Wills - Administration of Estates

Question 1

What are the main duties of PR’s and common breaches of duty

Answer 1

1. Collect the deceased’s assets (within a reasonable time)
2. To administer the estate (preserve and distribute)
3. A duty of care under the Trustee Act 2000 (reasonable skill and care (1) and in the best interest of the beneficiaries).

There are several types of breach of duty, including:
(a) failing to protect the value of assets (devastavit)
(b) failing to pay the people entitled to assets.

Question 2

Liabilities of PR’s

Answer 2

• PRs are personally liable for their breaches
• PRs are generally not liable for breaches of co-PR’s
• PRs’ personal liability can be excluded by the testator in the will

Question 3

Protection from liability against unknown beneficiaries and creditors

Answer 3

• PR’s must wait at least 2 months before distributing the estate
• The PRs must give notice of the intended distribution of the estate by:

(a) advertising in the London Gazette;

(b) advertising in a newspaper circulating in the district in which land owned by the deceased is situated.

• However, the claimant will have the right to claim back assets from the beneficiaries who received them.

Question 4

Protection from liability against missing beneficiaries and creditors

Answer 4

Section 27 Trustee Act 1925 does not give any protection to PRs who know that there is a person with a claim but cannot find them.

Where PRs cannot trace a known beneficiary, they will need to consider one of the following:

(a) Keeping back assets in case the claimant appears.

• May be unpopular for beneficiaries.

(b) Taking an indemnity from the beneficiaries that they will meet any claims if the claimant reappears.

• Not useful if the beneficiaries don’t have necessary funds.

(c) Taking out insurance to provide funds.

• Insurance does not absolve the PR from personal liability, it simply means that there will be insurance money available to pay the claim. In the event of a shortfall, the PRs are liable to pay the difference.

(d) Applying to the court for a Benjamin order.

• A Benjamin order regards the missing beneficiaries as dead and allows the distribution of assets accordingly.
• A Benjamin order protects the PRs from liability, although the claimant retains the right to recover the assets from the beneficiaries.

Question 5

Protection from liability against claims brought under the Inheritance (Provision for Family and Dependants) Act 1975

Answer 5

The PRs can protect themselves against such liability by waiting more than 6 months following the date of the grant of representation before distributing the assets.

Question 6

Difference between solvent estates and insolvent estates

Answer 6

• In a solvent estate all the debts will be paid.
• Insolvent estates don’t have sufficient funds to pay debts

Question 7

Administration of assets: solvent estates (secured debts)

Answer 7

• A common example is a loan secured by legal mortgage on the deceased’s house.
• A beneficiary taking the asset takes it subject to the debt and will be responsible for paying the debt.

Question 8

Administration of assets: solvent estates (unsecured debts and expenses)

How should unsecured debts be paid ?

Answer 8

PRs must pay estate creditors before distributing the estate to the beneficiaries. They should not sell any property specifically gifted in the will to pay debts unless other assets have been exhausted.

Unsecured debts should be paid from the estates assets in the following order:

1. Property undisposed of by will
2. Property included in a residuary gift (in most estates the residue will bear the burden of the debts and expenses.)
3. Property specifically given for the payment of debts.
4. Property charged with the payment of debts.

Question 9

Administration of assets: Insolvent estates

Answer 9

Debts should be paid in the following order:

1. Secured debts
2. Unsecured debts (in the following order):
   a. Reasonable funeral and administration expenses
   b. Remaining debts

Question 10

How to pay unsecured creditors of the same class in insolvent estates ?

Answer 10

• PRs must pay the debts in proportion so that the creditors are paid equally in proportion to their respective debts.
• The order in which the various obligations were entered into is irrelevant and no one unsecured creditor will take precedence over another

Question 11

How is the estate (legacies) distributed to beneficiaries ?

Answer 11

Specific legacies

• Distribution of the estate for specific legacy is dependent on the asset.
• PR’s must be reimbursed by the legatees for any costs of transferring the property.

Pecuniary legacies

• Pecuniary gifts will usually state the source from which the gift should be paid.
• If source is not stated legacy is usually paid from the residue.

Residue

• Before the residue of the estate is given to the residuary beneficiary, the PRs must calculate any tax liability for which they are responsible and withhold an amount to cover the liability.

