Workshop 5: Administration - Post-grant Practice Flashcards
**Topic: Administration: Personal Representatives** - Administration: PR duties - Administration: PR powers - Administration: PR liability & protection **Topic: Administration: Post-grant Steps** - Administration: Collecting assets & payment of debts - Administration: Income tax and capital gains tax - Administration: Distribution & Estate Accounts
What is the general procedure for PRs and asset collection of: balance of bank accounts after obtaining ‘grant of representation’?
Most banks and building societies require withdrawal forms to be completed
What is the general procedure after PRs collect personal possessions after obtaining ‘grant of representation’?
They should be stored and safeguarded
Who usually arranges the sale or transfer of investments when assets are collected in?
A financial advisor
How is the deceased’s land assets that are registered at the land registry collected following the PR’s obtaining grant of representation?
It is transferred into the name of the PRs, if its not directly transferred to a beneficiary
Where should money that is being collected as an asset be paid into?
- A PR’s bank account (opened specifically to hold estate money and prevent mixing with personal funds)
- A law firm client account
What does it mean for a PR being obligated to pay debts and funeral expenses with ‘due diligence’?
Should normally be paid before the end of the ‘executor’s year’
What is the ‘executor’s year’?
A year given to the executor to deal with the deceased’s estate
What happens in the event a PR fails to pay debts?
They become liable to the creditor and beneficiaries for consequent loss
How can a PR obtain protection against personal liability to unknown creditors in the payment of debts?
By complying with the s.27 TA 1925 notice procedure
How can a PR’s liability be limited to beneficiaries but not relieved of liability to creditors in the event of failure to pay debts?
An express clause in the will
Will the deceased’s assets be absolved from being made available for payment of deceased’s debts and libailities if there is a clause in the will contraty to this?
No - such a clause in a will will be made void according to s.32 Administration of Estates Act 1925
When is an estate classed as ‘solvent’?
When the assets are sufficient to pay all
- Funeral expenses
- Testamentary and administration expenses
- Debts and liabilities
When is an estate classed as ‘insolvent’?
When the assets are insufficient in paying all
- Funeral expenses
- Testamentary and administration expenses
- Debts and liabilities
Does whether the legacies can be paid in full or not contribute to an estates ‘solvency’ status?
No
What order must debts be paid in when the deceased’s estate is ‘insolvent’?
What is the name of the Act that governs this?
In statutory order in the Administration of Insolvent Estates of Deceased Persons Order 1986
What is known as a ‘secured debt’?
Give an example
A debt that has been charged on part of the deceased property during their lifetime
E.g., a mortgage on the deceased’s house
Which order are assets used to pa unsecured debts?
Is there an exception?
The order is taken in the statutory order (Sch 1 Part II AEA)
What are some examples of unsecured debts?
Credit card debt/utility bills
What are the two responsibilities a PR has regarding a deceased’s ‘income tax’ (IT) and ‘capital gains tax’ (CGT)?
- Finalise the deceased’s IT and CGT position for the tax year of death
- Pay IT and CGT that becomes due during the administration period
What does finalising the deceased’s IT and CGT position for the tax year of death look like?
And why
Finalising whether the deceased owes outstanding tax to HMRC or whether the estate will be due a refund
Because the deceased is likely to have died part way through a tax year
What does paying IT and CGT that becomes due during the administration period look like?
Paying IT on any income received during the administration period
and paying CGT on taxable gains made following a disposal of estate assets
Where are the deceased’s tax liabilities payable from and to?
The estate assets
What period should PRs record information and notify HMRC of regarding the submission of a tax return on behalf of deceased?
From 6th April to the date of death
What does the PR need to do when working out the deceased’s income tax liability?
Access the dceased’s financial records
How will a PR working in the best interests of the deceased work out the deceased’s income tax liability?
Utilise the deceased’s tax-free allowances and pay tax at the rates applicable to the deceased
What two things the PR ned to account for when working out the deceased’s income tax liability?
- Untaxed income due and paid before death
- Some income paid after death which relates to period before death
What are some examples of ‘Some income paid after death which relates to period before death’ when a PR is working out the tax liability of the deceased?
E.g.,
- Rent due on properties the deceased let, but hadn’t paid
- Final dividends declared before death but not paid
Whose is bank interest paid before death taxed as?
