00. FLK > Probate - Administration 2025 > Flashcards

Probate - Administration 2025 Flashcards

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1
Q

What is the fundamental duty of the PRs?

A

Get in and collect assets; administer estate according to law.

These duties are to the whole estate, not just to the individual beneficiaries.
Once assets devolved on the PRs, PRs have duty to collect them as soon as is practicable.
to carry out all legal and practical steps required to manage and distribute a deceased person’s assets in accordance with the law

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2
Q

What are some of the specific duties of the PRs?

A
  • Prepare estate accounts and deliver to court if necessary
  • Submit tax return IHT400 to HMRC if estate is not excepted
  • Pay debts and liabilities (including IHT)
  • Preserve value of assets
  • Take reasonable steps to locate beneficiaries
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3
Q

What are some general duties of the PRs?

A
  • Exercise reasonable care and skill
  • Act in good faith
  • Perform duties within reasonable time and with due diligence
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4
Q

What can make a PR personally liable?

A
  • Negligence
  • Maladministration
  • Misappropriation of property
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5
Q

Can a PR be liable for a breach of their fellow PR?

A

Usually not, unless they knew or ought reasonably to have known about the breach and failed to prevent it.

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6
Q

How might a PR escape liability?

A
  • Relief from court if acted honestly and reasonably
  • Specific clause in will excluding or modifying statutory duty
  • Beneficiary who suffered loss acquiesced or agreed to breach
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7
Q

Explain the distinction between PRs and trustees in administration?

A

If the PRs administer and distribute the estate fully, their role typically ends; if the estate cannot be distributed immediately, it must be held on trust until fully distributed.

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8
Q

What powers do the PRs possess?

A
  • Sell or exchange property
  • Raise money by mortgaging or borrowing against property
  • Grant or surrender a lease

Other powers:

  • Insure property (s.34 AEA)
  • Appropriate the deceased’s assets to satisfy a gift or interest, provided no beneficiary is prejudiced
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9
Q

How many executors can the testator appoint?

A

As many as he likes, but if more than four, the PRs (or the court) must decide who takes out the grant.

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10
Q

What happens if the PR dies?

A

The other executors continue, but if none, follow Rule 20 NCPR (will without executors appointed) or Rule 22 NCPR (no valid will) priority list.

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11
Q

Set out the application process to protect against liability?

A
  1. Obtain death certificate
  2. Value estate
  3. Submit IHT Form 400 to HMRC
  4. Apply for grant of representation
  5. Give notice of intention to distribute assets
  6. Pay funeral and testamentary expenses and discharge debts
  7. Wait 6 months before distributing assets
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12
Q

What are the limitations of s.27 notices?

A

The notice does not protect PRs from known liabilities.

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13
Q

How should PRs protect themselves against claims from known but missing beneficiaries?

A
  • Make reasonable enquiries of beneficiaries and family
  • Instruct a tracing agent
  • Obtain Benjamin Order from court (available only if full enquiries made, and PRs have advertised in local newspapers where missing beneficiary last known to be)
  • Take out missing beneficiary insurance cover
  • Request indemnity from other beneficiaries
  • Reserve funds
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14
Q

How can an executor renounce probate?

A

By deed of renunciation (Form PA15) and declaring they have not intermeddled in the estate.

Cannot change mind once renounced but can withdraw before lodged with Probate Registry

Must disclaim trusteeship separately if they want to act in neither capacity.

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15
Q

Can an administrator renounce probate?

A

Yes, using form PA16.

Note: they do not lose their right to renounce after intermeddling with the estate.

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16
Q

What other option do PRs have if they wish to leave the role to the other executors?

A

Reservation of right to step in later if other executors cannot continue to act. Not available to administrators.

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17
Q

Why do PRs need to obtain the grant of representation?

A

To prove their entitlement to administer the estate.

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18
Q

When do interests pass to the beneficiaries?

What recourse do the beneficiaries have against the PRs for failing to administer the estate?

A

When PRs are in a position to pass the assets to the beneficiaries.

Beneficiaries have a right to compel due administration.

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19
Q

Administrators: entitlement to grant where there is a will

What is the order of entitlement to the grant of letters of administration with the will annexed?

A

NCPR, r. 20
* Executor’s executor
* A trustee of residuary estate
* Residuary beneficiary or person entitled (or their PRs) through partial intestacy
* Any other beneficiary or creditor (or their PRs)

Executor’s executor actually becomes executor of the estate, by virtue of the “Chain of Representation”.

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20
Q

What is the order of entitlement where there is no will?

A

NCPR 22:
* Surviving spouse
* Children and their issue
* Parents
* Brothers and sisters and their issue
* Brothers and sisters - half blood
* Grandparents
* Uncles and aunts and their issue
* Uncles and aunts - half blood
* Treasury Solicitor if claiming bona vacantia

If all persons entitled under the foregoing provisions are cleared off, grant may be made to a creditor.

