The sale of assets to raise funds to pay funeral expenses, tax, debts and liabilities- FS Flashcards
(16 cards)
What types of debts and liabilities must personal representatives pay from the estate?
Outstanding debts such as income tax, utility bills, council tax, and creditor accounts (e.g. grocery bills). Failure to pay within a reasonable time may result in personal liability, especially as debts may accrue interest.
What are the three main categories of payments that personal representatives must make from a deceased’s estate?
- Debts and liabilities of the deceased
- Funeral expenses
- Testamentary expenses
Definition: Funeral Expenses
Reasonable expenses of a funeral conducted in line with the deceased’s status and wishes. These must be paid only if the estate has sufficient assets.
How is reasonableness of funeral expenses assessed?
It is a question of fact, determined based on the deceased’s position in life, the scale of the funeral, and the costs incurred. Consultation with executors can help ensure costs are justified.
Definition: Testamentary Expenses
Costs incidental to the proper performance of a personal representative’s duties, such as:
- Probate court fees
- Solicitor’s fees
- Asset valuations
- Costs of asset collection/preservation
- Inheritance tax on UK property vested in PRs
When are testamentary expenses typically paid?
They are usually the last category of payments, made after the estate is fully administered, liabilities paid, and final accounts drawn.
Are professional executors entitled to charge fees as testamentary expenses?
Yes. A professional executor, such as a solicitor, may submit a fee for work done in administering the estate, and this forms part of the testamentary expenses.
List: Examples of Testamentary Expenses
- Probate application fee
- Solicitor’s professional fees
- Valuation fees (property, shares, possessions)
- Inheritance tax payable on UK
assets in PRs’ control - Costs of collecting and managing estate assets
What is the primary source of money for personal representatives to pay debts and expenses if not otherwise directed by the will?
Cash in the residuary estate. If insufficient, personal representatives may raise funds by selling estate assets.
What three factors must personal representatives consider before selling estate assets to raise funds?
- Provisions of the will regarding payment of liabilities
- Wishes of the beneficiaries (particularly of the residuary estate)
- Tax consequences, including capital gains tax
Definition: Incidence of Liabilities
A rule stating that if the will gives no specific direction, debts and expenses must be paid out of the residuary estate, while specific gifts are preserved where possible.
What is meant by “realising an asset” in estate administration?
Selling an estate asset to raise funds needed to cover debts, funeral costs, testamentary expenses, or taxes due.
How should personal representatives handle beneficiary preferences when selling estate assets?
Although they have legal authority to sell, they should consult beneficiaries of the residuary estate and respect their preferences where possible, as a matter of good practice.
What are the potential tax implications of selling estate assets?
A sale may trigger capital gains tax (CGT). PRs must consider:
- Amount of CGT payable
- Use of annual CGT exemption
- Whether the sale is financially prudent
List: Practical Steps Before Selling Estate Assets
- Check the will for directions on paying liabilities
- Consult residuary beneficiaries
- Identify assets suitable for sale
- Get professional tax advice
- Utilise CGT annual exemption where applicable
What is the CGT annual exemption available to personal representatives?
PRs are entitled to a capital gains tax exemption, currently set at £12,300 per tax year (note: this figure may vary annually), which can be used to offset gains on estate asset sales.