The deceased’s
Whose is bank interest paid after death taxed as?
The PR’s
How will the PR work out whether the deceased had any outstanding CGT liability on the date the deceased died?
The PR will need to consider the disposals made by the deceased before they died
Do CGT liability related to assets that the deceased no longer owned on the date that they died?
Yes
What examples of income is taxed as ‘estate income’ in the hands of the PR?
When the interest receives interests from e.g.,
- Banks
- Dividends (from shares) and
- Rent (from let properties)
When may PRs be liable to pay IT if the estate generates income in their hands?
If income arises between the date of death
and the date the assets are distributed
Are PRs entitled to claim an IT personal allowance when working out a deceased’s tax liability?
No
What is the rate that PRs pay IT at when paying IT on the deceased’s estate after the their death?
Basic rate
Who is taxed if income is generated after they have been distributed to the beneficiaries?
Taxed as the beneficiary’s income
What is the name of the form that the PRs give to beneficiaries when the estate income is distributed?
Form R185
What does an R185 form record?
The IT paid by PRs in respect of the income a beneficiary receives
What two things can beneficiaries used the R185 form to do?
- Claim a tax refund for beneficiaries who don’t pay IT
- Top up payment to HMRC using R185 to complete their own tax return
When must PRs report IT to HMRC regarding the deceased’s estate?
When the total income of any kind received in more than £500
When must PRs pay IT on the deceased’s estate?
When the total income exceeds £500 tax free amount
What is the IT free amount on the deceased’s estate per tax year of administration?
£500
How much of the deceased’s estate is IT payable on if it exceeds the tax free amount?
IT is payable on the whole amount
What tax liability applies where the estate income is distributed to beneficiaries within the £500 tax free limit?
No tax liability
Is the taxable income for the beneficiary recorded in the R185 when the total income does not exceed the £500 tax free limit?
No
When may Prs be liable to CGT during the administration of a deceased’s estate?
If they make a disposal/sale of estate assets
What will there be if assets have increased in value since the date of death when sold/disposed of by PR?
A gain
What will there be if assets have fallen in value since the date of death when sold/disposed of by PR?
A loss
What is a PR’s CGT liability if the amount of the gain is greater than the tax-free allowance?
They will pay CGT
TRUE OR FALSE
Similarly to IT, PRs cannot claim the same tax-free allowance that individuals can claim
False
PRs can claim the same tax-free allowance on CGT as an individual would, which is contrary to IT
With IT, a PR cannot claim tax-free allowance
How can losses made in since the date of deceased’s death be useful in the context of CGT?
They can be off-set against other gains made during the administration
Which gains are chargeable?
Post-death gains or gains made by the deceased during their lifetime and owned at the date of death?
Post-death gains only
Are assets that increase in value from the date they acquired the asset and the date of death taxed with CGT?
No
Which point are CGT calculated of the deceased’s assets?
From the date of death (value of the estate assets are ‘re’set’ for CGT purposes)
What asset is exempt from CGT and to what extent?
Chattels
If the disposal is made for a consideration of £6000 or less
What are the two options a PR can engage in in the administration of non-cash assets?
- Sell the asset to raise cash for distrubution to beneficiary/creditor
- Transfer asset to beneficiaries
What power is required for a PR to sell an asset in the administration of non-cash assets?
Power of sale
What power is required for a PR to transfe an asset in the administration of non-cash assets?
Power of appropriation
What is meant by ‘the power of appropriation’?
The PR can transfer assets in satisfaction of a beneficiary’s entitlement
Who decided whether the PR sells or transfers items in the administration of the deceased’s estate subject to specific obligation?
The PR
Why does no chargeable gain occur when the PR makes a transfer to a benficiary?
Because it is not a disposal
What value does the beneficiary acquire the asset in the following scenario, why and what gain is made:
PR acquires asset at probate value of £80k
Asset value is £100k at date of transfer
PR transfers asset to beneficiary
They acquire it at £80k because there is no chargeable agin (not a disposal, but is a transfer)
The gain made is £60k due to this
What things should a PR consider when deciding whether they should ‘sell’ or ‘transfer’ non-cash assets in the deceased’s estate?
