Administration Post-Grant

Question 1

What are the general duties of a PR?

Answer 1

Duty to act with reasonable care and skill - statutory duty of care

Fiduciary relationship

Generally, mimics the standard duties of a trustee

Question 2

What is the key duty of a PR pre-grant?

Answer 2

Notify HMRC about assets and liabilities

Pay IHT

Question 3

What are the duties of a PR during the grant?

Answer 3

Duty to collect and get in the real and personal estate of the deceased and administer it according to law

Provide an inventory and account of the estate assets

Question 4

What does the duty to administer the estate entail?

Answer 4

Keeping assets secure

Paying deceased’s debts and liabilities in accordance with statutory order

Meeting administration expenses.

Paying legacies

Distributing residue to those legally entitled

Question 5

What does the duty to provide inventory and account include?

Answer 5

PRs must keep a list of assets and values and a record of steps taken

Usually recorded in ‘Estate Accounts’

Beneficiary or creditor can ask to see these - if inadequate, can make an application to court in accordance with NCPR for an order to produce an inventory and account

Question 6

What does the duty of due diligence entail?

Answer 6

Due diligence depends on the facts of the case but if the court decides that this has been breached, it can declare and direct an inquiry as to damages

PRs should complete the administration within 12 months of the date of death

Question 7

What could the implications of the fact that the PR role is essentially for life be?

Answer 7

• Must act if more assets found
• Ongoing risk of liability if creditors / other beneficiaries emerge

Question 8

What does power to sell, charge or lease entail?

Answer 8

Wide powers to sell estate assets

May need to do this soon after the grant is issued so that they can repay deceased’s debts + any loan taken out to meet IHT liability

Question 9

What does the power to appropriate entail?

Answer 9

Can appropriate an asset in satisfaction of a beneficiary’s entitlement and PRs can decide which assets are used to meet this
Subject to following rules
Cannot prejudice a specific beneficiary
Consent of recipient beneficiary required
Value of asset must be considered at the date of transfer / appropriation, as opposed to death

If the value of an asset is greater than the beneficiary’s entitlement – PRs may not appropriate

If the value is less, PRs may appropriate and make a balancing cash transfer

Common for a will to include an express clause removing the need to obtain consents required by the section

Question 10

If PRs insure an asset how can they pay for it?

Answer 10

Can pay premiums out of the estate

Question 11

When can PRs charge for their services?

Answer 11

Professional PRs may claim reasonable remuneration for their services

As long as
o They are not acting alone
o Co-PRs give their written consent

Lay PR or professional acting alone must be given express power in will to charge for services

Question 12

Can PRs delegate? If so, how?

Answer 12

Yes - in writing, agent must agree to a written policy agreement, use of agent kept under review

Question 13

On which decisions can PRs not delegate?

Answer 13

On how / whether assets should be distributed

Whether fees / costs are payable from income or capital

Appointment of trustees / nominees / custodians

Question 14

How can a PR absolve themselves of their responsibilities if there is a gift to a minor in the estate?

Answer 14

Minors can’t give valid receipt - often PRs can appoint trustees for the minor legacy, instead of retaining it.

Minor’s parent or guardian has the power to give good receipt on behalf of minor

If there is an express clause in the will, PRs can accept receipt from a minor 16+

Question 15

What is the PRs power to run a business?

Answer 15

Company / partnership should contain provisions in Articles / Agreements which dictate key provisions which apply on death of a shareholder.

Question 16

When can a joint PR act alone?

Answer 16

Only if will expressly says it can - exception for any stocks and shares

Question 17

When will a PR be liable for losses?

Answer 17

Personally liable for losses that result from a breach of duty which they did not commit. Can also be liable for breaches by other PRs if they made no reasonable attempt to monitor co-PRs conduct.

Question 18

When can a devastavit be brought against PRs?

Answer 18

Loss to estate because of PR wrongdoing

Question 19

What can a claim against a PR be based on?

