Law Duty of Care - Trustee must exercise same standard of diligence and care as expected of a prudent business person would of their own business.
If the trustee is paid (a professional trustee), the standard is higher.
Statutory Duty of Care under the Trustee Act 2000 - The trustee must exercise such care and skill as is reasonable in the circumstances, having regard to any special skill, knowledge, or experience that they have or hold themselves out as having.
The standard is that of a reasonable trustee.
Standard is higher if the trustee is a professional.
The statutory duty of care can be excluded by the trust deed.
What is the duty to invest?
When the trust property is a trust fund (a large amount of cash, the captial), the trustee has a duty to invest that money so that it grows for the benefit of the beneficiaries.
The investment should grow the capital and the income of the fund to maximise value for the beneficiaries.
Carry out this duty via the general powers of investment.
Can invest in land, chattels, and shares but NOT land overseas.
How should the trustees exercise their powers of investment?
- Exercise reasonable care and skill (statutory duty of care).
- Regularly monitor and review the investments.
- Make investments in accordance with the Standard Investment Criteria (diversify the investment).
- Obtain and consider proper advice (but no obligation to follow it), unless the trustees are investment professionals.
- Power to delegate to an agent.
- Balance the interests of the beneficiaries (maximising income growth for the life tenant; capital growth for the remainderman).
- Disregard all personal and ethical considerations when investing.
What is the power of maintenance?
A discretionary power that allows the trustee to use the INCOME for the benefit of a minor beneficiary.
Can be excluded in the trust deed.
Income must be used for the minor’s education, maintenance and benefit, or be paid to a parent or guardian.
Once the minor reaches 18, they are entitled to the property and and full income under Saunders rights.
Trustees must accumulate (continue to invest) any unused income.
What is the power of advancement?
A trustee can “advance” a capital amount under a trust for a minor beneficiary’s, or an adult beneficiary’s with a contigent interest (such as reaching a specified age) benefit.
Cannot exceed the beneficiary’s share in the trust.
Two Restrictions:
- Beneficiaries with an interest (e.g., a life tenant) must consent in writing to the use of the power.
- If there is more than one beneficiary, the trustee can take the advancement into account when dividing up the trust fund.
How can trustees be liable for a breach of trust?
- Positive Misapplication of Trust Property (e.g., buying unauthorised property) - Restore the trust fund to the value it would have been had the breach not occurred.
- Negligent Trust Administration - The trustee is liable for the loss that would not have occurred but for their negligent management.
The measure of liability is what the trust fund would be were it not for the trustee’s breach.
Liability of trustees is personal - trustees are not liable for the breaches of their co-trustees UNLESS they acted with a trustee in the breach, in which case the breaching trustees are joint and severally liable
What defences are available to trustees for a breach of trust?
- The beneficiary consented to the breach of trust before or after (provided fully informed, sui juris and not unduly influenced)
- If only beneficiary asked for or instigated the breach, the court can impound their interest and use it to indemnify the trustees’ liability to the other beneficiaries.
- The court can relieve a trustee of liability if it believes they acted honestly and with integrity.
- The trust deed exempts the trustee from liability via an exemption clause.
- Too much time has passed (Limitation Act 1980 or “laches”).
What is the limitation period for a breach of trust?
6 years from the date the cause of action occurred.
If the beneficiary is entitled to a future interest, the cause of action accrues from the date that interest comes into possession (so 6 years from that date).
Does not apply to fraudulent breaches of trust or proprietary (e.g., constructive trust) claims. For those, the trustee must try to use laches.
Laches = The court has the discretion to strike down a claim where there has been unreasonable delay in making the claim.
When does a fiduciary duty arise?
Automatically or at the discretion of the court.
Automatic Fiduciaries include:
- Trustee and Beneficiary
- Solicitor and Client
- Company Director and Company
- Agent and Principal
- Business Partners and Co-Partners
The court can impose a fiduciary duty if it would be just to do so.
What is the “no profit” duty of a fiduciary?
A fiduciary cannot take advantage of their position as a fiduciary (e.g., using information gained from the role for their personal advantage) or receive a commission.
A fiduciary must not accept any bribes as a result of their position.
If the fiduciary is appointed a director by the principal/beneficiary/trust, they cannot draw fees or a salary. Can only claim out-of-pocket expenses.
Profits/fees are allowed if either the trust deed permits them to make a salary or (all) the principals (who must all be sui juris) fully consent.
What is the “no conflict” duty of a fiduciary?
A fiduciary cannot put themselves in a position where their interests conflict with those of the principals.
- Self-Dealing - A fiduciary cannot sell the principal’s/trust’s property to themselves. They are both seller and buyer therefore the best price will not be achieved. If they do, the transaction is voidable and can be set aside if the beneficiaries wish.
- Fair Dealing - A fiduciary cannot purchase property from the principals. This can only be done if it is done properly: the beneficiary is fully informed, with proper valuations, due process, and no duress. If these steps are not carried out, then the transaction is voidable and can be set aside.
- Cannot compete with a principal.
What remedies are available for a breach of fiduciary duty?
Two kinds of remedy:
- Personal Remedy - Fiduciary hands over profits.
- Proprietary Remedy - Constructive trust. Any profits made are held on constructive trust for the principal.
A constructive trust allows the principal to trace the profits (money taken) if they are used to buy a replacement asset (as they have an equitable interest) and make a proprietary claim on the replacement asset.
What is a stranger?
Someone who is not a trustee or a fiduciary.
They are a 3rd party outside of the trust or fiduciary relationship.
Beneficiaries are able to pursue claims against strangers when there has been a breach of trust or fiduciary relationship.
Beneficiaries can make either proprietary or personal claims against a stranger.
What is a proprietary claim?
Claims against the trust property or profits made by the fiduciary. This is a claim to return the property to the beneficiary or the value of the property.
This can be made against any stranger who:
- Takes trust property from a trustee (in breach of trust); or
- Profits from a fiduciary knowing/with notice that it belongs to the trust; or
- To someone who receives property as a gift but has paid no consideration.
The claim cannot be made against a bona fide purchase for value without notice.
What are personal claims?
Claims against the stranger personally for breach of trust or fiduciary duty. This claim means the stranger has to account for any profits or losses to the beneficiary. (Has to pay out of their own pockets)
Can only be used if the stranger’s conscience is at fault - they must have known there was a breach of trust.