- If the beneficiary has used their tax-free allowance (may be better for a transfer and beneficiary to sell assets if they haven’t used their tax free allowance)
- Same for PRs^ (for CGT purposes)
- Whether the sale of an asset will generate a loss; does the estate or the beneficiary have against against which the loss can be set off against
What is meant by ‘interim distributions’?
When early payments are made to a beneficiary who is to benefit from the residuary estate, and then they received balancing payment at the end
What do PRs have duty to do once they have collected assets and paid debts, funeral, testamentary and administration expenses?
A duty to distrubute the remaining estate assets to beneficiaries in accordance with their legal entitlement under the will and/or intestacy rules
Who bears the costs of the transfer of the asset, unless the will specifically provides otherwise?
The beneficiary
Does the beneficiary inherit the inherited item free of IHT?
Yes
What is the method of transfer of chattels?
Delivery to the beneficiary
What is the method of transfer of £ legacies?
Cheque or bank transfer
What is the method of transfer of shares?
Stock transfer form
What is the method of transfer of land?
Assent for a legal estate in land (land registry form AS1)
How much time may the PR want to delay the distributions of the estate from the issue of grant when considering the possibility of having claims made against the estate?
Why this much time?
10 months
6 months deadline for a claim to be issues against the estate + 4 months to serve notice of this
When should PRs not make distributions after being notified of claims by unknown beneficiaries and creditors?
Two months
Which order are legacies paid in, unless the will states otherwise?
- Specific
- General
- Residuary
What happens if the estate funds do not permit for all legacies to be paid in full?
They abate [reduce] in the reverse order in which they are paid in
Where are general legacies paid from in the absence of a direction as tot he order in which assets should be used to pay legacies?
General legacies are paid from residue
What does the PR’s ‘power of appropriation’ not allow the PR to do?
Appropriate an asset where its value at the date of appropriation exceeds the entitlement of the benficiary concerned
What must be done in the event that the value of an asset at the date of appropriation is less than the beneficiary’s entitlement?
The PR will need to make a further balancing transfer
Who should sign/approve of the estate accounts?
By all PRs and residuary beneficiaries
What does the signing off/approval of estate accounts signify?
That they agree with how the estate has been administered
What is the usual effect of the signing off/approval of the estate account upon the PRs?
Releases them from further liability to account
What does the date of the accounts being signed off usually signify or often considered as?
The ‘end’ of the administration
What are the three main sections that are usually in the estate accounts?
- Capital Account
- Income Account
- Distribution Account
Why does it not matter which order unsecured debts are met for a creditor for solvent estates?
Because they will be paid anyways
Why does the choice of assets used to pay the unsecured debts matter for beneficiaries?
Because if the beneficiary’s ‘part’ of the estate is used for unsecured debts, the beneficiary will receive less
What is the statutory order of assets used to repay unsecured debts, starting from which assets will be used first and exhausted in full?
- Property that is not disposed of by a will (i.e., property passing by full/partial intestacy)
- Residue
- Property the will sets aside
- £ in the pecuniary legacy fund
- Property specifically given e.g., chattels
How do the clauses in a will differ when contrary intention is used to overide the statutory order of from unsecured debts to secured debts?
Unsecured
- General direction given for the residue to bear burden of debts
Secured
- Specific intention for beneficiary of secured debt to receive item free of debt must be shown
What is the ‘doctrine of marshalling’?
Doctrine beneficiaries whose assets have been ‘wrongly taken’ as a result of PRs taking their assets ‘out of order’ to pay creditors can use
Will creditors be under an obligation to return the money paid to them if the doctrine of marshalling arose?
No
Who does the beneficiary claim against when using to doctrine of ‘marshalling’?
The assets inherited by another beneficiary
What would the IHT consequences be for the donor if a beneficiary chooses to give away their inheritance?
- The original beneficiary would be making a PET
- PET would be chargeable if the transferor died within 7 years of the gift
What would the CGT consequences be for the donor if a beneficiary chooses to give away their inheritance?
- Gift on non-cash asset would be a CGT disposal by original beneficiary
What would the CGT consequence be in the instance of an increase of asset value of a beneficiary’s inheritance should they wish to give it away?
