administration (4): post grant

Question 1

what does the post grant steps mainly entail?
(2)

Answer 1

1. collecting in the deceased’s assets
2. payment of debts.

Question 2

Money collected in should be paid into which two places?

Answer 2

A PR’s bank account or a law firm client account.

Question 3

What should a law firm provide if money is paid into the client account?

Answer 3

The firm must provide credit interest of a ‘fair and reasonable’ sum.

Question 4

When should creditors be paid?

Answer 4

Creditors should normally be paid before the end of the ‘executor’s year’.

Question 5

What happens if a PR fails to pay debts despite having assets available?

Answer 5

They will be liable to the creditor and to any beneficiary for consequent loss.

Question 6

An express clause in a will can limit liability to who?

Answer 6

It may limit a PR’s liability to the beneficiaries but cannot relieve them of liability to creditors.

Question 7

What is a ‘first proceeds’ undertaking to a bank in connection with the loan?

Answer 7

PRs promise to use the first moneys raised during the administration to repay the loan.

Question 8

When is an estate solvent?

Answer 8

An estate is solvent if the assets are sufficient to pay all expenses, debts, and liabilities.

Question 9

When is an estate insolvent?

Answer 9

If the assets are insufficient to pay all expenses, debts, and liabilities.

Question 10

When is a debt secured?

Answer 10

A debt is secured if it has been charged on part of the deceased’s property during their lifetime.

Question 11

Who bears primary liability for payment of the debt secured against charged property?

Answer 11

Charged property will bear primary liability unless a contrary intention is shown in the will.

Question 12

What happens if the outstanding loan is less than the value of the asset secured?

Answer 12

No other estate assets can be used to repay the secured debt.

Question 13

What will happen to a creditor if the outstanding loan is greater than the value of the asset?

Answer 13

The creditor will usually rank as an unsecured creditor.

Question 14

What is the statutory order for the assets used when paying unsecured debts and administrative expenses?

Answer 14

1. Property not disposed of by a will 2. Residue 3. Property set aside for repayment of debts 4. Pecuniary legacy fund 5. Property specifically given.

Question 15

Does express wording in a will override the statutory order for payment of unsecured debts?

Answer 15

Yes, express wording can override the statutory order if a contrary intention is shown.

Question 16

What can override the general rule that secured assets are subject to its debts?

Answer 16

A clear/specific intention for the beneficiary of the secured asset to receive it free of debt.

Question 17

What can beneficiaries do if PRs take assets ‘out of order’ to pay creditors?

Answer 17

Beneficiaries can use the doctrine of marshalling.

Question 18

How does the doctrine of marshalling work?

Answer 18

The disappointed beneficiary could claim against the assets inherited by another beneficiary.

Question 19

Why can’t beneficiaries go after the creditors that received the money instead?

Answer 19

Because creditors are not bound by the rules and have no obligation to return the money.

Question 20

What can PRs do if there is insufficient cash to meet debts/expenses?

Answer 20

PRs may need to sell non-cash assets.

Question 21

What should PRs consider when choosing which assets to sell?

Answer 21

1. Capital gains tax implications 2. How quickly a sale can be carried out 3. Wishes of beneficiaries.

Question 22

At what value do PRs acquire estate assets?

Answer 22

At their market value on the date of death.

Question 23

What happens if PRs sell an asset which has increased in value after death?

Answer 23

The profit may be subject to capital gains tax if the gain exceeds any tax-free allowance.

Question 24

Assets that have risen in value may be transferred to who without triggering a CGT charge?

Answer 24

The beneficiary, as the transfer is not treated as a ‘disposal’ for CGT purposes.

Question 25

Are PRs bound to comply with the wishes of a beneficiary?

Answer 25

No, but they should take these into account.

Question 26

What are the PRs responsibilities in relation to CGT?

Answer 26

1. Finalise the deceased's tax position 2. Pay tax due during administration 3. Pay any tax owed at date of death.

Question 27

What should PRs do regarding income tax and CGT owed at the date of death?

Answer 27

Record information and notify HMRC by submitting a tax return.

Question 28

What pays the tax liabilities?

Answer 28

These are estate expenses and payable from estate assets.

Question 29

Should tax refunds be included when valuing the IHT estate?

