paying debts

Question 1

what debt may there be?

Answer 1

• personal debt
  -pre- grant loan
• PRs should also pay general administration expenses as and when they arise during the administration – example:
  a) Cost of valuing the estate assets
  b) Probate fees
  c) S.27 notice costs
  d) Professional legal fees for services provided to the estate

Question 2

Estate is solvent or insolvent

Answer 2

estate is solvent if assets are enough to pay all funeral, testamentary, and administration expenses, debts, and liabilities)

Question 3

secured debts

Answer 3

• Secured debt = debt has been charged on part of the deceased’s property during their lifetime (e.g., mortgage)
• Charged property will bear primary liability for payment of the debt secured against it unless a contrary intention is shown in the will
• If the amount of the outstanding loan is less than the value of the asset secured (usually the case) no other estate assets can be used to repay the secured debt – S35 AEA
• SO: a mortgage cannot be discharged from other assets of the estate and the property must be sold to meet mortgage (if will is silent)

Question 4

what order of assets are used to pay unsecured debts? unless wording in the will says otherwise

Answer 4

-Property not disposed by will
-Residue
-property the will sets aside
-£ in the pecuniary legacy fund
- property specifically given (chattels)

Question 5

country intention for unsecured debts

Answer 5

Express wording in a will can override the statutory order in Sch 1 Part II AEA where a contrary intention is shown.

Many wills include a general direction for the residue to bear the burden of debts: “I give my residuary estate to my executors on trust for sale and out of the proceeds of sale to pay my debts …”  This type of clause would usually be sufficient.

Question 6

Contrary intention for secured debts

Answer 6

Express wording in a will can override the general rule in s 35 AEA that secured assets are subject to the related debt.

However, a contrary intention is not shown by a general direction for debts to be paid out of residue

Instead, a clear /specific intention for the beneficiary of the secured asset to receive the item free of debt must be shown.

Question 7

Marshalling

Answer 7

• If PRs do take assets ‘out of order’ to pay creditors, then the beneficiaries whose assets have been ‘wrongly taken’ can use the doctrine of marshalling.
• The creditors are not bound by the rules and are under no obligation to return the money paid to them.
• However, the general principle of marshalling allows a beneficiary who is disappointed that his inheritance has been reduced, because assets to which he was entitled have been wrongly used to pay a creditor, to compensate himself by going against the property which ought to have been used to pay the debts.
• This means that the beneficiary could claim against the assets inherited by another beneficiary is those assists should have been used to repay the debts.

Question 8

what should PR consider when choosing what to sell

Answer 8

• CGT
• Ease of sale
• wishes of beneficiaries