Any increase since the date of the deceased’s death would be subject to CGT if gain is greater than beneficiary’s tax-free allowance
What five things can be done to mitigate IHT and CGT consequences after the original estate distribution, where a beneficiary wishes to give their inheritance away?
- Variation
- Disclaimer
- Precatory trust
- Court oder under Inheritance (Provision for Family and Dependants) Act 1975
- Capital distributions from some will trusts within 2 years of death
What is a ‘variation’?
A direction from an original beneficiary, to the deceased’s PRs, to transfer property that the beneficiary is entitled to (under will terms and/or intestacy rules) to someone else instead
What extent of an inheritance can a variation be made?
To part or whole
Who can determine who received the original beneficiary’s [varied] inheritance?
The original beneficiary
When is a variation possible?
After an inheritance has been accepted
How is the variation treated for both IHT and CGT purposes when the original beneficiary distributes their inheritance to a new beneficiary?
The gift is ‘read back’ to the date of the deceased’s death; IHT and CGT due on the deceased’s death estate is recalculated as if the deceased left the property to the new beneficiary
What are the four conditions under s.142 (1) IHTA that must be satisfied to achieve the IHT ‘writing-back effect’?
- Made by original beneficiary in writing
- Made within two years following the deceased’s death
- Contains express statement by beneficiary confirming s.142 should apply
- Not to be made for consideration in money or money’s worth
What are the four conditions under s.62 TCGA that must be satisfied to achieve the IHT ‘writing-back effect’?
- Made by original beneficiary in writing
- Made within two years following the deceased’s death
- Contains express statement by beneficiary confirming s.62 should apply
- Not to be made for consideration in money or money’s worth
Can a beneficiary vary their entitlement to the estate essays without approval from the PR’s of the deceased’s estate?
Yes - only if variation does not result in additional IHT being due on the deceased’s estate
What should the PR do in the event the original beneficiary’s variation of their entitlement results in additional IHT being due?
- Sign the variation
- Provide HMRC with a copy of the written variation and pay the amount due
What is the only circumstance that a PR can refuse the original beneficiary’s variation?
When the assets held by them are insufficient to discharge the additional tax payable
What may happen to the IHT payable if the variation causes an increase or decrease in an exempt beneficiary’s inheritance?
May result in an increase or decrease in IHT payable
Why may there be an increase or decrease in IHT payable if variation causes an increase or decrease in an exempt beneficiary’s inheritance, e.g., a spouse?
Because the asset being ‘varied’ will be passing to a non-exempt beneficiary
What can be made use of during variation to circumvent change in estate IHT, if available?
NRB or RNRB
How do you calculate the ‘gain’ accumulated from an asset?
Disposal value - acquisition value
How do you calculate the ‘amount charged to CGT’?
Gain - tax free allowance (TFA)
What are the CGT consequences of variation?
CGT liability can arise if the gain is more than beneficiary’s TFA
What can an original beneficiary do if they wish to give away their inheritance whilst seeking to avoid CGT charge?
s.62 TAxation of Chargeable Gains Act 1992 (TCGA)
This permits a writing-back effect similar to IHT version
Who is liable to pay CGT upon disposal of assets following variation if they later dispose of it?
New beneficiary
What gifts are exempt from CGT?
Cash gifts
Only non-cash assets are subject to subject of variation
Does the formal variation process need to happen if no writing-back is required for either IHT or CGT?
No
The beneficiary can simply make gift to new intended beneficiary
What value will a new beneficiary, under variation, receive varied assets in the original beneficiary elects to use s.62 TCGA?
Value of asset at date of death
What value will a new beneficiary, under variation, receive varied assets in the original beneficiary doesn’t elects to use s.62 TCGA?
Value of assets at current market value - potentially CGT liability if there is a gain
When does the original beneficiary not need to elect to use s.62 TCGA?
If the gain is within their TFA
What two categories of people are unable to make a variation without the consent of the court under the Variation of Trusts Act 1958?
- Minor
- Lacks mental capacity
How many times can each asset be varied?
Only once
What two types of property cannot be varied?
- Property which the deceased was a life tenant of immediately before death
- If deceased made gift with reservation of benefit; deceased wasn’t legal owner of assets and don’t form part of distribution estate
What is a ‘disclaimer’?
