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Wills and the Administration of Estates > Workshop 5: Administration - Post-grant Practice > Flashcards

Workshop 5: Administration - Post-grant Practice Flashcards

1
Q

What is the general procedure for PRs and asset collection of: balance of bank accounts after obtaining ‘grant of representation’?

A

Most banks and building societies require withdrawal forms to be completed

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2
Q

What is the general procedure after PRs collect personal possessions after obtaining ‘grant of representation’?

A

They should be stored and safeguarded

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3
Q

Who usually arranges the sale or transfer of investments when assets are collected in?

A

A financial advisor

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4
Q

How is the deceased’s land assets that are registered at the land registry collected following the PR’s obtaining grant of representation?

A

It is transferred into the name of the PRs, if its not directly transferred to a beneficiary

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5
Q

Where should money that is being collected as an asset be paid into?

A
  • A PR’s bank account (opened specifically to hold estate money and prevent mixing with personal funds)
  • A law firm client account
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6
Q

What does it mean for a PR being obligated to pay debts and funeral expenses with ‘due diligence’?

A

Should normally be paid before the end of the ‘executor’s year’

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7
Q

What is the ‘executor’s year’?

A

A year given to the executor to deal with the deceased’s estate

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8
Q

What happens in the event a PR fails to pay debts?

A

They become liable to the creditor and beneficiaries for consequent loss

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9
Q

How can a PR obtain protection against personal liability to unknown creditors in the payment of debts?

A

By complying with the s.27 TA 1925 notice procedure

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10
Q

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?

A

An express clause in the will

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11
Q

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?

A

No - such a clause in a will will be made void according to s.32 Administration of Estates Act 1925

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12
Q

When is an estate classed as ‘solvent’?

A

When the assets are sufficient to pay all

  • Funeral expenses
  • Testamentary and administration expenses
  • Debts and liabilities
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13
Q

When is an estate classed as ‘insolvent’?

A

When the assets are insufficient in paying all

  • Funeral expenses
  • Testamentary and administration expenses
  • Debts and liabilities
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14
Q

Does whether the legacies can be paid in full or not contribute to an estates ‘solvency’ status?

A

No

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15
Q

What order must debts be paid in when the deceased’s estate is ‘insolvent’?

What is the name of the Act that governs this?

A

In statutory order in the Administration of Insolvent Estates of Deceased Persons Order 1986

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16
Q

What is known as a ‘secured debt’?

Give an example

A

A debt that has been charged on part of the deceased property during their lifetime

E.g., a mortgage on the deceased’s house

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17
Q

Which order are assets used to pa unsecured debts?

Is there an exception?

A

The order is taken in the statutory order (Sch 1 Part II AEA)

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18
Q

What are some examples of unsecured debts?

A

Credit card debt/utility bills

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19
Q

What are the two responsibilities a PR has regarding a deceased’s ‘income tax’ (IT) and ‘capital gains tax’ (CGT)?

A
  1. Finalise the deceased’s IT and CGT position for the tax year of death
  2. Pay IT and CGT that becomes due during the administration period
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20
Q

What does finalising the deceased’s IT and CGT position for the tax year of death look like?

And why

A

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

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21
Q

What does paying IT and CGT that becomes due during the administration period look like?

A

Paying IT on any income received during the administration period

and paying CGT on taxable gains made following a disposal of estate assets

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22
Q

Where are the deceased’s tax liabilities payable from and to?

A

The estate assets

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23
Q

What period should PRs record information and notify HMRC of regarding the submission of a tax return on behalf of deceased?

A

From 6th April to the date of death

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24
Q

What does the PR need to do when working out the deceased’s income tax liability?

A

Access the dceased’s financial records

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25
Q

How will a PR working in the best interests of the deceased work out the deceased’s income tax liability?

A

Utilise the deceased’s tax-free allowances and pay tax at the rates applicable to the deceased

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26
Q

What two things the PR ned to account for when working out the deceased’s income tax liability?

A
  1. Untaxed income due and paid before death
  2. Some income paid after death which relates to period before death
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27
Q

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?

