Dealing with the Estate & Duties of PRs

Question 1

What happens if the PRs fail to pay someone entitled to the assets?

Answer 1

They are personally liable

Question 2

What should PRs do to protect themselves from potential claims by unknown beneficiaries & creidtors?

Answer 2

Place advert specifying deadline in at least 2 months for making a claim in:
1. The London Gazette
2. A local newspaper
3. Any other appropriate notices

In interim, should make any other appropriate searches for interest (eg. Land Reg etc.)

Once deadline has passed, PRs can distribute the estate (any unknown beneficiary/creditor can bring claim against the other beneficiaries, but not the PRs)

Question 3

Where are the 3 places the PRs should place an advert to protect against claims by unknown beneficiaries & creditors?

Answer 3

1. London Gazette
2. A local paper
3. Any other appropriate notices

Must specify deadline in at least 2 months for making a claim

Question 4

What are some things PRs can do to protect themselves from potential claims by missing known beneficiaries & creditors? (4)

Answer 4

• Keeping back assets in case claimant appears
• Taking an indemnity from the other beneficiaries
• Taking out insurance to cover potential liability
• Applying for a Benjamin Order: authorises PRs to distribute estate on basis claimant is dead (protects PRs from liability)

Question 5

What is a Benjamin Order?

Answer 5

Authorises PRs to distribute estate on basis that a missing known beneficiary/creditor is dead

Protects PRs from liability (claimant can bring claim against other beneficiaries but not PRs)

Question 6

How can PRs protect themselves from potential claims under the Inheritance (Provision for Family and Dependants) Act 1975?

Answer 6

By waiting more than 6 months from date of grant before distributing

Question 7

What are some of the duties of PRs? (4)

Answer 7

Duty to identify & collect assets

Duty to distribute assets

Duty to apportion income (between period before death & administration period - can be excluded by will)

Proof of title to assets (must produce grant as proof of title when dealing with estate’s assets)

Question 8

When does title to the estate’s assets devolve to the PRs?

Answer 8

a. At death or

b. Upon issue of grant where deceased died intestate

Question 9

What happens if the PRs breach their duty?

Answer 9

They are personally liable for any breach which causes loss to a creditor / beneficiary

Question 10

Can PRs be relieved of liability?

Answer 10

The court has the power to relieve PRs of liability where they have ‘acted honestly & reasonably & ought fairly to be excused for the breach’

Question 11

What are the 2 sources of the PRs’ powers?

Answer 11

Statute + deceased’s will

Question 12

What is the PR’s power of maintenance?

Answer 12

PRs can apply income for the maintenance, education, benefit of minor beneficiaries as they see fit

Question 13

What is the PR’s power to advance capital?

Answer 13

Can advance whole (or less) entitlement to any beneficiary with a vested or contingent interest in the capital if PRs believe it is in the beneficiary’s interest (where applicable, need written approval of any life tenant)

Nb. express power in will required to advance capital to life tenant

Question 14

Can the PRs advance capital to a life tenant?

Answer 14

Only if it is an express power in the will

(statutory power applies to beneficiaries with vested/contingent in capital only)

Question 15

What is the PRs’ power to insure?

Answer 15

Power to insure assets & pay for any premiums out of the income or capital

Question 16

What is the PRs’ power to appropriate?

Answer 16

Can appropriate any assets in the estate to satisfy legacy or interest, so long as no specific legacies prejudiced & beneficiary whom PR is appropriating consents

Question 17

What is the PRs’ power to invest?

Answer 17

Investing trust property (must act honestly & with reasonable prudence when selecting investments)

Includes power to purchase land in the UK

Question 18

Can PRs purchase land abroad?

Answer 18

Only if there is an express power in the trust instrument (statutory power includes only to purchase land in the UK)

Question 19

Can professional PRs & trustees charge for their services?