Two kinds of personal claim:
- Unconscionable Receipt - Stranger receives trust property from the trustee in breach of trust/fiduciary duty and subsequently deals with it knowing that it has been received dishonestly.
- Dishonest Assistance - The stranger helps the trustee/fiduciary breach the trust/duty in some way knowing that they are acting dishonestly in doing so.
When can an “unconscionable receipt” claim be made?
Used when the trust property is lost - that means the strangers have dissipated it (sold it on to someone else who has vanished) or sold it and dissipated the proceeds AND they knew it belonged to the beneficiaries.
Stranger must account to the beneficiaries for the full value of the property and any profit or loss that was made from dissipating/selling it and dissipating proceeds.
How can “unconscionable receipt” be proven?
When the stranger:
a) receives trust property from a trustee/fiduciary in breach of trust/duty; and
b) knows the property is from a breach of trust/fiduciary duty and subsequently deals with the property. This is unconscionable.
If D is a bona fide purchaser without notice, that will defeat a claim for unconscionable receipt.
What is “dishonest assistance” and how is it proved?
When a stranger dishonestly assists a trustee to breach the trust/fiduciary to breach their duties. The stranger does not have to receive any property.
2 things to prove:
- Dishonesty - Two-part test: What did the stranger know? With those facts in mind, did they act dishonestly (reasonable person standard)?
- Assistance - The stranger assisted in the breach of duty/trust. Must be some causative link between the stranger and the breach.
Remedy for DA - Must account for any profits made from the assistance.
What is tracing?
An equitable process - allows beneficiaries to identify their property or a substitute for their property (specificially, the value of that property), whether that be into the trustee’s/fiduciary’s hands or into the hands of a stranger, and from there make a claim for that property.
Follows “transactional links” - the value of B’s property passing from one asset to another.
It is a process which can lead to remedies if property is successfully identified.
What are the conditions required to trace?
- There must be a fiduciary relationship - the tracer is a beneficiary or principal.
- The beneficiary must have an equitable right in the property (constructive trust for principals).
- The property must NOT have dissipated.
- You cannot trace into a bona fide purchase for value without notice.
When should a proprietary claim be made?
When you can successfully trace the trust property into the hands of the trustee/fiduciary or those of a stranger.
Be careful when tracing into money that has been mixed with non-trust money in an account:
- Withdrawals from an Account: If a trustee mixes trust money with their own money in one account and then makes withdrawals, they are presumed to have spent their own money first. Once the amount in the account falls below the trust fund amount, it is assumed part of the trust funds have been spent. Any later payments into the account are not treated as repayments of the trust money unless the trustee intends otherwise.
- If you have a mixed current account with two different monies in it or trust monies and the money of an innocent volunteer, the “first in first out” rule applies. Whichever trust money was put in first is taken first when there is a withdrawal.
When should a personal claim be made?
If you can’t make a proprietary claim and there is a strange that you can make a personal claim against (using knowing receipt or dishonest assistance).
Proprietary claims cannot be made if the property or proceeds of sale have been dissipated.
What are purpose trusts?
The beneficiary of a trust is a purpose.
General Rule - Purpose trusts are not allowed.
This is for two reasons:
- The Beneficiary Principle - There must be a person who can enforce a trust
- Perpetuity Rules - A trust cannot last forever. It must have a time limit and eventually be available for someone to use.
There are two kinds of purpose trusts: a private purpose trust and a charitable purpose trust. Both are subject to the general rule, however a charitable trust has more exceptions from this and therefore is more likely to succeed.
What is a private purpose trust?
A trust set up by an individual to carry out a particular function after they have died.
Private purpose trusts are void as they do not satisfy the beneficiary principle - no one can enforce the trust.
However, there are limited exceptions to this principle meaning a private purpose trust can take effect. This is if the trust is for the purpose of:
- Maintaining monuments and graves
- Saying of private masses
- Maintenance of animals (such as pets)
- Other odd, random cases that are very rare
A private purpose trust must comply with the ‘rule against inalienability’.
What is a charitable trust?
A trust defined as a “charity” under S.1(1) Charities Act 2011.
The trust must be:
- For a “charitable purpose” - List of these within the act which includes relief from poverty, advancement of education, advancement of religion, advancement of health, etc.
- For the “public benefit” - This means it must benefit the community and that those who can benefit must be sufficiently numerous
- Exclusively charitable - This means that the sole purpose of the trust is to be charitable, nothing else
What is the “remoteness of vesting” rule?
A “gift over” under a trust must “vest” within the “perpetuity period”.
Vest - The property goes to the beneficiary
Perpetuity Period - Trust cannot last for longer than 125 years
Gift Over - A gift that is given after some event
Exception - If the gift over is a charity gifting over to another charity under the trust deed, it can vest beyond 125 years.
What is the “rule against inalienability”?
Applies to private purpose trusts.
A private purpose trust cannot last longer than a “life in being” plus 21 years from the date the person dies.
Life in Being - The lifespan of an alive and identifiable person at the time the trust was set up, identifiable person must be expresslt stated in the trust deed for the trust to last that long.
If no person identified, the trust will last 21 years. Any attempt to make the trust last longer will render the trust void.
Stating “as long as the law allows” is also a valid way of setting up a private purpose trust.
What is a resulting trust?
A type of implied trust.
A resulting trust arises when:
A) X transfers the legal title over property over to Y; and
B) Y then holds that property on trust for X.
What is an automatic resulting trust?
Arises by operation of law, mostly when an express trust has failed to be validly created.
Arises when:
- There is no valid declaration of trust - The trust has failed for lack of certainty of subject or object or formalities have not been complied with (in writing and signed by the settlor for a trust of land).
- Valid declaration but the trust fails - The beneficiary dies, does not satisfy a condition or the charity ceases to exist.
- Undisposed of Surpluses - If someone gives a gift which is limited and not absolute, then any surplus of that gift is held on resulting trust for the donee.
- Quistclose Trust - A lender lends money to an individual for a certain purpose. Until that purpose has been fulfilled, there is a resulting trust (with the borrower as trustee) in favour of the lender. Once the purpose has been fulfilled, the trust comes to an end.
What is a presumed resulting trust?
Where there is a rebuttable presumption of resulting trust because the property has been voluntarily put in the name of another.