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21
Q

The applicant must explain the basis of their entitlement by clearing off. What is this?

A

Showing that those with higher entitlement either:
* renounced right to apply.
* failed to act within a reasonable time; or
* have been excluded due to legal reasons (e.g., incapacity).

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22
Q

What is the minimum number of PRs who can obtain a grant?

A

One, but two required where beneficiary has life interest or is a child.

Also for a trust of land there needs to be either two trustees or a trust corporation.

If the testator fails to appoint an executor and leaves his estate to his wife Rose for life, remainder to his son Sam. Both Rose and Sam should apply for the grant (provided Sam is over 18).

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23
Q

What gives the executors and administrators the authority to act?

A

Executors: the will.
Administrators: the grant.

Administrators have very limited powers before obtaining the grant.

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24
Q

What assets pass to the PRs without the need for a grant?

A
  • Small sums due to estate up to £5000
  • Chattels
  • Physical cash
  • Joint property
  • Life insurance policies assigned to a beneficiary
  • Assets held in trust
  • Pension and death-in-service benefits where beneficiary nominated.
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25
In obtaining details of the deceased's assets and liabilities, enquiries will be made to the deceased's bank. What would the bank require before giving such information?
Sight of death certificate
26
PRs must determine whether it is necessary to submit Form IHT400 to HMRC. What is this form for? What is the effect of the PRs not submitting the IHT 400?
* inventory of assets and liabilities * sets out applicable reliefs and exemptions and * sets out IHT payable. Effect of PRs not submitting IHT 400 (unless excepted estate): PRs cannot obtain grant until IHT400 is submitted to HMRC (unless excepted estate) ## Footnote The steps are: 1. Submit IHT400 and pays any IHT due. 2. Receive acknowledgement letter from HMRC. 3. Register probate application with HM Courts and Tribunals Service, using the probate values and codes given by HMRC. 4. Probate Registry issues a receipt. 5. Grant obtained.
27
What is an excepted estate?
An estate for which the IHT400 is not required, categorised as: * Low value estate * Exempt estate * Non-domiciled estate
28
# IHT 400 - Exempt Estates Set out the requirements for: * Low value estate * Exempt estate
Low value: * UK-domiciled on death * gross estate value (including gifts in last 7 years) is below NRB; * Gifts to individuals 7 years before death do not exceed aggregate of £250,000 * trust assets below £250,000 * no more than £100,000 property outside UK Exempt estate: * UK-domiciled on death * Gross estate below £3 million * Deceased left everything to spouse or qualifying charity * Net chargeable estate below NRB after deducting debts and liabilities, and applying only the spouse or charity exemptions to any relevant property. * Gifts to individuals 7 years before death do not exceed aggregate of £250,000. * Trust assets of the deceased below £1 million. * No more than £100,000 property outside UK ## Footnote Gifts to individuals subject to further restriction: only gifts permitted are cash, personal chattels, quoted shares and most transfers of land. "Net chargeable estate" generally means total gross estate after deducting debts and liabilities, **and** applying **reliefs/exemptions**. But in the context of the exempt estate, only spouse exemption/charity exemption applied. The crucial point is that the bulk of such estates attract spouse or charity exemption.
29
Set out the requirements for a non-dom estate.
- Non-UK domiciled on death - Gross assets in UK below £150,000 ## Footnote Generally this means the total gross estate after deducting debts and liabilities, and applying reliefs/exemptions. But in the context of the exempt estate, only spouse exemption/charity exemption applied. The crucial point is that the bulk of such estates attract spouse or charity exemption.
30
When must the IHT 400 be submitted?
Statutory duty to submit within 12 months of end of month of death, but should submit within 6 months otherwise interest accrues on IHT due. ## Footnote IHT is payable 6 months after death, so that is why the IHT400 form ideally should be sent at that time as well, otherwise interest is charged on the delay.
31
When is IHT calculated?
After details of assets gathered and value attributed
32
What is the IHT due date according to the general rule?
Six months after the end of the month of death and before the grant is obtained.
33
When is IHT on instalment option property due?
First instalment: within 6 months of end of month of death. Nine subsequent instalments: annual intervals.
34
What types of property qualify to be paid by instalments?
* Land * A business or interest in a business * Shares giving deceased control of company immediately before death * Unquoted shares with no controlling interest, under specific conditions: - holding is at least 10% of nominal value and worth more than £20,000; - The tax cannot be paid in one sum due to undue hardship; or - IHT attributable to those shares + any other instalment option property amounts to at least 20% of the total IHT payable.
