Wills WS5 - Administration, Dealing with the Estate

Question 1

What are the duties of the PR?

Answer 1

1) Collect deceased’s interests in property within a reasonable time and taking reasonable steps
2) Duty of care
3) To carry out inventory and prepare Estate Accounts
4) Preserve the estate and realise investments that cannot be properly retained within a reaosnable time.
5) Distribute estate
6) Fiduciary duties
7) Dispose of the body (common law)
8) Provide info to HMRC and pay IHT (statutory)

Question 2

What happens if a PR breaches duty?

Answer 2

• If the PR (accepts office) and breaches duty and there is a loss to the estate, they will be held personally liable for the loss to the estate
• Not liable for a breach committed by a co-PR)
• Devastavit (he wasted)

Question 3

What is the test to see whether the PR has breached their duty?

Answer 3

Needs to be a loss, i.e. they were negligence.

The types of breaches are:
a) failing to protect the value of assets
b) failing to pay the people entitlted to the estate

Question 4

When can the court utilise its powers to relieve a PR from liability for breach of duty?

Section 61 Trustee Act

Answer 4

If the court believes that the PR believes that the PR has acted
* reasonably
* honestly
* and ought fairly to be executed for the breach

Alternatively, an executor may be able to rely on a clause in the will providing protection from liability for mistakes made in good faith

Question 5

How can trustees protect themselves against claims for unknown beneficiaries and creditors?

Answer 5

• By advertising for the claimants as early as possible (s27 Trustee Act 1925)
• PR’s need to wait for at least 2 months before distributing the estate
• They will be protected from liability if the unknown claimant later appears

NOTE. If the claimant has a right to claim back assets from the new beneficiaries who received them (if they are later found)

Question 6

What are the differences in time period regarding PR’s advertising vs. Executors adveritising?

For unknown beneficiaries and creditors

Answer 6

PRs = as early as possible in the administration
Executors = at any time after the death, if they are administrations they have the power to advertise at any time after obtaining the grant of representation

Question 7

Where should the advertising notice for an unknown beneficiary or claimant be advertised?

To protect them from liability

For unknown beneficiaries and creditors

Answer 7

PR’s must give notice of the intended distribution of the estate, requiring an interested person to send in particulars of their claim (beneficiary or creditor)

1) Advertisement in London Gazette
2) Advertisement in newspaper circulating in the district in which land owned by the deceased is situated
3) ‘Such other like notices, including notices elsewhere, than in England and Wales, as would have been directed by a court of a competent jurisidiction in an action of administration

Question 8

How long must a notice be published to afford PRs protection against unknown creditors and beneficiaries?

For unknown beneficiaries and creditors

Answer 8

If PRs are in doubt about notice that should be given, should apply to court for directions.

• Notice should require any interested person to send in particulars of claim within 2 months from date of notice

Question 9

What land registry searches should the PRs make for unknown beneficiaries and creditors?

For unknown beneficiaries and creditors

Answer 9

PR’s should make searches which the prudent purchaser of land would make in the Land Registry.

• Local Land Charges Resgiser
• Local Land Charges Registry

Purpose of search is to reveal the existence of any liability in relation to the deceased’s ownership of an interest in land, for example a second mortgage.

Question 10

What happens to the PR’s liability once the time limit (2 months) in the notice has expired?

Answer 10

• PRs may distribute the deceased’s estate
• Taking into account only those claims of which they have actual knowledge or which they discover as a result of the advertisements
• PRs will not be personally liable for any other claim but a claimant may pursue the claim by following the assets into the hands of the beneficiaries who have received them from the PRs

Question 11

Is the trustee protected from liability for missing beneficiaries and creditors?

Answer 11

Section 27 Trustees Act 1925 does not give any protection to PRs who know there is a person with a claim but cannot find them.

Where PRs cannot trace a know missing beneficiary they need to do ONE of the following:
1) Keep back assets in case claimant appears
2) Taking an indemnity from the beneficiaries that they will meet any claims if the claimant reappears. This represents a risk for the PRs as the beneficiaries may lack the means to satisfy the claim when a claimant appears
3) Insurance policy to provide funds (can be expensive and claimant may be entitled to interest on the amount of their entitlement for the period up to the payment). Insurance does not protect PR from personal liability, just money for the claim, if there is a shortfall, PRs need to pay
4) Benjamin Order to the court - authorising the PRs to distribute the estate on the basis that the claimant is dead. Court will require evidence that the fullest possible enquiries ahve been made to trace the missing order.

Question 12

Does a Benjamin order protect PR’s from liability?

Missing beneficiaries

Answer 12

Yes it does, it is expensive, but the only solution that offers PR full protection.

Although claimant retains the right to recover the assets from the beneficiaries

Question 13

What is PR liability in respect of IHT?

Answer 13

PRs will be personally liable
* If the assets have been distributed
* And an applicant under the Inheritance Act then successfully obtains an order for ‘reasonable financial provision’ from the estate

PRs will not be liable
* If they wait more than 6months following the date of the grant of representation before distributing the assets.
* If earlier distribution is required, PRs should ensure they retain sufficient assets to satisfy an order should an applicant be successful within 6 months of the grant

Question 14

What happens to assets which pass under the will or intestacy rules?

Answer 14

They automatically devolve (i.e. ownership passes) to PRs.
* Administrators = when grant of representation is issued
* Executors = immediately on death

Real property = by virtue of Administration of Estates Act 1925
Personal property = common law

Question 15

What is the PR duy in relation to collecting assets?

Answer 15

• PR duty is to collect them in as soon as is practicable.
• Either immediately e.g. cash at home, and other assets once they produce their grant of representation to whoever is holding the asset
• PR’s must preserve the assets pending completion of the administration.
• Note, assets which pass independently of the will via intestacy rules do not devolve on the PRs and they have no obligation or power to deal with these assets E.g. joint property held by survivorship will pass to the other joint owner by right of survivorship.

PR’s have same powers as trustees in terms of management and investment and are subject to the same duty of reasonable care and skill under s1 Trustee Act 2000.

Question 16

What should be paid first upon death?

Answer 16

As soon as money can be collected from the deceased’s bank or bank society, or through insurance policies PRs should
1) Pay deceased’s oustanding debts and the funeral expenses
2) Administration expenses, e.g. agents and valuers fees
3) Repayment of any loan to pay IHT -‘first proceed undertaking’ that they will pay the bank loan first

Question 17

How can the PRs take considerable care when deciding which particular assets they will sell in order to raise money?

Answer 17

1) Provision of the will
* Will may direct from which part of the deceased’s assets the debts funeral account and administration expenses should be paid; usually from the residue of the estate
* In absence of this, PRs must follow the statutory rules for the incidence of liabilities
2) Beneficiaries wishes
* Where possible, the wishes of the beneficiaries of the residuary estate should be respected by the PRs.
3) Tax consequences
* PR’s should consider the amount of any capital gains (or losses) likely to arise as a result of the sale and the availablity of any exemtpions. E.g. annual exemption, if assets are to be sold at a loss (compared to their value at death) loss reliefs for capital gains tax and inheritance tax purposes may be availble for the PRs.

Question 18

What payments are to be made following death?

Answer 18

1) Payment’s to be made - Deceased’s debts and liabilities owed by the deceased at the time of death - e.g. utility bills or payment of income tax. The PRs must pay the debt and liabilities.
2) Funeral expenses
* PRs are required to pay reasonable expenses of a funeral conducted in a manner suitable

3) Testamentary expenses