Topic 8 - Post-grant practice

Question 1

What does the process of collecting in estate assets involve?

Answer 1

It involves collecting the deceased’s assets and paying debts and expenses.

Question 2

What evidence do PRs have after obtaining the grant of representation?

Answer 2

They have evidence of their authority to collect and administer the estate.

Question 3

What should PRs consider regarding their powers and duties?

Answer 3

They should consider protections necessary for beneficiaries and estate creditors.

Question 4

What is required to collect the balance of bank accounts?

Answer 4

Withdrawal forms must be completed.

Question 5

How should personal possessions be handled once collected?

Answer 5

They should be stored and safeguarded.

Question 6

Who can arrange the sale or transfer of investments?

Answer 6

A financial advisor.

Question 7

How should money collected in be paid?

Answer 7

Into a PR’s bank account or a law firm client account.

Question 8

What rules apply to money held in a law firm’s client account?

Answer 8

Solicitors’ Accounts rules apply and the firm must provide fair credit interest.

Question 9

When should PRs begin to pay the deceased’s outstanding debts?

Answer 9

As soon as assets can be collected.

Question 10

What duty do PRs have regarding debt payment?

Answer 10

They must pay debts with ‘due diligence.’

Question 11

Can an express clause in the will limit a PR’s liability to beneficiaries?

Answer 11

Yes, but it cannot relieve them of liability to creditors.

Question 12

What protection can PRs obtain against personal liability to unknown creditors?

Answer 12

Compliance with the s.27 TA 1925 notice procedure.

Question 13

What should PRs ensure regarding any pre-grant loans taken out to pay IHT?

Answer 13

They should be repaid as soon as possible.

Question 14

What are examples of general administration expenses PRs should pay?

Answer 14

• Cost of valuing estate assets
• Probate fees
• S.27 notice costs
• Professional legal fees

Question 15

What constitutes assets available for the payment of debts?

Answer 15

All the deceased’s property.

Question 16

What is the definition of a solvent estate?

Answer 16

An estate is solvent if assets are sufficient to pay all debts and expenses.

Question 17

What is the definition of an insolvent estate?

Answer 17

An estate is insolvent if assets are insufficient to pay all debts and expenses.

Question 18

What must be followed for debt payment in an insolvent estate?

Answer 18

The statutory order in the Administration of Insolvent Estates of Deceased Persons Order 1986.

Question 19

What defines a secured debt?

Answer 19

A debt charged on part of the deceased’s property.

Question 20

What happens if the outstanding loan is less than the value of the secured asset?

Answer 20

No other estate assets can be used to repay the secured debt.

Question 21

What happens if the outstanding loan is greater than the value of the secured asset?

Answer 21

The creditor ranks as an unsecured creditor.

Question 22

What is the statutory order for repaying unsecured debts?

Answer 22

• Property not disposed of by will
• Residue
• Property set aside for debt repayment
• Pecuniary legacy fund
• Property specifically given

Question 23

What happens to unsecured debts in a solvent estate?

Answer 23

They will be paid regardless of the order.

Question 24

What is the impact of a contrary intention expressed in a will?

Answer 24

It can override the statutory order for debt payment.

Question 25

What is the doctrine of marshalling?

Answer 25

It allows a disappointed beneficiary to claim against assets that should have been used to pay debts.

Question 26

What should PRs consider when deciding which assets to sell?

Answer 26

* CGT implications * Ease of sale * Wishes of beneficiaries

Question 27

What is the market value of estate assets for PRs?

Answer 27

The probate value on the date of death.

Question 28

What tax must PRs pay on taxable gains made during estate administration?

Answer 28

Capital Gains Tax (CGT).

Question 29

What must PRs submit to HMRC for the deceased?

Answer 29

A tax return for the period from 6 April to the date of death.

Question 30

What are PRs responsible for regarding the deceased's tax liabilities?

Answer 30

Paying any outstanding Income Tax and CGT owed at the date of death.

Question 31

What must the PRs submit on behalf of the deceased to notify HMRC?

Answer 31

A tax return for the period 6 April to date of death ## Footnote This is necessary to record tax liabilities and claim any refunds.

Question 32

How are tax liabilities treated in the valuation of the taxable estate for IHT purposes?

Answer 32

Tax liabilities are deductible from estate assets ## Footnote Refunds due are considered an asset of the estate.

Question 33

What is the difference between the deceased’s income and gains and the estate’s income and gains?

Answer 33

Different rates and reliefs apply to each ## Footnote PRs must differentiate between them when calculating tax.

Question 34

What financial records must PRs access to calculate the deceased’s income tax liability?