Beneficiary’s refusal to accept property under a will terms/intestacy
When must a beneficiary disclaim property under a will terms/intestacy?
Before acceptance
What extent of a gift can a beneficiary disclaim?
They can only disclaim whole of it
How do we know that the original beneficiary cannot control who receives the assets that they disclaim?
Disclaimed inheritances pass as if the gift to the original beneficiary had failed
Therefore the ultimate destination is determined by will terms/intestacy rules
Who is taxed when a disclaimed transfer occurs?
The deceased’s estate
As if it was the deceased made the transfer to the new beneficiary
Is the original beneficiary treated as though they made the transfer to the new beneficiary when disclaiming their inheritance?
No
Do the provisions of s.142 IHTA and s.62 TCGA apply in the same way as variations for disclaimers?
Including the condition for the ‘writing back’ effect?
Yes
Which of the two are more limiting in their nature?
Variations or disclaimers?
Disclaimers
When does a precatory trust arise?
When a gift is made to a beneficiary by a will with a testator’s wish expressed as to how the beneficiary should pass on assets to others
Why are precatory trusts beneficiary for testators with regards to gifts of chattels?
They allow flexibility given the testator may change their mind later on without amending their will
TRUE OR FALSE
The subject matter of the gift of a precatory trust does not need to be certain
False
It must be certain
How are gifts made by the original beneficiary of a precatory trust within 2 years of the testator’s death treated for IHT purposes?
As gifts made by the testator’s will and not the original beneficiary
What are the IHT effects of assets being distributed under a precatory will within 2 years of the testator’s death?
IHT may be payable
Is a written election required for precatory trusts for the ‘writing back effect’ like variations and disclaimers?
No - it happens automatically
How are distributions of assets of a precatory trust treated for CGT purposes?
As a disposal by the original beneficiary
Why is CGT usually not an issue for precatory trusts?
There is likely to only be a short time between testator’s death and beneficiary’s distribution
Meaning there is unlikely to be a significant increase in value of chattels
What is the role of the PR?
To administer the estate of the deceased
What is the statutory duty of a PR?
To
- Collect deceased’s assets
- Ensure deceased’s debts are paid
- Ensure outstanding tax liabilities are met
- Distribute assets to beneficiaries (under will or intestacy
Can a PR be a beneficiary of the estate?
Yes, but not always
What is the nature of the role of a PR?
What does this mean in terms of how their role must be carried out?
It is fiduciary in nature
They must perform their role with duty of care
What is a PR appointed by will referred to?
Executor/executrix
Where does the executor’s authority to act come from?
The will
What does the grant of representation confirm?
The executor’s authority
Where does an administrator’s authority to act come from?
The grant
Who will require proof of a grant when a PR needs to transfer legal title of land to their name?
Land Registry
Who does the legal title of a deceased’s estate lie with?
The PR, by virtue of their appointment
When does the role of the PR end?
When the estate administration is complete
Who takes over when the estate administration is complete if there are any trusts in the deceased’s will?
The trustee
The trust fund should be transferred to the trustee
Who should record the data that the assets are transferred from the PRs to the trustees following the completing of the administration of the estate (not trust assets and funds), even if the executors and the trustees are the same people?
The PR
Which circumstances may the PR also be a trustee of all or some of the estate property?
- The will expressly appoints executors to act as trustees
- There is an intestacy; PRs hold estate generally ‘on trust with a power to sell’
- A statutory trust arises under an intestacy; PRs will be trustees of that trust on behalf of minor beneficiary
How can a solicitor become involved in the administration of an estate?
- Solicitor has been instructed by PRs for advice on administration
- Solicitor has been appointed as executor of deceased’s will
- Solicitor instructed to act on behalf of party to a contentious probate matter
Who is the firm’s client if the firm is instructed by PR?
PR or the beneficiaries?
PR
Solicitor must act on the PRs instructions
Who bears the funding of the legal fees of the firm in the administration of an estate?
Using the estate assets rather than PR’s personal funds - it is an administration expense
Who does an executor solicitor charge for their services?
The estate
Who does the executor solicitor owe a duty to in the administration of an estate as an executor?
Estate creditors and beneficiaries
Who is classed as a ‘professional PR’?