Arises when:
- Voluntary Conveyance of Property - X transfer property to Y for no consideration and voluntarily but gives no instruction or no intention as to whether Y holds it for anyone else or if it is an outright gift or loan.
This is a voluntary conveyance of property: when someone gratuitously transfers property for another without saying why.
- Purchase money resulting trust.
What is a purchase money resulting trust?
When property is bought in the name of another or X contributed to the purchase price for another to buy property (which is then put in that person’s name).
Arises when:
- X gives money to the seller but asks the seller to transfer the property to Y (X is not buying it for themself); or
- X contributes money to the purchase property but it is in Y’s name (the resulting trust will reflect X’s contribution)
In both of these situations, there is a presumption that X did not intend to make a gift of the property.
How can a presumed resulting trust be rebutted?
The presumption can be rebutted if:
- There is even slight evidence that a voluntary conveyance of property was intended as a gift or a loan - e.g., it was done on the donee’s birthday.
- Similarly, there is slight evidence that the purchase money for the property was intended as a gift or loan.
Sometimes a close relationship between X and Y might be eenough.
If successfully rebutted, Y will hold the property outright and there will be no resulting trust.
What is a common intention constructive trust?
An implied trust imposed by the court ovr property held jointly or by a single person to reflect intended and fair ownership in the property where you have a co-habiting couple who disagree on ownership rights.
How does a court impose a common intention constructive trust?
A CICT is imposed to achieve a fair and just outcome between the parties, to achieve true ownership in the property.
A CICT can only arise based on:
- The common intention of the parties - the two individuals must have intended to have shared ownership of the home or to have divided their ownership rights. Intention can be express or implied;
AND
- The party claiming ownership must have suffered a detriment based on this intention. Equity will not assist a volunteer therefore the claimant must have suffered in some way (a detrimental reliance) based on the idea that they had rights in the property.
No formalities required to set up a CICT
What case will a claimant make to persuade a court to impose a CICT?
The legal ownership does not fairly reflect the actual ownership.
As they have likely lived in the house for years and contributed financially or materially.
Two kinds of disputes in relation to co-habiting couples:
- Joint Ownership Property
- Sole Ownership Property
How does the court impose a CICT in a joint ownership case?
- Equity follows the law - presumption that the two individuals hold 50/50 equitable rights as their legal ownership is joint (therefore an equitable joint tenancy exists).
- This presumption can be rebutted by strong evidence that there is a common intention that the rights should be unequal. Burden is on the claimant to rebut.
- In viewing the evidence, the court is looking for a common intnetion that the shares would be unequal (implied or express) and detrimental reliance on behalf of the claimant based on that intention.
- Evidence is analysed.
What evidence can be used to rebut presumption of joint ownership?
- The reasons the legal title was registered in both or one name (to avoid an argument?)
- Any discussions between the parties.
- The purpose for which the house was bought.
- How the house was financed.
- The nature of the relationship.
- Whether the parties have children.
- How the parties arrange day-to-day spending.
- The characters of the parties.
- How they divided household expenditure.
How does the court impose a CICT in a single ownership case?
- The starting presumption is that property is held by the sole owner only and that they have 100% rights.
- Presumption can be rebutted by evidence showing that there is a common intention that the claimant should have a share in the property and that the claimant suffered a detriment as a result. Burden of proof is on the claimant.
- The intention can be express (based on discussions between parties) or implied.
- If intention is implied, only direct or indirect financial contributions will suffice to show indirect intention.
- Detrimental reliance is proven by financial contributions or extensive renovation works.
If the courts determine a CICT should be imposed, what next?
The shares of the claimant will be assessed.
To do this, they will first check if there is any express agreement as to the shares.
If not, they will see if they can infer an intention based on the conduct of the parties: if that fails, the shares will be ‘imputed’ based on what is just and fair.
What is an equitable remedy?
A remedy granted at equity rather than at common law.
At common law, the only remedy is damages. Equitable remedies are more varied and are at the discretion of the court.
All equitable remedies share the same characteristics:
- They are given at the discretion of the court
- Granted where common law remedies (damages) are not sufficient
- Can operate against the defendant personally
- Claimant must come with clean hands and without undue delay to get an equitable remedy
What is an injunction?
An order of the court requiring someone not to do something or ordering them to do something.
Two main kinds:
- Perpetual Injunction - An injunction given at the end of the trial to resolve a dispute. Can be prohibitory (preventing a party from doing something) or mandatory (forcing a party to do something).
- Interim Injunction - Given during proceedings prior to trial. This injunction can also be granted before any court proceedings have actually begun if there is some immediate threat to the party which must be stopped immediately. Usually an interim prohibitory injunction.
An injunction can be with notice or without notice.
A breach of injunction is contempt of court and is punishable by imprisonment or a fine.
What are the grounds for granting an interim prohibitory injunction?
- There is a serious issue being tried.
- Court must balance the interests between the parties.
- Damages would not be an adequate remedy. If no injunction is granted, and C goes on to win at trial, will damages compensate them enough (and vice versa)?
- Consider special factors (e.g., whether an injunction should be granted to prevent the publication of embarrassing material) and the strength of the parties’ cases to tip the baalance.
What are search orders and freezing orders?
Search Order = A kind of mandatory injunction. Stops a defendant from destroying evidence. It orders the defendant to allow the claimant or third party to enter the defendant’s premises (can be their business or residential premises) to search for, inspect, copy or take away documentary evidence.
To get a search order, you need:
- An extremely strong prima facie case
- Actual or potential damage of a very serious nature; and
- Clear evidence the defendant has cruical documents to the trial and a real possibility that they might destroy them.
Freezing Order = A kind of prohibitory injunction. Orders a defendant not to move their assets from England and Wales before trial.
To get a freezing order:
- The claimant must have a good arguable case
- The defendant must have assets within England and Wales
- There is a real risk the assets will be removed.
What is specific performance?
An order requiring the performance of obligations under a contract. Granted after trial. Failure to comply is contempt of court. Only granted where damages are an inadequate remedy.
Cannot be used for:
- Sale of goods unless those goods are really unique and cannot be replaced on the market - S.52 Sale of Goods Act 1979.
- Employment contracts or contracts for personal service. Court cannot force someone to work.
- If the order requires constant supervision by the court.