Answer 29

Yes, refunds are an asset of the estate.

Question 30

Does death give rise to CGT liability?

Answer 30

No, death is not a disposal for CGT purposes.

Question 31

When will PRs be liable to pay income tax?

Answer 31

If estate assets generate income between the date of death and distribution.

Question 32

At what rate do PRs pay income tax?

Answer 32

At the basic rate, depending on the type of income.

Question 33

Are PRs entitled to claim an income tax personal allowance?

Answer 33

No.

Question 34

Income generated by assets after distribution is taxed as whose income?

Answer 34

The beneficiary's income.

Question 35

When will HMRC not require any reporting of estate income?

Answer 35

If the only source of income is savings interest of less than £500.

Question 36

What form do PRs give to beneficiaries when the estate income is distributed?

Answer 36

Form R185.

Question 37

What does Form R185 record?

Answer 37

It records the income tax paid by PRs in respect of the income a beneficiary receives.

Question 38

What can beneficiaries who don't pay income tax use to claim a tax refund?

Answer 38

Form R185.

Question 39

What will higher/additional rate taxpayers need to do when completing their own tax return?

Answer 39

Make a 'top-up' payment to HMRC and use R185.

Question 40

Can PRs claim the same tax-free allowance as an individual for CGT purposes?

Answer 40

Yes.

Question 41

If assets have fallen in value since the date of death, what is the amount of loss set off against?

Answer 41

The amount of the loss can be off-set against other gains made during administration.

Question 42

What type of gains are chargeable?

Answer 42

Only post-death gains are chargeable.

Question 43

A gain made on the disposal of a tangible moveable asset is exempt from CGT if the disposal is for what amount?

Answer 43

£6,000 or less.

Question 44

If the beneficiary has used their tax-free allowance, should the PR sell or transfer the assets for tax efficiency?

Answer 44

Sell, to use the estate tax-free allowance.

Question 45

If the PRs have used their tax-free allowance but the beneficiary has not, should the PR sell or transfer the assets for tax efficiency?

Answer 45

Transfer, so the beneficiary can use their tax-free allowance.

Question 46

When are post-death gains taxed in the hands of PRs?

Answer 46

If assets are disposed of by PRs during the administration.

Question 47

Can PRs make early payment of part of a residuary beneficiary's share before the end of the administration?

Answer 47

Yes, referred to as interim distributions.

Question 48

What is the method of transfer for chattels?

Answer 48

Delivery to the beneficiary.

Question 49

What is the method of transfer for £ legacies?

Answer 49

Cheque or bank transfer.

Question 50

What is the method of transfer for shares?

Answer 50

Stock transfer form.

Question 51

What is the method of transfer for land?

Answer 51

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

Question 52

Who bears the cost of the transfer of the asset?

Answer 52

The beneficiary.

Question 53

What should PRs consider in terms of timing before making significant contributions?

Answer 53

Claims against the estate and S 27 TA notice.

Question 54

In what order are legacies paid?

Answer 54

1. Specific 2. General 3. Residuary.

Question 55

When does the power of appropriation not allow appropriation?

Answer 55

When the value of the asset exceeds the entitlement of the beneficiary.

Question 56

What should PRs do if the value of the asset at the date of appropriation is less than the beneficiary's entitlement?

Answer 56

Make a further balancing transfer.

Question 57

Should PRs obtain confirmation of receipt from the beneficiary when making a distribution?

Answer 57

Yes.

Question 58

What options does a PR have if minor beneficiaries cannot give good receipt?

Answer 58

1. Express clause in the will 2. Receipt by parent/guardian 3. Hold property until 18 4. Appoint trustees 5. Pay legacy into court.

Question 59

Do PRs have a duty to produce an account of the estate administration if required by the court?

Answer 59

Yes.

Question 60

Who should sign the estate accounts?

Answer 60

All PRs and residuary beneficiaries.

Question 61

What are the three main sections of the estate account?

Answer 61

1. Capital Account 2. Income Account 3. Distribution Account.

Question 62

What does the capital account set out?

Answer 62

The estate assets and liabilities at death.

Question 63

What does the income account set out?

Answer 63

The income received during the administration and how it was spent.

Question 64

What does the distribution account set out?

Answer 64

The residuary beneficiaries' entitlement and interim distributions.