A

E.g.,

  • Rent due on properties the deceased let, but hadn’t paid
  • Final dividends declared before death but not paid
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28
Q

Whose is bank interest paid before death taxed as?

A

The deceased’s

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29
Q

Whose is bank interest paid after death taxed as?

A

The PR’s

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30
Q

How will the PR work out whether the deceased had any outstanding CGT liability on the date the deceased died?

A

The PR will need to consider the disposals made by the deceased before they died

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31
Q

Do CGT liability related to assets that the deceased no longer owned on the date that they died?

A

Yes

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32
Q

What examples of income is taxed as ‘estate income’ in the hands of the PR?

A

When the interest receives interests from e.g.,
- Banks
- Dividends (from shares) and
- Rent (from let properties)

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33
Q

When may PRs be liable to pay IT if the estate generates income in their hands?

A

If income arises between the date of death
and the date the assets are distributed

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34
Q

Are PRs entitled to claim an IT personal allowance when working out a deceased’s tax liability?

A

No

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35
Q

What is the rate that PRs pay IT at when paying IT on the deceased’s estate after the their death?

A

Basic rate

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36
Q

Who is taxed if income is generated after they have been distributed to the beneficiaries?

A

Taxed as the beneficiary’s income

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37
Q

What is the name of the form that the PRs give to beneficiaries when the estate income is distributed?

A

Form R185

38
Q

What does an R185 form record?

A

The IT paid by PRs in respect of the income a beneficiary receives

39
Q

What two things can beneficiaries used the R185 form to do?

A
  1. Claim a tax refund for beneficiaries who don’t pay IT
  2. Top up payment to HMRC using R185 to complete their own tax return
40
Q

When must PRs report IT to HMRC regarding the deceased’s estate?

A

When the total income of any kind received in more than £500

41
Q

When must PRs pay IT on the deceased’s estate?

A

When the total income exceeds £500 tax free amount

42
Q

What is the IT free amount on the deceased’s estate per tax year of administration?

A

£500

43
Q

How much of the deceased’s estate is IT payable on if it exceeds the tax free amount?

A

IT is payable on the whole amount

44
Q

What tax liability applies where the estate income is distributed to beneficiaries within the £500 tax free limit?

A

No tax liability

45
Q

Is the taxable income for the beneficiary recorded in the R185 when the total income does not exceed the £500 tax free limit?

A

No

46
Q

When may Prs be liable to CGT during the administration of a deceased’s estate?

A

If they make a disposal/sale of estate assets

47
Q

What will there be if assets have increased in value since the date of death when sold/disposed of by PR?

A

A gain

48
Q

What will there be if assets have fallen in value since the date of death when sold/disposed of by PR?

A

A loss

49
Q

What is a PR’s CGT liability if the amount of the gain is greater than the tax-free allowance?

A

They will pay CGT

50
Q

TRUE OR FALSE

Similarly to IT, PRs cannot claim the same tax-free allowance that individuals can claim

A

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

51
Q

How can losses made in since the date of deceased’s death be useful in the context of CGT?

A

They can be off-set against other gains made during the administration

52
Q

Which gains are chargeable?

Post-death gains or gains made by the deceased during their lifetime and owned at the date of death?

A

Post-death gains only

53
Q

Are assets that increase in value from the date they acquired the asset and the date of death taxed with CGT?

A

No

54
Q

Which point are CGT calculated of the deceased’s assets?

A

From the date of death (value of the estate assets are ‘re’set’ for CGT purposes)

55
Q

What asset is exempt from CGT and to what extent?

A

Chattels

If the disposal is made for a consideration of £6000 or less

56
Q

What are the two options a PR can engage in in the administration of non-cash assets?

A
  1. Sell the asset to raise cash for distrubution to beneficiary/creditor
  2. Transfer asset to beneficiaries
57
Q

What power is required for a PR to sell an asset in the administration of non-cash assets?

A

Power of sale

58
Q

What power is required for a PR to transfe an asset in the administration of non-cash assets?