A solicitor acting as an executor appointed by will
What kind of contentious probate work may a solicitor be faced with when involved int he administration of a deceased’s estate?
- Terms or validity of will if its challenged
- Disappointed beneficiary making a claim under Inheritance (Provision for Family and Dependants) Act 1975
Who is liable for loss caused by a breach of duty?
PR is personally liable
How do PRs inform HMRC about the assets and liabilities of an estate (s.216 IHTA)?
By completing a form IHT 400
What type of estates are form IHT 400 completed for?
Excepted estates
When must a PR inform HMRC about assets and liabilities of estate and ensure IHT is paid?
Before the grant of representation is obtained
How does a PR comply with their s.25 Administration of Estate Act 1925 duty to ‘collect in [real and personal estate]’?
They must
- Identify and locate deceased assets (including sums owed to deceased)
- Identify deceased’s liabilities and creditors
^ (would’ve been done as a part of form IHT 400)
- Obtain control, possession or legal ownership of assets
How does a PR comply with their s.25 Administration of Estate Act 1925 duty to ‘administer estate’?
Administering the estate in full looks like:
- Keeping assets secure
- Paying deceased’s debts and liabilities (in accordance with statutory order)
- Meeting administration expenses
- Paying legacies
- Distributing residue to legally entitled
How does a PR comply with their s.25 Administration of Estate Act 1925 duty to ‘providing an inventory and account of estate assets’?
- Keeping a list of assets and values (inventory)
- Record steps taken in the administration (account)
What information comprises the ‘Estate Accounts’?
- List of inventory
- Record of steps taken in the administration or the ‘account’
What can be done if PR refuse to produce Estate Accounts?
Ac application to court can be made for an order to produce these accounts
Who usually has interest in seeing the Estate Accounts?
Who else may?
Beneficiaries
Creditor with a claim against the estate may want to also see to find out further information
What is the general time frame whereby a PR should complete the administration of the deceased’s succession estate?
Within 12 months of the date of death
Also known as the executor’s year
What must happen if the administration takes longer than the ‘executor’s year’ recommendation?
They will be required to justify any delay
Is it mandatory for a PR to continue administration if additional assets are discovered following the completion of administration?
Yes - their appointment is for life
Is it mandatory for a PR to continue administration if creditors or beneficiaries are discovered following the completion of administration, who may not have been known at the time?
Yes - their appointment is for life
Which two sources do PR powers come from?
- Statute
- Will/codicil
What is the same statutory duty that applies to PRs that already applies to trustees when exercised powers to which this duty applies?
Duty of care
What must/must not a PR do relating to their role in the aspect of having a fiduciary duty?
PRs must not
- Place themselves in a position of conflict
- Profit from their position
What is an example of a PR not placing themselves in a position of conflict?
Not purchasing an asset from the estate, even if it’s for fair value
Does a PR receiving payment for services constitute a breach of the ‘no profit’ rule?
Are there any conditions?
No - if the PR acts in a professional capacity OR
Payments are authorised under the will
Deceased died intestate
What power(s) apply: statutory and/or by will/codicil?
Statutory only
Deceased left a will
What power(s) apply: statutory and/or by will/codicil?
Will powers
Statutory powers apply to the extent they don’t conflict with express will provisions i.e., statutory powers apply in default of any alternative contained in the will
Is it compulsory for a will to contain express administrative provisions dealing with PR powers?
Not compulsory but it can
Can a will contain express clauses conferring additional powers going beyond statutory provisions?
Yes
TRUE OR FALSE
A will can exclude or modify statutory powers
True
TRUE OR FALSE
Express provisions in a will do not take priority over statutory powers
False
They do take priority over statutory powers
What statutory powers does statute confer unto PRs?
- Sell, charge or lease
- Appropriate
- Insure
- Invest
- Charge for PR services
- Delegate powers
- Appoint trustees
Why may a PR need to exercise their power to sell, charge or lease estate assets?
Sell estate assets to:
- Repay deceased’s debts
- Meet inheritance tax liability
Why may a PR have the power to appropriate an estate asset?
To ensure a beneficiary’s entitlement is satisfied
Can a PR appropriate an asset if its value exceeds the beneficiary’s entitlement?