Answer 34

The deceased’s financial records ## Footnote This includes untaxed income due and paid before death.

Question 35

What types of income must PRs account for when calculating the deceased’s tax?

Answer 35

* Untaxed income due and paid before death * Income paid after death relating to a period before death ## Footnote Examples include unpaid rent and declared dividends.

Question 36

How is bank interest taxed before and after the deceased's death?

Answer 36

Before death: taxed as deceased’s; After death: taxed as PRs’ ## Footnote This follows the ruling in CIR v Hendersons Executors.

Question 37

What is the effect of death on capital gains tax (CGT) liabilities?

Answer 37

Death is not a disposal for CGT purposes ## Footnote Gains accrued during the deceased’s lifetime are ignored.

Question 38

What happens to the base cost of assets in the estate upon death?

Answer 38

It is ‘up-lifted’ to the date of death value ## Footnote This effectively wipes out gains accrued during the deceased’s lifetime.

Question 39

What income may PRs be liable to pay IT on?

Answer 39

* Interest from bank accounts * Dividends from shares * Rent from let properties ## Footnote This income is taxed as estate income in the hands of the PRs.

Question 40

What is the income tax threshold for PRs before they must report to HMRC?

Answer 40

£500 per tax year of the administration ## Footnote If total income exceeds this amount, IT is payable on the whole amount.

Question 41

How should PRs handle distributions of estate income to beneficiaries?

Answer 41

Provide a Form R185 to beneficiaries ## Footnote This records the income tax paid by PRs in respect of the income a beneficiary receives.

Question 42

What CGT liability do PRs face if they dispose of estate assets?

Answer 42

They are potentially liable for CGT on gains exceeding the tax-free allowance ## Footnote Losses can be offset against other gains.

Question 43

What happens to gains made by the deceased during their lifetime at the time of death?

Answer 43

They are ignored for tax purposes ## Footnote The value of estate assets for CGT is reset to their date of death value.

Question 44

What is the chattel exemption in relation to CGT?

Answer 44

Gains on disposal of chattels are exempt if the consideration is £6,000 or less ## Footnote This is under s.262 TCGA.

Question 45

How do PRs decide whether to sell or transfer estate assets?

Answer 45

Consider CGT implications and tax efficiency ## Footnote They can sell to generate cash or transfer directly to beneficiaries.

Question 46

What must PRs do before making significant distributions to beneficiaries?

Answer 46

Consider claims against the estate and timing ## Footnote Claims under the IPFDA 1975 may require delaying distributions.

Question 47

In what order are legacies generally paid?

Answer 47

* Specific * General * Residuary ## Footnote If funds are insufficient, legacies abate in reverse order.

Question 48

What is the nature of a specific legacy?

Answer 48

It refers to a particular item within the estate ## Footnote Example: “my gold ring” specifies the item.

Question 49

How do PRs ascertain the residue of an estate?

Answer 49

By calculating total estate value minus debts and legacies ## Footnote Accurate figures for tax liabilities and expenses are necessary.

Question 50

What is the power of appropriation in estate administration?

Answer 50

PRs can choose which assets to appropriate to beneficiaries ## Footnote This must not exceed the value of the beneficiary’s entitlement.

Question 51

What must PRs do if the value of an asset at appropriation is less than the entitlement?

Answer 51

Make a further balancing transfer to the beneficiary ## Footnote This ensures beneficiaries receive the full value of their entitlement.

Question 52

What can the PRs do if minor beneficiaries cannot give good receipt?

Answer 52

They have the following options: * Express clause in the will for minors aged 16 or 17 * Receipt from a parent/guardian (s 3 Children Act 1989) * Hold property until the child is 18 * Appoint trustees to hold property (s 42 AEA) * Pay legacy into court (s 63 Trustee Act 1925) ## Footnote These options are to ensure proper management of the estate for minor beneficiaries.

Question 53

What is the duty of PRs under s 25 AEA regarding estate accounts?

Answer 53

To keep an account of the estate assets ## Footnote This includes a record of how the estate has been administered.

Question 54

What should estate accounts include?

Answer 54

Three component parts: * Capital Account * Income Account * Distribution Account ## Footnote These components provide a comprehensive view of the estate's financial status.

Question 55

What does the Capital Account show?

Answer 55

Estate assets and liabilities at death ## Footnote It records changes during administration, including sold or transferred assets.

Question 56

What is included in the Income Account?

Answer 56

Income received from estate assets and how it was spent ## Footnote It shows income expenses as liabilities and the balance for distribution.

Question 57

What does the Distribution Account detail?

Answer 57

Residuary beneficiaries’ entitlement ## Footnote It includes interim distributions and the final balance due.