What is “account of profits”?
A personal remedy that allows a claimant to recover the profits received by a defendant as a result of their breach by the trustee paying back that money.
How do you make a valid will?
The testator must:
- Be 18 or over;
- Have the capacity to make a will; and
- Have the requisite intention.
S.9 Wills Act 1837 must be complied with.
Duress, Fraud, and Undue Influence could render a will invalid.
What is the test for capacity?
Banks v Goodfellow - The testator must have “soundness of mind, memory, and understanding”.
This means they must understand:
- What it means to make a will and its effect
- How much they own and what they will be passing down via the will
- Any moral claims/issues they should think about - They must be aware of the moral need to hand down property to a spouse/child BUT they do not have to do so - only need to comprehend it.
- No disorder of the mind or delusion.
CAPACITY MUST EXIST AT THE TIME THE WILL IS EXECUTED - Unless the exception applies…
What if the testator does not have capacity when the will is executed?
There is no valid will.
BUT exception - If the testator does not have capacity at the time the will is executed, the will is still valid if:
- The testator had capacity when they gave instructions for the will to their solicitor to write it or drafted it themselves;
- The will was prepared in accordance with those instructions; and
- When the testator does sign, they understand that the will they are signing was prepared in accordance with those instructions or written by them when they had capacity/
If there is any doubt as to the capacity of the testator, the executors must prove otherwise, but if the will appears rational and valid, the presumption of capacity applies and the burden shifts to the person opposing the will.
What is the “golden rule”?
If a solicitor thinks there are any doubts about a testator’s capacity, they should:
- Get a report from a medical practitioner confirming the testator is fine;
- Ask a doctor to witness the will; and
- Make a file note that the solicitor believes the testator has capacity.
What does intention mean in the context of a will?
At the time of executing the will, the testator must have had:
- A general intention to make a will. This is presumed if the document executed is a will; and
- A specific intention to make the will distributing their estate (knowledge and approval of the contents of their will).
If the testator had capacity at the time of executing the will and the will has been validly executed, there is a presumption they had knowledge and approval.
But this presumption does not operate if the testator was blind, illiterate, or there are “suspicious circumstances”, e.g., the beneficiary helped prepare the will.
In those circumstances, the presumption is that the will is invalid and the executor must provide evidence to rebut this presumption.
What is duress?
One party coerces another party in relation to a will - threatens a party to make one.
The threat which causes duress can be physical threats to:
- The testator;
- Someone close to the testator;
- The testator’s property; or
- The testator’s economic/business interests.
What is undue influence?
One person coerces another person to enter into the will against the testator’s wishes.
Arises when there is a special relationship between two parties or one based on trust and confidence and that relationship is abused.
Burden of proof is on the person alleging Undue Influence.
To ensure that this does not occur - the solicitor should ensure the client receives impartial legal advice before they write the will where you have a situation where it is clear that there is some family influence on the will.
At the outset of the matter, the solicitor should ensure they see the testator on their own and receive clear instructions as to the contents of the will.
What are the requirements under S.9 Wills Act 1837?
- In Writing - Do not write it in pencil, if it is in pencil, there is a presumptuon it is not meant to be the final will.
- Signed by the Testator - if T cannot physically sign, someone in T’s presence whom T physically directs to sign.
- Signature must show that T intended to give evidence to the will - Put the signature at the bottom of the will.
- Two or more witnesses must physically witness T’s signing of the will.
- Each witness must sign the will in the presence of T, does not have to be in the presence of other witnesses.
An “attestation clause” can be used by the witness when signing confirming that they have validly witnessed the will - creates a Presumption of Valid Execution.
What are the requirements concerning the witnesses?
The witnesses must be capable of attesting the testator’s signature - they must be physically and mentally present at the signing (if drunk/on drugs, not mentally present therefore not a valid witness).
If a beneficiary or their spouse/CP acts as one of the witnesses, they will not be able to inherit. The will is still valid but their gift lapses.
This is unless the will is re-executed by a codicil (without them witnessing it) or there are two other witnesses when they witness.
What is a codicil?
An add-on to an existing will. Used to supplement, amend, or revoke a provision in a will.
A codicil must comply with the same requirements of a will to be valid.
The will and codicil(s) form one document - read together as one will, and the estate is distributed in accordance with what they say as a document.
The date the codicil was executed is treated as the date the will was executed.
How can you validly alter a will after it has been executed?
Two methods:
- Attested - Executed in the same way as a will, use initial to execute in the margins at the side of the amendments or use a memo at the end of the will.
- Completely cover the original wording of the will - the alteration must make the original wording impossible to read. Testator must have intention to alter when oblierating the wording.
An invalid alteration can only be made valid if the will is re-executed by a testator or a codicil is validily executed.
How can a will be revoked?
- Automatically by marriage (exception - if the will is make in contemplation of a particular marriage).
- Expressly by:
- Destruction: T can burn, tear or otherwise destroy the will but must have the intention to revoke when destroying the will + capacity
- Writing a letter executed in accordance with S.9 WA 1837
- Revocation by later will or codicil containing an express revocation clause.
What effect does divorce have on the will?
From the date of the divorce:
- Any appointment of the former spouse/CP as trustee or PR is ineffective. If ex spouse/CP was the only PR, someone else will have to step forward to be the PR.
- Former spouse/CP cannot inherit under the will.
Subject to any contrary intention in the will (e.g., the will stating that the gift will stand despite divorce).
When can a surviving spouse/CP inherit when the intestacy rules operate?
When they have survived the deceased by at least 28 days.
If the deceased leaves behind only a spouse/CP, they inherit everything under the intestacy rules.
What does “issue” mean for the purposes of the intestacy rules?
Children (including formally adopted children, children born out of wedlock and surrogates)
BUT NOT STEP-CHILDREN
What happens if the intestate dies leaving Spouse/CP and issue?
Spouse/CP receives:
- Personal Chattels
- Statutory Legacy of £322,000
- Half the residue
The issue receive the other half of the residue on the statutory trusts.
What if the intestate dies leaving no spouse or issue?
Apply the statutory order under S.46(1) Administration of Estates Act 1925:
- Parents, but if none to
- Siblings of the whole blood on statutory trusts,
but if none to - Siblings of the half blood on statutory trusts, but if none to
- Grandparents, but if none to
- Uncles or Aunts of the whole blood on statutory trusts, but if none to
- Uncles or Aunts of the half blood on statutory trusts, but if none to
- The Crown as Bona Vacantia.