No
What must a PR do when appropriating an asset that is less than the beneficiary’s entitlement?
Appropriate the asset
Make a balancing cash transfer
What is the PR’s duty to appropriate limited by?
- Specific beneficiary mustn’t be prejudiced
- Consent of recipient beneficiary is required
- Value of asset must be considered at date of transfer/appropriation instead of date of death
What date should the value of an asset that a PR seeks to appropriate be considered at?
The date of transfer/appropriation and NOT the date of death
What does the PR’s power to insure mean?
PRs have the power tot ake out insurance to insure estate assets comprehensively
Where are PRs authorised to pay insurance premiums from?
Estate income or capital
What is a PR’s duty (and the name of the corresponding power they must exercise) where assets are retained for a period of time?
Duty to preserve the estate
Power to invest
Who can claim for reasonable remuneration for their services provided (i.e., time spent carrying out administration)?
Professional PRs
e.g., solicitors
What are the conditions attached to professional PRs claiming reasonable remuneration for their services provided?
They can claim provided
- They are not acting alone
- co-PRs give their written consent
What conditions must be satisfied for a lay PR or a professional PR acting alone for them to be able to charge for their services?
Express power must be given for their services
What may all PRs, whether acting in or out of a professional capacity, reimburse themselves for?
Expenses properly incurred when acting on behalf of an estate
e.g., travel costs incurred in course of estate administration
What is the name of a PR’s power given by statute to employ agents and delegate their powers?
Power to delegate
What areas must a PR not employ an agent and delegate powers for?
- How and whether assets should be distributed
- Whether fees or costs are payable from income or capital
- Appointment of trustees/nominees/custodians
What type of person must not be appointed as a PRs agent?
A beneficiary
Can a PR appointment one of the PRs, if they are sufficiently qualified?
Yes
What must a PR do following their exercise of the power to delegate?
- Delegate in writing to the agent
- Provide them with a written policy statement, which the agent must agree to comply with
What is a common circumstance where a PR may delegate investment powers?
Law firms who they refer financial advisers for work
What happens if a legacy is given aboslutley to a minor?
The legacy must be held on trust for the minor, using their statutory powers to maintain and advance the legacy where appropriate
What power can a PR exercise if a legacy is given absolutley to a minor if they do not wish to retain it for whatever reason?
They can exercise their power to appoint trustees for gifts to minors
How should a testator’s wish as to whether receipt of gift is accepted from parent or not written in the will?
Should be written expressly
How old must a minor beneficiary whom an express clause within a will permits a PR to accept receipt from be to be effective?
16 or older
What does the common law power to run a business allow a PR to do if a testator ran a business as a sole trader?
Sell the business as a going concern within a year of death
When can PRs access sole trader business assets?
At the date of death (not other estate funds, until grant of representation given)
Who is liable to business creditors when administering an estate of a sole trader business person?
The PR is personally liable
But they can indemnify themselves from estate for liabilities incurred
How are joint PRs required to make decisions?
Together
Their discretionary powers should be exercised unanimously, unless the will states otherwise and joint PRs are joint executors
When might a jointly appointed PR usually have the authority to act alone?
When exercising power to sell or transfer estate asset during administration
When does a PR’s power to pay a legacy to a beneficiary aged 16 or older exist?
When it has been expressly conferred by the will
What is a ‘devastavit’?
A claim of action against a PR for breach of their PR duties
When may a devastavit be brought against a PR?
Where a loss has been suffered by the estate as a result of a PR’s wrongoing
What does the court order that a claimants seeking a devastavit for do?
Orders that the PR makes good the loss using their personal assets
What bases can a claim against a PR be made on?
- Maladministration
- Misuse of assets
- Negligence
- Breach of fiduciary duty
What could misuse of assets include?
Making personal use of estate assets
What could breach of fiduciary duty include?
- Breach of no conflict rule
- Self-dealing
- Breach of no profit rule
What could negligence include?
- Unreasonable delay in carrying out administration
- Failing to invest
- Making poor investment decisions in breach of duty of care
What could maladministration include>
- Incorrectly administering estate by making distributions to wrong beneficiaries
- Using residuary estate to meet liabilities which should have been paid from other parts of the estate
- Paying legacies before debts without retaining sufficient funds for creditors
What are the two ways a PR can be removed from their role for failing to carry out their duties properly?