A

Power of appropriation

59
Q

What is meant by ‘the power of appropriation’?

A

The PR can transfer assets in satisfaction of a beneficiary’s entitlement

60
Q

Who decided whether the PR sells or transfers items in the administration of the deceased’s estate subject to specific obligation?

A

The PR

61
Q

Why does no chargeable gain occur when the PR makes a transfer to a benficiary?

A

Because it is not a disposal

62
Q

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

A

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

63
Q

What things should a PR consider when deciding whether they should ‘sell’ or ‘transfer’ non-cash assets in the deceased’s estate?

A
  • 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
64
Q

What is meant by ‘interim distributions’?

A

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

65
Q

What do PRs have duty to do once they have collected assets and paid debts, funeral, testamentary and administration expenses?

A

A duty to distrubute the remaining estate assets to beneficiaries in accordance with their legal entitlement under the will and/or intestacy rules

66
Q

Who bears the costs of the transfer of the asset, unless the will specifically provides otherwise?

A

The beneficiary

67
Q

Does the beneficiary inherit the inherited item free of IHT?

A

Yes

68
Q

What is the method of transfer of chattels?

A

Delivery to the beneficiary

69
Q

What is the method of transfer of £ legacies?

A

Cheque or bank transfer

70
Q

What is the method of transfer of shares?

A

Stock transfer form

71
Q

What is the method of transfer of land?

A

Assent for a legal estate in land (land registry form AS1)

72
Q

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?

A

10 months

6 months deadline for a claim to be issues against the estate + 4 months to serve notice of this

73
Q

When should PRs not make distributions after being notified of claims by unknown beneficiaries and creditors?

A

Two months

74
Q

Which order are legacies paid in, unless the will states otherwise?

A
  1. Specific
  2. General
  3. Residuary
75
Q

What happens if the estate funds do not permit for all legacies to be paid in full?

A

They abate [reduce] in the reverse order in which they are paid in

76
Q

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?

A

General legacies are paid from residue

77
Q

What does the PR’s ‘power of appropriation’ not allow the PR to do?

A

Appropriate an asset where its value at the date of appropriation exceeds the entitlement of the benficiary concerned

78
Q

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?

A

The PR will need to make a further balancing transfer

79
Q

Who should sign/approve of the estate accounts?

A

By all PRs and residuary beneficiaries

80
Q

What does the signing off/approval of estate accounts signify?

A

That they agree with how the estate has been administered

81
Q

What is the usual effect of the signing off/approval of the estate account upon the PRs?

A

Releases them from further liability to account

82
Q

What does the date of the accounts being signed off usually signify or often considered as?

A

The ‘end’ of the administration

83
Q

What are the three main sections that are usually in the estate accounts?

A
  1. Capital Account
  2. Income Account
  3. Distribution Account
84
Q

Why does it not matter which order unsecured debts are met for a creditor for solvent estates?

A

Because they will be paid anyways

85
Q

Why does the choice of assets used to pay the unsecured debts matter for beneficiaries?

A

Because if the beneficiary’s ‘part’ of the estate is used for unsecured debts, the beneficiary will receive less

86
Q

What is the statutory order of assets used to repay unsecured debts, starting from which assets will be used first and exhausted in full?

A
  1. Property that is not disposed of by a will (i.e., property passing by full/partial intestacy)
  2. Residue
  3. Property the will sets aside
  4. £ in the pecuniary legacy fund
  5. Property specifically given e.g., chattels
87
Q

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?

A

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

88
Q

What is the ‘doctrine of marshalling’?

A

Doctrine beneficiaries whose assets have been ‘wrongly taken’ as a result of PRs taking their assets ‘out of order’ to pay creditors can use

89
Q

Will creditors be under an obligation to return the money paid to them if the doctrine of marshalling arose?

A

No

90
Q

Who does the beneficiary claim against when using to doctrine of ‘marshalling’?

A

The assets inherited by another beneficiary

91
Q
A

Wills and the Administration of Estates (9 decks)

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