Answer 19

Statutory power to claim reasonable remuneration so long as:

1. Not a sole trustee
2. Other PRs/trustees give written consent
3. No contrary provision in trust instrument

May be altered (eg. easier to charge, can charge more than ‘reasonable remuneration’) if there is a charging clause in the will

Question 20

What is the effect of a charging clause in the will?

Answer 20

Allows professional PRs to charge the estate for work they perform during the administration

Question 21

Under statute, what are the 3 conditions that must be satisfied for a professional PR/trustee to claim ‘reasonable remuneration’?

Answer 21

1. Not sole trustee
2. Other PRs/trustees give written consent
3. No contrary provision in trust instrument

Question 22

What is the PRs’ power to carry on a business & where is it derived from?

Answer 22

Granted expressly by the will

Allows PRs to run deceased’s business, allowing it to be sold as a going concern (eg. where deceased sole trader)

Question 23

Under statue, can unmarried minors give good receipt for a legacy?

Answer 23

No (will must specifically provide for this)

Question 24

What is the effect of clause in the will allowing good receipt of minor’s legacy?

Answer 24

Allows unmarried minors to give good receipt of legacy, varying default statutory position that they can’t

(Alternative provision might provide that parent/guardian can give valid receipt)

Question 25

What expenses & debts must the PRs pay & can they sell any assets to pay?

Answer 25

Reasonable funeral expenses

Deceased’s debts & liabilities (with due diligence)

Testamentary expenses (incl IHT)

→ Any assets in the estate can be sold for the payment of debts, subject to any provisions in the will

Question 26

In a solvent estate, who pays for secured debts?

Answer 26

The beneficiary taking the asset (subject to contrary intention in will, eg. ‘free of the mortgage’)

Question 27

In a solvent estate, how do the PRs pay unsecured debts?

Answer 27

By using the assets in a specific order:

1. Property not disposed of by will
2. Property in a residuary gift
3. Property specifically given for payment of debts
4. Property charged with the payment of debts
5. Pecuniary legacy fund (if there is one)
6. Rateable deduction from each specific property gift
7. Property under a general power of appointment

(Subject to contrary intention in will)

Question 28

What is the order of distribution for the use of assets to pay debts?

Answer 28

1. Property not disposed of by will
2. Property in a residuary gift
3. Property specifically given for payment of debts
4. Property charged with the payment of debts
5. Pecuniary legacy fund (if there is one)
6. Rateable deduction from each specific property gift
7. Property under a general power of appointment

(Subject to contrary intention in will)

Question 29

When are pecuniary legacies payable?

Answer 29

1 year after testator’s death

If delayed, legatee entitled to interest from the end of the 1-year

Question 30

When is interest payable on pecuniary legacies from the date of death? (4)

Answer 30

When legacy is:

a. Expressly stipulated to be payable ‘immediately following death’

b. Payable to satisfy debt owed by testator

c. Payable to testator’s minor child (where no other funds for child’s maintenance)

d. Payable to any minor, where intention is to provide for their maintenance

Question 31

What is the position of the PRs in respect of income tax?

Answer 31

Pay income tax on any income paid to the estate during administration

Rates:
Dividends - 8.75%
Other income - 20%

(don’t benefit from any allowances available to individuals, but can claim relief for interest paid on loan to pay IHT)

Question 32

Do PRs pay income tax if the only income paid to the estate is interest not exceeding £500?

Answer 32

No

Question 33

What happens to the remaining net income of the estate for income tax purposes once it has been paid to the beneficiary?

Answer 33

Will be part of their tax return (will receive credit for tax already paid by PRs)

Question 34

When will PRs pay capital gains tax?

Answer 34

If they sell an asset - will pay CGT:

i. On the gain since death
ii. After deducting annual exemption of £6000
iii. At higher rate of tax (20% or 28% for residential property)

Question 35

When will the beneficiary pay Capital Gains Tax?

Answer 35

When they dispose of the asset transferred to them by the PRs (acquire the asset at probate value)