35
How is IHT apportioned between non-instalment and instalment property?
Using estate rate formula: IHT due/net chargeable estate x 100.
36
Jane died leaving her entire estate to her sister. Jane owned a house worth £400,000, and other assets of £200,000. No debts and no lifetime gifts. What’s the IHT payable, and how is it apportioned?
1. Value payable = £600,000. 2. No exemption/relief. Net chargeable estate = £600,000 3. NRB: £325,000 @ 0% 4. IHT due on remainder: £275,000 x 40% = £110,000. Next, apply estate rate formula against assets: £400,000 x (110,000/600,000) = £73,333 £200,000 x (110,000/600,000) = £36,667
37
How can the PRs fund the IHT before the grant is obtained?
* Direct payment from bank accounts * Life assurance policy payable to estate * Assets realiable without grant * Loan from beneficiary * Bank borrowing
38
What is the probate value and why isn't it the same as the IHT value?
Estimated gross open market value of a deceased person’s assets on death IHT value = probate value + other assets subject to IHT passing outside of probate. ## Footnote Therefore IHT value includes joint property passing under survivorship, life policies written in trust, pension schemes, life interest in trust property, gifts made within seven years of death.
39
What may reduce IHT but are irrelevant for probate purposes?
Business property relief and agricultural relief.
40
What can be done if one of several executors is a minor?
Probate can be granted to adult executors with power reserved to the minor.
41
What if the minor is the only executor appointed by the will?
A grant of letters of administration with will annexed is made for use and benefit of minor until they turn 18. Once minor turns 18, he can apply for 'cessate grant of probate' if administration hasn't completed. In case of the letters of administration, this is typically done by the minor's parent or guardian.
42
Can a grant be made through an application without notice to others if there are two or more people entitled in the same category?
Yes.
43
Can minors act as administrators?
No.
44
Can parents or guardians apply for a grant on behalf of minors?
Yes, if no adults in the same category.
45
At what point do the PRs pay debts and liabilities, funeral expenses, and testamentary expenses?
Once they’ve obtained the grant of probate or letters of administration and have collected in the deceased’s assets.
46
How must PRs settle debts if the will is silent?
PRs must follow statutory order under Part 1 (insolvent estate) and Part 2 (solvent estate) of Schedule 1 of the Administration of Estates Act 1925 (AEA 1925).
47
What is a solvent estate?
An estate holding sufficient assets to pay all expenses, debts, and liabilities fully.
48
How are secured debts dealt with for solvent estates?
Secured debts remain attached to the property secured, and the beneficiary is liable to pay the debt.
49
Give an example of how the testator constitutes a contrary intention regarding secured debts.
"I give my house to X free of mortgage".
50
What is the statutory order for payment of funeral and testamentary expenses and unsecured debts for a solvent estate?
* Undisposed property (other than retained fund) * Residuary gift (other than retained fund) * Property specifically given for the payment of debts * Property charged with the payment of debts * Retained fund for pecuniary legacies and IHT (if any) * Specific gifts * Property appointed by will under a general power
51
Draft an example of property specifically given for the payment of debts.
"I direct that my shares in XYZ Ltd be used to pay my debts."
52
Draft an example of property charged with the payment of debts.
"I give my house to my son, subject to a charge for the payment of my debts."
53
What is the difference between property specifically given for and property charged for the payment of debts?
* "Specifically given" = asset surrendered to pay debts * "Charged with" = asset gifted to a beneficiary, but burdened with debt
54
When is an estate considered insolvent?
Assets are insufficient to discharge funeral, testamentary, and administration expenses, debts, and liabilities.
55
What is the order in which debts and liabilities are paid in an insolvent estate?
* Secured debts: creditors can sell their charged property * Funeral and testamentary expenses * Preferential debts * Ordinary unsecured debts (abate equally) * Interest on unsecured debts * Deferred debts = typically loans from family and friends
56
How is the legal estate in a house vested in a beneficiary?
By assent.
57
What is required for the transfer of a specific legacy of company shares?
A stock transfer form.
58
For specific gifts, the vesting of the asset in the beneficiary is retrospective to what date? What is the effect of this?
The date of death. Effect: Income produced by the property belongs to the beneficiary (although not entitled to the income as it arises, but must wait until the PRs vest the property in them.)
59
What does 'subject to pecuniary legacies' mean in a residuary gift?
Pecuniary legacies should be paid from residue and the balance to residuary beneficiaries. ## Footnote Example: A will leaves a legacy of £5000 to Des. There is no direction as to payment of that legacy. Residue consisting of personalty and realty is given by the will "to Errol if he shall survive me by 28 days". Errol does survive by more than 28 days, so the residue is fully disposed of. How should the £5000 be paid?