What is the Statutory Trust?
A trust created by statute under the Administration of Estates Act 1925, used to distribute property under an intestacy.
To fully inherit property, the beneficiary must be 18 or over.
They inherit property on a statutory trust and they only have an contingent interest if they are not 18+.
Once they reach 18, their interest becomes vested and they are entitled to the property.
If the beneficiary dies before the intestate, their children can inherit (in equal shares). Same age rules apply.
All beneficiaries with the same category inherit in equal shares - the children of a deceased beneficiary inherit the deceased’s share in equal amounts.
What is the surviving spouse’s right to a family home?
When you have:
- A person who has died inestate;
- Who has a family home (a home that they and their spouse have lived in); and
- They are a surviving spouse.
That spouse has the right to take the family home as it forms part of the succession estate (i.e., it was not held as a joint tenancy).
- Must be exercised within 12 months of the grant of representation. The PRs must not sell or deal with the home the spouse can claim a right to.
- If the spouse is entitled to less under the estate than the value of the house, they must pay the PRs the difference using their own funds.
What is the succession estate?
All the distributable assets of the deceased (after deductions of debts and any testamentary expenses, which includes costs of collecting and assets and IHT - so it is the balance remaining that forms the succession estate that is distributed) EXCEPT assets which are SPECIFICIALLY EXCLUDED.
Assets specifically excluded have their own specific rules.
The succession estate passes first to the Personal Representatives. They use it to pay off debts, funeral expenses, and other admin costs. The remainder is then distributed via the will or intestacy rules.
How does a joint tenancy share in a property pass?
To the surviving joint tenant(s) under the doctrine of survivorship.
Includes both property and joint bank accounts.
Note - If the deceased held a share of the property as a tenant in common, that share forms part of the succession estate.
Other than a joint tenancy interest, what are the other specifically excluded assets?
- Life Insurance Pay Outs: Go straight to the person the deceased nominated. This can be the succession estate if the deceased selected it to be.
- Pension Benefits: Under some pensions, you get a payout when you die. If a third party has been nominated by the deceased, it goes straight to that person.
- Donatio Mortis Causa: A gift made in contemplation of death (deathbed gifts). DMC must be valid - all the criteria must be there (made in contemplation of death, the intention of the gift is that it takes effect after the donor dies, adn the gift is validly delivered).
- Trusts: Any property held under a trust in which the deceased had rights as a life tenant, the property will pass to the remainderman.
What is the difference between the succession estate and the taxable estate?
The taxable estate comprises assets that are liable to IHT. It includes the specifically excluded assets and all the succession estate.
General Rule: All property the deceased was beneficially entitled to at the date of death is included in the death estate (which is then taxed). This includes any property outside the UK.
Also includes any property held as joint tenants or tenants in common. Share of the property held by the deceased is added to the death estate.
Exceptions - The following are not included in the taxable estate:
- Remainder Interest in a Life Interest Trust - if the remainderman dies before the life tenant.
- Insurance Policies under a Trust - If the deceased has set up a trust whereby the amount payable under an insurance policy is in trust to another beneficiary.
- Discretionary Pension Schemes - Wher the pension trustees have a choice to pay a lump sum on death, that lump sum if paid is not subject to IHT.
What do Personal Representatives do?
They handle the deceased’s estate. Legally permitted to carry out this administration process.
Two kinds of PR:
- A PR appointed by a will is an executor.
- A PR appointed otherwise is an administrator (where there is no valid will) or valid executor (the will failed to appoint one or the ones that have been appointed cannot do it).
The process of administration is divided into 3 main stages:
1. Immediate steps after a person’s death
2. Getting the grant
3. Completing - administering the assets until all the estate has been distributed.
What are the tasks a PR must complete?
- Pay any IHT due
- Collect in the assets of the deceased
- Administer those assets - pay off debts and expenses then distribute them to beneficiaries.
PRs also have a duty to arrange for the funeral and burial or cremation of the deceased.
When must the death be registered by?
Within 5 days of death - do this online.
- You will receive a burial certificate to give the funeral director/crematorium and a death certificate.
- You also need to inform the Government online of someone’s death.
- Then locate the will and codicils (if any) and ensure it is the original and is valid. Identify the beneficiaries or use the intestacy rules to figure out who they are.
- Then secure any valuable or vulnerable property.
- Obtain details of the deceased’s assets and liabilites - key to obtaining the grant. You must know the value of the deceased’s estate at the date of death so that you can calculate the IHT payable.
What are the legal duties of a PR?
- Duty to collect assets and adminster the estate
- Statutory duty of care (S.1 Trustee Act 2000) and a common law duty not to commit waste.
Once assets have been collected in following the grant of probate:
- First, the debts must be paid; then
- The gifts and residue must be distributed to the correct beneficiaries.
Duty must be performed with due diligence and with the powers granted to PRs.
PRs have (informally) 12 months from the date of death to carry out this duty - they must do so promptly and without delay.
S.1 TA 2000 requires PRs to exercise such care and skill as is reasonable inthe circumstances, having regard to:
- Any special knowledge or experience that the PR has or says they have; and
- If they hold a profession, any special knowledge or skill expected of that profession.
Under the common law duty not to commit waste, PRs must preserve the assets in the estate prior to distribution and not allow them to be damaged or lost. They must be sold at the appropriate price if they are being sold and distributed to the right people.
What are the sources of a PR’s power?
Two sources:
1. Statute - Trustee Acts 1925 and 2000, The Administration of Estates Act 1925
2. The deceased’s will.
The PRs exercise powers that assist in their administration of the estate and the preservation and distribution of the legacies.
What are the powers available to a PR?
- Power to Invest/Manage Estate Assets
- Power to Appropriate
- Power of Maintenance (if trustee for a minor)
- Advancement of Capital (if trustee)
- Power to Appoint Trustees (including of a minor’s property - 2 needed)
- Powers of Sale
- Power to Delegate
- Powers to Claim Expenses and Power of Remuneration
- Powers under the Will
What is the Power to Appropriate?
Used when executors are distributing the succession estate and choose which beneficiary gets what in order to satisfy their entitlement.