Answer 19

Maladministration

Misuse of assets

Negligence

Breach of fiduciary duty

Question 20

Give examples of maladministration

Answer 20

Incorrectly administering the estate by making distributions to the wrong beneficiaries

Using residuary to meet liabilities which should have been paid from elsewhere

Paying legacies before debts without retaining funds for creditors

Question 21

Why might a PR ask for court directions?

Answer 21

If they foresee difficulties in the administration of the estate. Can ask to have whole administration done by the court, or specific relief

Question 22

How can S48 AJA protect PRs

Answer 22

They can distribute in accordance with a written legal opinion

Must be given by barrister with 10 years experience

Question 23

What can s27 Trustee Act protect against? How does it work?

Answer 23

Protects against claims by unknown beneficiaries and creditors

Notice goes in London Gazette, newspaper circulating in the area in which any land held on trust is situated, and any other appropriate newspaper

Two months after notice of intention - PRs can distribute

Question 24

How does a Benjamin Order protect PRs?

Answer 24

Useful for known but missing beneficiaries - can distribute on basis that missing beneficiaries are dead or any other assumption e.g. had no children

Question 25

What liability remains under a Benjamin Order?

Answer 25

Missing beneficiary could still claim against other beneficiaries

Question 26

How does the Presumption of Death Act 2013 protect PRs?

Answer 26

Court order declaring that a person thought to have died / not known to be alive for seven years or more has died - the order confirms presumed date of death If criteria for application can be met – quicker / easier option than Benjamin Order

Question 27

How can insurance help PRs protect themselves?

Answer 27

PR insurance common - but can be expensive

Question 28

How can an indemnity from beneficiaries protect PRs?

Answer 28

Tricky - only limited and as good as those giving it.

Question 29

How can payment to court help protect beneficiaries?

Answer 29

Can pay a legacy amount to court and distribute the rest - useful if beneficiary is located but won't accept the inheritance

Question 30

When will a court exonerate a PR from a breach?

Answer 30

Court will have to judge that PR Acted honestly and reasonably Ought fairly to be excused for - Breach of trust - Omitting to obtain directions of the court in the matter

Question 31

When a PR collects money in to the estate, where should it be paid to?

Answer 31

PR’s bank account – one opened specifically to hold estate money Law firm client account -- Credit interest of a fair and reasonable sum will apply

Question 32

In what time frame should debts of the estate be paid?

Answer 32

Duty to pay debts with due diligence - no definition, standard to pay before end of executor's year

Question 33

What payment should be prioritised once grant administered?

Answer 33

Any pre-grant loan taken out to pay IHT - particularly if they have given a first proceeds undertaking to the bank.

Question 34

What is the general rule in terms of the burden of debts and expenses?

Answer 34

all deceased’s property constitutes assets which can be made available for the payment of the deceased’s debts and liabilities. Any clause to the contrary in a will is VOID

Question 35

When is an estate considered solvent?

Answer 35

Assets are sufficient to pay all funeral, testamentary and administration expenses, debts, and liabilities but no need to be able to pay all beneficiaries!

Question 36

If there is a charge on a specific property, does it continue to bear liability post-administration?

Answer 36

Yes - the property the original charge was made against continues to bear liability unless a contrary intention is shown in the will.

Question 37

What happens if a loan is larger than the value of an asset secured?

Answer 37

Remainder will rank as an unsecured creditor

Question 38

In which order are unsecured debts paid according to statute?

Answer 38

1) Property not disposed of by will 2) Residue 3) Property the will sets aside for the repayment of debts 4) £ in the pecuniary legacy fund - if insufficient, legacies abate proportionately 5) Property specifically given

Question 39

How can the statutory order of unsecured debts be overriden?

Answer 39

Express wording in a will - very common that wills include a direction for the residue to bear the burden of debts

Question 40

How can the statutory order of secured debts be overriden?

Answer 40

A general direction for debts to be paid out the residue is not enough - a clear and specific intention for the beneficiary of the secured asset to receive the item free of debt must be shown.

Question 41

What does the doctrine of marshalling allow beneficiaries to do?

Answer 41

Allows a beneficiary who is disappointed that inheritance has been reduced to compensate himself by compensating himself via the property which ought to have been used to pay the debts Disappointed beneficiary could claim against the assets inherited by another beneficiary if those assets should have been used to repay debts

Question 42

How should beneficiaries decide what to sell if there are insufficient assets to repay all debts?