60
Generally, how are pecuniary legacies paid where the will contains no express provision?
Out of personalty. If necessary, proceeds of realty can be used afterwards.
61
When are pecuniary legacies generally payable?
End of executor's year (i.e., one year after testator's death).
62
Are PRs bound to distribute the estate before the end of the executor's year?
No, but if not, the beneficiary will be entitled to interest by way of compensation.
63
What is the default rate of interest if not prescribed in the will?
Statutory rate payable on money paid to the court.
64
In what four situations is interest payable on a pecuniary legacy from the date of death?
* To satisfy a debt owed to a creditor * Charged on land * Payable to testator's minor child * Payable to any minor where the intention is to provide for their maintenance
65
# Adjusting IHT What is loss on sale relief?
Relief available where PRs needed to sell assets to meet debts, tax liabilities, or legacies, but did so below market value. ## Footnote Relief must be claimed (it is not automatic)
66
What are the conditions for loss on sale relief to apply?
A 'qualifying investment' was sold within 12 months of death for less than its probate value.
67
What qualifies as a 'qualifying investment'?
* Quoted shares * Holdings in authorised unit trusts ## Footnote (or other quoted securities)
68
If a transferee does not pay IHT on an LCT or PET within 12 months after the end of the month in which the donor died, who is liable?
The PRs, to the extent of deceased's assets received or would have received but for their neglect/default.
69
When must the PRs make a return to HMRC of income and capital gains tax of the deceased?
Immediately after death, for the period 6 April before death until death.
70
What may the PRs claim even though the deceased died partway through the income tax year?
Reliefs and allowances available to the deceased had he lived for the whole year.
71
What are the two different tax rates the PRs will pay on income?
* Dividends = 8.75% * Other income = 20%
72
In what situation do PRs pay no income tax, even where the estate earns interest?
Where the estate's only income is interest of £500 or less.
73
What may PRs claim relief for in calculating income tax?
Interest paid on a bank loan to pay IHT.
74
If PRs' only income is gross interest of £4,000 and they pay £1,000 interest to the bank on a loan to pay IHT, what is the income tax payable?
£600. ## Footnote 1. £3000 x 20% = £600. Net income for beneficiaries = £2,400
75
What is CGT assessed on?
The difference between the purchase price and sale price (or market value where asset is gifted).
76
What may be deducted from CGT?
Certain incidental expenses and fees, such as conveyancing fees.
77
What is the annual exemption for CGT?
£3,000 ## Footnote PRs benefit from individual's annual exemption for the tax year of death and the two following tax years.
78
On death, the PRs acquire all the deceased's assets at what value?
Probate value.
79
What is the effect of acquiring assets at probate value?
Any gains accrued during the deceased's lifetime are wiped out.
80
What rate are PRs liable to pay CGT if they dispose of chargeable assets during administration?
20% or 28% for residential property.
81
When must CGT be paid on residential property?
Within 60 days of completion.
82
What costs may PRs deduct from the disposal consideration for CGT?
* Acquisition cost (probate value) * Incidental costs of disposal (e.g., stockbroker's commission for shares) * Proportion of cost of valuing the estate for probate
83
What is the CGT payable if PRs sell investments for £50,000 with a probate value of £27,700?
£3,860. ## Footnote (1) Disposal = £50,000 - £27,700 = £22,300. (2) Reliefs and exemptions: £19,300 CGT: £19,300 x 20% = £3,860
84
In what circumstance would PRs benefit from an allowable loss? ## Footnote The allowable loss can be set against gains arising from other sales.
Where they sell assets for less than their value at death.
85
Can losses that are unrelieved at the end of administration be transferred to beneficiaries?
No.
86
If PRs vest the assets instead of selling them, do chargeable gains/allowable losses arise?
No. Beneficiary (or trustee) is deemed to have acquired the asset at probate value.
87
Testator bought shares for £1,000. Probate value = £5,200 at death. When transferred to Parvez, value rose to £10,000. Parvez sells the shares for £19,200 five years later. What is the CGT payable? ## Footnote (1) Disposal = £19,200 - £5,200 = £14,000. (2) Reliefs: £3,000 (3) Chargeable Gain: £11,000 @ 20% = £2,200
£2,200
88
Is CGT payable on death itself?
No.
89
What is the tax rate payable by PRs?
20% or 28% on residential property.
90
What is the CGT consequence of PRs transferring assets to beneficiaries?
No immediate CGT consequence as not a disposal. ## Footnote The beneficiary acquires the asset at probate value.
91
What must PRs calculate for each income tax year during the administration period?
Their income tax and CGT liability.
92
What defines a complex estate?
* Value exceeds £2.5 million * Subject to tax exceeding £10,000 for the administration period * Value of assets sold in any tax year exceeds £500,000
93
How are income tax and CGT normally paid if the estate is not complex?
In one lump sum at the end of the administration period.

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