Cannot apply to specific legacies.
Can apply when distributing during intestacy.
Also allows the executor to swap things in the will to satisfy a pecuinary/general or residue entitlement provided that what they are swapping has not been given to someone else as a specific legacy.
Beneficiary must consent to receive that asset, and the value of the asset must be measured at the time of transfer, not death.
NOTE - The requirement of consent can be removed in the will.
What is the potential liability of a PR?
PRs are personally liable for:
- Breach of Fiduciary Duty (no profit, no conflict).
- Losses to the estate as a result of negligence/maladministration (devastavit).
- A failure to distribute assets to certain beneficiaries (also a form of devastavit).
An action can be brought by a beneficiary who has personally suffered loss as a result of the PR’s breach.
What protections are available from the court to PRs for a breach of duty?
Court Guidance
The Court’s Discretionary Power of Relief
If PR’s face difficulties/complications in administering the estate, they can ask the court for help.
PRs can also ask the court to:
- Actually administer the estate (rather than the PR)
- Ask for guidance on a particular question
The court also has a discretionary power of relief which it can grant to a PR if they are in breach of duty (to administer the estate and distribute assets to the correct beneficiary) but they have acted honestly and reasonably.
What protections are available if there is an unknown creditor or beneficiary after the PRs have distributed the estate?
S.27 Trustee Act 1925 - To get this protection:
- PRs must give notice that they intend to distribute the estate’s assets to the public and ask that any claims be submitted to them within 2 months of the notice.
- The notice must be published in the London Gazette and any other necessary local paper.
- PRs must also do their own searches (e.g., land registry, genealogist search or appoint tracers to do so).
What protections are available if there is a known but missing creditor or beneficiary after the PRs have distributed the estate?
PRs can take a number of steps to ensure protection:
- Give notice and wait two months - s.27 TA 1925
- Conduct their own searches or hire someone to do so.
- Obtain a Benjamin Order: An order from the court allowing the estate to be distributed despite the missing beneficiary. To get this, PR must have made full enquiries to locate that missing beneficiary or creditor.
- Indemnity from the Beneficiaries: Beneficiaries promise to reimburse PR if the creditor/beneficiary does show up.
- Insurance.
- Pay the amount into court, which will then keep hold of it.
What other protections are available to a PR?
- Consent of the Beneficiaries, provided they have full knowledge of the facts.
- Limitation: 12 year time limit from the date the right accrued on a beneficiary bringing a claim for a missing share in the estate. This time limit does not apply where the PR has fraudulently breached their duties or taken property from the estate for their personal gain.
NOTE - An action for negligence by the PR is a tort action, so subject to a 6 year limitation.
- Will: The will may permit, modify, or exclude any breach of duty by a PR.
What is a grant of representation?
An order of the High Court:
- It grants authority to the PRs to collect in and distribute the deceased’s assets; and
- It validates the deceased’s will or confirms that the deceased died intestate.
Without the grant, the PRs cannot collect in the assets necessary to distribute them.
What are the three types of grant and when do they apply?
- Probate - Applies when there is a will that has appointed executors able and willing to act. Executors take out the grant. Use form PA1P.
- Letters of Administration with Will Annexed - Where there is a will that has not appointed executors or the executors are dead/incapable or unwilling to act. Use form PA1P.
- Letters of Administration - Where there is no will. The applicant for grant is determined by the intestacy order (Rule 22 NCPR). Use form PA1A.
How many people can apply for grant?
- Probate - Minumum 1 executor, maximum 4.
NOTE - The will can appoint as many executors as wished but only up to 4 can apply for grant.
- Letters of Administration with Will Annexed - Minimum 1, maximum 4 administrators.
Exception - If any beneficiary is a life tenant or minor, two or more administrators must take out the grant.
- Letters of Administration - Minimum 1, maximum 4.
Exception - If any beneficiary is a life tenant or a minor, you need a minimum of 2.
What happens if under a will a minor is appointed sole executor?
A minor can be appointed executor under a will, but they cannot take out grant. This means:
- The minor’s parents will take out grant as administrators (letters of administration with will annexed), until the minor comes of age;
UNLESS
- The minor has no interest in the residuary estate, in which case the beneficiary entitled to the residuary estate will be the administrator until the minor comes of age.
- If the minor is a beneficiary, two people will need to be administrators.
If the minor is a co-executor and there are other executors willing and able to act, they will take out grant with a power reserved for the minor to take out grant when they reach 18.
Who applies for grant if there is a will with no executors?
The order is set down in Rule 20 NCPR.
- Any named executor (if any)
- Trustee of the Residuary Estate
- Any other Residuary Beneficiary (whether life tenant or interest) OR a Beneficiary under the estate if there is partial intestacy
- The PRs of the Residuary Beneficiary (unless taking as life tenant) or the partial intestacy Beneficiary (if either dead)
- Any other Beneficiary or Creditor
- PR of any other Beneficiary or Creditor if dead.
If a minor would be administrator, their parents apply with powers reserved.
When is an estate an “excepted estate” for the purposes of paying Inheritance Tax?
Means no IHT is payable.
Two kinds of “excepted estate”:
- Low Value - The gross value of the estate is less than £325,000 (NRB) (“gross” meaning before deductions and reliefs) (or £650,000 if applying the full TNRB)
- Exempt Exceeded - The gross value of the estate is above £325,000 (£650,000 if full TNRB being used) but not more than £3m and after the spouse and charity exemptions have been applied falls below £325,000 (£650,000 if full TNRB being used).
IHT is only payable on non-excepted estates.
If no IHT is payable because the estate is excepted and none of the “special factors” apply, then you apply online for grant using the PA1A/PA1P forms and give a gross and net value of the estate in those forms. Submit the will and death certificate. No IHT400 form is required.
What factors may mean you need to fill in an IHT 400?
- The deceased gave gifts that were paid into trusts
- The deceased made a GROB in their lifetime (Gift with Reservation of Benefit - Gave a gift but continued to enjoy it afterwards for 7 years before death)
- The deceased was deemed domiciled in the UK or was living permanently outside of the UK when they died but had lived in the UK previously
- The deceased increased the value of a lump sum pension payable after death while terminally ill or in poor health
- The deceased had an annuity and a life insurance policy that paid out to someone other than the spouse or CP
- The deceased owns foreign property worth more than £100k
- The estate contains an interest in more than one trust
- The estate has an interest in a trust worth more than £250k
- In the 7 years before death, the total value of non-exempt gifts made by the deceased exceeded £250k
- Assets held in trust pass to Spouse/CP or Charity are woth £1m or more, or £250,000 or more after the deduction of the Spouse and Charity exemptions
If any of the above factors apply, HMRC needs to be informed, even if no IHT is payable. Send the IHT400 form to HMRC.