Answer 42

Comply with statutory order Consider - CGT, speed, wishes of beneficiaries

Question 43

How must PRs apply CGT considerations to the estate?

Answer 43

Sell assets that have not risen in value Assets falling in value should be sold Assets which have risen in value can be transferred to a beneficiary without any CGT charge.

Question 44

What liability does a PR have in terms of IT and CGT which was owed in the deceased's lifetime?

Answer 44

Must pay it, or claim any refunds Record information and notify HMRC via a tax return on behalf of deceased for the period 6 April to date of death This can be considered an estate expense

Question 45

How should PRs consider whether the deceased had any outstanding CGT liability?

Answer 45

PRs will need to consider the disposals made by the deceased before they died These matters relate to assets that the deceased no longer owned on the date they died When calculating the CGT due PRs should utilise the deceased’s tax free allowances and pay tax at rates applicable to the deceased

Question 46

When may PRs have to pay income tax?

Answer 46

When an estate generates income, which goes into their accounts This will always be paid at the basic rate - no personal allowance or higher rates for PRs

Question 47

What is the threshold above which PRs should report to HMRC or pay income tax on estate income?

Answer 47

Total income received is more than £500 / year

Question 48

How can an estate acquire CGT liability? How does this work?

Answer 48

If PRs make a disposal / sale of assets during an administration period

Question 49

What, if any, personal allowance do PRs have on CGT?

Answer 49

Same tax free allowance as an individual for CGT

Question 50

If when PRs sell assets they have fallen in value, how can they use this from a CGT perspective?

Answer 50

Off set against other gains

Question 51

What is the threshold below which chattels can be sold by PRs exempt from CGT?

Answer 51

Under £6,000 or less

Question 52

What tax efficiency considerations might PRs bear in mind when administering estate?

Answer 52

If beneficiary has used tax free allowance / is a higher rate tax payer - better for PRs to sell the assets, and use the estate tax-free allowance and distribute cash Reverse applies also PRs can't claim residence relief If an asset will generate a loss - PRs should consider whether the estate / beneficiary has gains against which to set off the loss

Question 53

What should PRs consider to fulfil their duty to accurately distribute the estate?

Answer 53

Identify beneficiaries Nature of interest Property to which beneficiaries are entitled Method of transfer Relieving provisions Claims against estate (e.g. IPFDA), unknown beneficiaries (ss27 notice)

Question 54

In which order are legacies paid?

Answer 54

Specific general residuary

Question 55

What happens if there is not enough money to fulfill all legacies?

Answer 55

They abate in reverse order If there are sufficient funds to meet all specific gifts but not all general legacies, general beneficiaries take a reduced inheritance Specific gifts take priority Within each category; if not all legacies can be paid, they abate proportionately

Question 56

What should PRs get from beneficiaries when they make a distribution?

Answer 56

Receipt

Question 57

What can PRs do if beneficiaries are minors to ensure receipt

Answer 57

Express clause meaning receipt can be given from 16 / 17 year olds Parent or guardian provides receipt PRs hold property themselves until child is 18 Appoint trustees Pay legacy into court

Question 58

What would be logged in estate capital account?

Answer 58

* Sets out estate assets and liabilities at death * Records what happened to each item * Liabilities such as pecuniary / specific legacies / IHT included * Solicitors’ fees included * Capital account will show balance available for distribution to residuary beneficiaries

Question 59

What would be logged in estate income account?

Answer 59

* Income received in relation to estate assets during administration and summarises how this was spent * Income expenses are then deducted as liabilities * Income account will then show a balance available for distribution to residuary beneficiaries

Question 60

What would be logged in estate distribution account?

Answer 60

* Sets out residuary beneficiaries’ entitlement * Includes distributions made during the course of the administration of the estate and final balance due to be distributed

Question 61

Who should approve estate accounts?

Answer 61

Should be signed off by all PRs and residuary beneficiaries – usually releases PRs from further liability to account NOT legacy beneficiaries