Administration - Collecting of Assets and Payment of Debts Flashcards
(20 cards)
When can PRs begin collecting estate assets and paying debts?
After obtaining the grant of representation, which confirms their authority.
How should estate money be held?
In a PR’s estate bank account or a law firm’s client account, to prevent mixing with personal funds.
What is the PR’s duty to creditors?
To pay debts with due diligence. Failure to do so may result in personal liability to creditors or beneficiaries.
How can PRs gain protection against unknown creditors?
By complying with s.27 Trustee Act 1925 notice procedure.
What is a secured debt?
A debt secured by a charge over estate property (e.g. a mortgage).
Who bears the burden of secured debts?
The charged asset itself, unless the will shows a contrary intention.
What is the general rule for unsecured debts?
They are paid from estate assets (unless the will states otherwise).
What is the statutory order for applying assets to unsecured debts?
- Intestate property (retaining pecuniary legacy fund)
- Residue (retaining pecuniary legacy fund)
- Property charged with debt repayment
- Pecuniary legacy fund
- Specific gifts (e.g. chattels)
What happens if the estate can pay legacies and debts in full?
All parties receive their full entitlement.
What happens if debts exceed the residue?
Legacies may abate, proportionately or in full, depending on the shortfall.
What is “abatement”?
The reduction of a legacy to help satisfy estate debts or expenses.
How are legacies abated proportionately?
In proportion to their original value.
Can a will override the statutory order for unsecured debts?
Yes, with express wording showing a contrary intention.
Can a general direction for debts to be paid from residue override secured debts?
No. Only a specific direction to discharge the secured debt from other assets will suffice.
What is marshalling?
A doctrine allowing a disappointed beneficiary to claim against another’s share if the wrong assets were used to pay debts.
When must PRs sell non-cash assets?
When there is insufficient cash to pay debts/expenses.
What factors influence which assets to sell?
- CGT implications
- Ease/speed of sale
- Beneficiary wishes
How are estate assets treated for CGT?
Assets are inherited at probate value. Gains on sale may be taxed if above the CGT allowance.