What is the process for applying for grant for a non-excepted estate?
- Pay IHT within 6 months from the end of the month within which the deceased died to avoid interest. Send to HMRC:
A. IHT 400
B. Money to pay the IHT - Apply to the Probate Registry for grant. Send:
A. Original Will and any Codicils (if necessary)
B. PA1P/PA1A (Containing a Statement of Truth)
C. Submit the Code from HMRC
D. Death Certificate
E. Probate Court Fee (£273)
How should the PRs collect in the assets?
- To convince someone to hand over the assets (e.g., a bank), they will need to show proof of grant.
- Any money collected should be paid in a separate account owned by the PR and assets should be stored safely.
- The PRs must also make sure they have possession of any assets related to bank accounts that the deceased owned - chequebook, cards, cashbooks, etc.
Once the PRs have obtained the grant, they can begin to collect the assets. If debts are owed to the deceased, the PRs must call in those debts.
What obligations do the PRs have with respect to managing the deceased’s assets?
The PRs have a general duty to preserve and realise the value of the estate, This means using investment powers in respect of any investment fund or for a minor’s entitlement; managing land under trust or running the deceased’s business.
The PRs should chec the will for any specific instructions.
- Under the Trustee Acts, PRs are given the same powers with respect to the estate’s assets as trustees are with respect to trust assets.
- For all the assets above and in relation to the PRs maintenance duties, they are all underlined by the common law duty not to commit waste. The PRs must preserve the value of the assets (and increase them if possible), so must actively engage in their management before any sale or distribution.
What must the PRs ensure are paid before distribution?
Debts and Fees.
- As soon as the assets are collected in the PRs must pay off any outstanding debts EXCEPT (for a solvent estate) on secured property (i.e., mortgages) unless the will says otherwise.
- PRs must also make sure that any fees (including any legal fees, funeral expenses, and administrative expenses) are paid off before distribution.
- PRs must “ascertain the debts”: check who the creditors are. Use a S.27 notice for this.
- If a property is mortgaged, the mortgage goes with the property when handed to the beneficiary - it is not discharged by the PRs or by selling other assets of the estate.
- It does not matter in which order debts are paid for a solvent estate.
What if the PRs need to sell assets in a solvent estate to pay the debts and expenses?
If there is insufficient cash in the estate, the PRs will need to:
- Check the provisions of the will
- Sell assets according to the statutory order - known as Abatement: you start with the gifts that fell out of the residue (e.g., because they lapsed), then the residue assets, then use up any money set aside to pay debts, then go to the pecuniary/general legacies, then go to the specific legacies.
- Check the asset is not secured by mortgage.
- Check the wishes of beneficiaries.
- Check whether any assets are due to increase in value.
An estate will be solvent if the assets are sufficient to pay off the debts and insolvent if not.
If insolvent, there will be no legacies to give to beneficiaries.
What if the estate is insolvent?
The debts are paid by selling off the estate’s assets and applying the proceeds to pay creditors in the statutory order.
The statutory order is:
- Secured Creditors.
- Specially Preferred Debts.
- Bankruptcy Expenses.
- Funeral, Testamentary, and Administration Expenses.
- Preferential Debts (e.g., wages of employees)
- Ordinary Debts.
- Interest on Preferential and Ordinary Debts.
Deferred Debts - Debts owed on credit or to a partnership of the deceased.
How can a general or pecuinary legacy be distributed to a beneficiary?
Done after the distribution of a specific legacy.
Check the will - Are there specific provisions on how the legacy is to be distributed or paid?
Otherwise, they have the power to sell assets to raise the cash to distribute pecuniary legacies, or appropriate assets (including in the residue) to fulfill a beneficiary;s entitlement, as long as it does not exceed the entitlement and the beneficiary receiving the asset consents - this is the executor’s power of appropriation.
How do PRs deal with any Capital Gains Tax and Income Tax payable on the estate’s assets?
CGT - If any gain is made on the sale of the estate assets:
- The base cost for such sales is the probate (market) value of the asset received at the time of death.
- The PRs pay a flat rate of 20% (28% for residential property) and can deduct costs and the AE (like for standard CGT calculations).
- This CGT is payable out of the estate.
- No CGT is paid on a transfer of an asset to a beneficiary. A beneficiary may have to pay CGT if they sell an asset they have received from the estate and made a gain.
Income Tax - Payable on any income received by the estate during administration, e.g., if any property was rented out or income from a residuary fund, but no income tax is payable if the income earned is less than £100 and is only from interest from savings account.
- PRs are liable for the income tax.
- They pay 7.5% on dividend income; 20% on all other income.
- Relief can be claimed for any interest payments made on loans (e.g., one taken out to pay IHT).
What estate accounts need to be prepared by the PRs?
There are three estate accounts:
- Income Account - The income received from the estate’s assets during the administration period.
- Capital Account - Sets out the estate’s assets at death and what happened to them (i.e., sold or given to beneficiary).
- Distribution Account - Shows what the residuary beneficiaries will receive.
Estate Accounts are used to value the residue and, on sign-off, discharge the PRs once the residue has been distributed.
The beneficiaries can ask to inspect the accounts, and the court can order inspection if the PRs refuse.
What is the final step PRs should take with respect to the estate’s assets?
Ascertain and Distribute the Residue.
Once distribution is done, the PRs should obtain confirmation or receipts (e.g., an email) from the beneficiaries of the residue discharging them of their duties.
What are three types of gifts you can give in a will?
- Specific Gift - A particular piece of property, like a house or car.
- Pecuinary or Non-Specific Gift - A general gift does not refer to a particular item or refers to money, e.g., “all of my possessions” or £1,000.
- Residuary Gift - A gift of the property in the estate that is left after all taxes, costs, debts, and specific and non-specific gifts have been dealt with. Ensures that all the estate passes under a will rather than being partially intestate.