- Court order under 2.50 Administration of Justice Act 1950, appointing a replacement PR
- Administration action; court takes over administration itself
When are PRs subject to trust duties?
When they also act in a trustee capacity
What liability do PRs, who are also trsutees, come under as a result of a breach of a trust?
They are personally liable
What ways can a PR obtain protection from personal liability where applicable?
- Seeking court directions
- Benjamin Order
- Presumption of Death Act
- Insurance
- Payments into court
- Indemnity from beneficiary
- s.61 Trustee Act 1925
- s.27 Trustee Act 1925 notice
- s.48 AJA 1985 application
When may a PR seek a court direction?
When they foresee difficulties in the administration of an estate which may mean they’d become personally liable
e.g., if the construction of the will is ambiguous
What could a court direction/administration proceedings look like?
- Administration action application; estate administered by the court
- Specific relief; an application for guidance on a particular matter
What is an alternative option to applying for a court direction when there is question/concern of the will terms?
PRs may apply to distribute in accordance with a written legal opinion under s.48 Administration of Justice Act 1985
How can PRs, who are also trustees, prevent liability to unidentified beneficiaries and creditors?
Public a notice of their intention to distribute to kown beneficiaries two months after the date of the advertisement
Where must the notice under s.27 Trustee Act 1925 be placed in to be effective?
- London Gazette
- Newspaper circulating in area which any land held on trust is situated
- Any other newspaper which is appropriate (e.g., if deceased owned a business, relevant trade paper may be appropriate
TRUE OR FALSE
PRs, who are also trustees, are personally liable to unpaid beneficiaries and creditors, even if PRs were unaware of their claim at the time of the administration
True
TRUE OR FALSE
s.27 Truster Act 1925 protects PRs if they distribute assets ignoring the claim of a known but missing beneficiary or creditor
False
This provisions only protects against claims by unknown beneficiaries and creditors
What two groups of people does s.27 Trustee Act 1925 not protect?
- If PRs distribute assets ignoring the claim of a known but missing beneficiary or creditor
- Other beneficiaries who receive more than their entitlement
Can s.27 Trustee Act 1925 protect PRs in their capacity as a beneficiary, if they also are a beneficiary under a will/intestacy?
No - only in their capacity as a PR
What other liability protection mehtod can a PR rely on if there is a known but missing beneficiary?
A Benjamin Order
What presumptions is a PR allowed to make under a ‘Benjamin Order’ when distributing assets, absolving personal liability?
- That the missing beneficiaries have died
- That the missing beneficiary had no children
Can a disappointed beneficiary still make a claim against other beneficiaries that their property has been distributed amongst under s.27 Trustee Act and the Benjamin Order?
Yes
What must the PR do before having a Benjamin Order awarded to them?
Make full enquires [attempt] to establish true position
They must be able to demonstrate that there is no reasonable prospect of knowing the true position without disproportionate expense
What application can be made by a PR as a method of liability absolvement under the Presumption of Death Act 2013?
For a court order declaring that a person thought to have died, or not known to have been alive, for seven years or more has died
Which is quicker and easier to use for a PR seeking to absolve personal liability in the administration of the deceased’s estate, subject to the satisfaction of criteria?
Presumption of Death Act 2023 court order or Benjamin Order
Presumption of Death Act 2023 court order
What could an insurance cover if a PR purchased one?
Cover the risks that the beneficiary or creditor returns after administration is complete and makes claim against PR for the share they should have received
What are the cons of a PR obtaining insurance to absolve themselves from personal liability of administering an estate?
- If risk is too high, might not be possible to obtain insurance
- Insurance premiums can be expensive
When might a PR’s application for an order exonerating them, wholly or partly from personal liability for breach, be approved?
If the court considers that the PR
- Acted honestly and reasonably
- Out to be fairly excused for
a) the breach of trust and
b) omitting to obtain directions of the court in the matter
Can a testator exclude or restrict liability of a PR’s wrongdoing in their will?
Yes
Can professional executors be claimed against with exemption clauses in a will?
Yes - the exemption clauses exempt lay executors, but still allows claims against professional executors
Is it possible to exclude liability for fraud in a will?
No