What is partial intestacy?
When a gift fails and there is no residuary clause or the beneficiary of the residuary has died before the testator. The gift shall pass via the intestacy rules.
NOTE - The gift could be rescued by S.33 WA 1837: if the will gives a gift or the residue to the T’s child, and that child dies before T, it goes to their child(ren) if alive at T’s death (and if they have predeceased, their grandchildren) in equal shares.
S.33 can be excluded by the will.
What are the potential reasons for a gift failing?
- The will is not sufficiently clear on what the gift is.
- The beneficiary disclaims the gift because of its associated costs.
- The will is not sufficiently clear on who the intended beneficiary is or what shares they would have.
- Lapse - The beneficiary dies before the testator (but note S.33).
- Ademption of Specific Legacies - At the time of death, T no longer owns the gift under the will.
- The gift changes in nature.
- The beneficiary or a Spouse/CP of the beneficiary witnesses the will. Gift falls into the residue (unless the will is re-executed via a codicil with the beneficiary not witnessing it or there are 2 other witnesses).
- Divorce
- Failure of Condition of the Gift.
- Forfeiture.
What are the rules on forfeiture?
- A gift will fail if it is for an illegal purpose or contravenes public policy.
- A beneficiary unlawfully kills the deceased will not be able to inherit it.
- The court has the power to modify that rule, but not if the beneficiary is convicted of murder.
If the beneficiary committed manslaughter (but not convicted of murder), the court has the power to modify this rule depending on the conduct of the offender, the deceased and other circumstances. This includes granting relief from the rule. An application for modification must be brought within 3 months of the conviction.
NOTE - If the forfeiture rule applies because B unlawfully killed T, this does not preclude an application under IPFDA 1975.
How can a gift to a minor be given?
Minors cannot give valid receipt for a gift.
So, the will can direct that the gift is just given to the minor. Or just check the will for specific instructions.
Otherwise, the PRs can:
- Hold on trust for the minor
- Appoint two trustees or a trust corporation to hold on trust
- Transfer to the parents
- Pay into court
What is the purpose of the Inheritance (Provision for Family and Dependants) Act 1975?
To provide recourse for those whom the will or intestacy did not leave in a reasonable financial position.
The claim must be made within 6 months of the grant of probate/letters of administration, but the court has the discretion to allow for a later claim.
Three steps to this claim:
1. Can the person claim?
2. Have they been left in a reasonable financial position?
3. What award should the court make if not?
Who can claim under the Inheritance (Provision for Family and Dependants) Act 1975?
Spouse or Civil Partner at the date of death.
Former Spouse or CP (divorcee) but not remarried.
Child (including adopted) of the deceased - can include adult children.
Someone treated by the deceased as a child - includes stepchildren provided they are treated (meaning maintained) as a child of the deceased.
Cohabitant of the deceased (who must have lived with the deceased as a spouse) of at least 2 years prior to the date of death.
Someone who was maintained by the deceased (financially supported to a substantial extent - excludes full value paid under a commercial arrangement).
The deceased must have been domiciled in England and Wales at the time of their death.
How does the court determine if a claimant has been left in a reasonable financial position?
- Court looks at what the claimant has received from the net estate (the succession estate + any joint property after the deduction of debts, tax, and fees).
- Court uses objectively assesses whether the person has been put in a reasonable financial position based on:
(i) Who they are; and
(ii) The general and special factors. - When assessing the standard of reasonable financial position, for a Spouse or CP, it is not subject to the maintenance restriction. For others, the court looks at what is reasonable for their maintenance.
What are the factors used to assess reasonable financial position for every claimant?
- The size and nature of the net estate - it may be that the estate consists of land or interests in land that the claimant requires to be sold to meet their needs. But what if a life tenant/another beneficiary under the estate needs to carry on living on that land?
- The financial needs (including obligations and responsibilities) and resources (both now and in the foreseeable future) of the person making the claim (their current financial resources, including their earning capacity, and what they might require in the future).
NOTE - The issue of accommodation is often important here, the court is likely to grant an applicant the ability to stay in settled accommodation, particularly if there is no alternative.
- The financial needs (including obligations and responsibilities) and resources (both now and in the foreseeable future) of anyone else who makes a claim and the existing beneficiaries.
- Any obligation and responsibility to the deceased had towards the person claiming and the beneficiaries.
- The physical and mental disabilities of the person making the claim and other beneficiaries.
- Any other matter, including the conduct of the people involved and the deceased that may be relevant.
What special factors are considered for spouses/CPs?
In addition to the main factors.
Starting Point - What they would have received if divorced.
- The spouse will likely receive half - but the court can depart from this and the key point is what is reasonable.
- Age of the person claiming
- Length of marriage/cohabitation
- Contribution the person made to the deceased’s family, home, and welfare.
What special factors are considered for children?
The manner the child might be expected to be educated or trained.
Subject to the maintenance restrictions.
NOTE - Claims from adult children are likely to fail because they have to prove they were not left in a reasonable financial position for their maintenance (they are likely working) + have to prove a moral obligation from the deceased (goes beyond being their child) + any estrangement and the testator’s wishes are taken into account + bad conduct is considered.
What special factors are considered for stepchildren?
- The manner the child might be expected to be educated or trained
- Whether the deceased maintained them and if so, for how long, on what basis and the extent of the basis
- Whether and the extent to which the deceased assumed responsibility for maintaining the applicant
- If the deceased maintained the applicant or assumed responsibility for doing so, whether the deceased did so knowing the application was not his own child.
- The liability on any other person to maintain the applicant.
What special factors are considered for cohabitees?
- The age of the applicant and the length of tiem they lived with the deceased in the same house like a spouse.
- The contribution made by the applicant to the welfare of the family of the deceased, including looking after the home or caring for the family.
What special factors are considered for anyone maintained by the deceased?
- The length of time the individual was maintained by the deceased and the extent of contribution by way of maintenance.
- Whether and the extent to which the deceased assumed responsibility for the applicant.
What award powers do the courts have?
Inheritance (Provision for Family and Dependants) Act 1975
- Awarding a specific lump sum to be paid to the claimant.
- Periodic payments to be made (for maintenance).
- If the claimant is arguing for specific property, the property be transferred or sold and the proceeds be split between beneficiaries.
- Declare property be held on trust.