Question 12

Time for payment of pecuniary legacies

Answer 12

• PRs are not bound to distribute the estate to the beneficiaries before the expiration of one year from the death (s 44 AEA 1925).
• If payment is delayed beyond this date, the legatee will be entitled to interest by way of compensation.

Question 13

Actions against the PRs for breach of duty

Answer 13

(a) Breach of fiduciary duty claim

(b) Devastavit claim

(c) Application to the court to remove PR’s

Question 14

PR’s defences to a devastavit claim (other than missing/unknown beneficiaries and family provision claims)

Answer 14

Section 61 Trustee Act 1925

• The court has a discretion to totally or partially relieve a PR of personal liability if they
  acted honestly and reasonably and ought fairly to be excused for the devastavit and for omitting to obtain the directions of the court in the matter.

Exclusion clause in the will

• The PRs may escape liability because the deceased’s will contains a clause modifying
  their duties or excluding liability.

Consent of beneficiaries

• An adult beneficiary who, with full knowledge of the facts, consented to a PR’s breach of duty cannot succeed in a claim against the PR.
• Minor beneficiaries cannot give consent.

Question 15

Administrative powers of executors and trustees - (a) Power to charge

Answer 15

• If the testator wishes to give the executors (and trustees) power to charge remuneration, the power can either be included as part of the appointment clause or with the other administrative provisions.
• s29 allows for the payment of reasonable remuneration to executors for time spent and work done, but only if the executors in question are:

a) a trust corporation; or

b) acting in a professional capacity, and all co-executors give their consent (must be at least 2 executors)

Question 16

Administrative powers of executors and trustees - (b) power to appropriate assets

Answer 16

It is a power to satisfy a legacy with a different asset of same value with the consent of the beneficiary.

Question 17

Administrative powers of executors and trustees - c) Power to insure assets

Answer 17

Power to insure assets against all risks, to the full value of the property, and to pay premiums out of income or capital.

Question 18

Administrative powers of executors and trustees - (d) Power to accept receipts from or on behalf of minors

Answer 18

the Children Act 1989 allows parents and guardians to give a good receipt to PRs on the infant’s behalf

Question 19

Administrative powers of executors and trustees - (e) Power to invest

Answer 19

• General power of investment to invest.
• This wide power excludes investment in land, other than by mortgage, but the purchase of land is permitted by s 8.
• Investment must comply with the standard investment criteria.

a. Standard investment Criteria is
(1) the suitability to the trust of the investment and
(2) the need for diversification of the trusts investment.

• PRs must obtain and consider proper advice

Question 20

Administrative powers of executors and trustees - (f) Power to purchase land

Answer 20

Power to acquire freehold or leasehold land in the UK for ‘investment, for occupation by a beneficiary or for any other reason’

Question 21

Administrative powers of executors and trustees - (g) Power to use income for maintenance of beneficiaries

Answer 21

• Power to use income they receive for the minor’s maintenance, education or benefit.
• Where a beneficiary is aged 18, the trustees have a duty to pay future income received from that beneficiary’s share of the fund to that beneficiary.

Question 22

Administrative powers of executors and trustees - h) Power to use capital for the advancement of beneficiaries

Answer 22

• Section 32 TA 1925 allows trustees in certain circumstances to give a beneficiary a payment of trust capital sooner than they would receive.
• Section 32 confers an absolute discretion on the trustees; therefore, the beneficiaries cannot compel them to make an advancement.

Question 23

Administrative powers of executors and trustees - (j) Power to carry on the testator’s business

Answer 23

They may only run the business with a view to selling it as a going concern and may use only those assets employed in the business at the date of death.

Question 24

Administrative powers of executors and trustees - (j) Power to delegate

Answer 24

Power to delegate but trustees will be liable if failed to comply with duty of care when appointing agent.

Question 25

What is the purpose of Inheritance (Provision for Family and Dependants) Act 1975 (‘the Act’)

Answer 25

The Act allows certain categories of people who may be aggrieved because they have been left out of a will, or are not inheriting on an intestacy, to apply to the court for a benefit from the estate following the testator’s or intestate’s death.

Question 26

Time limit for claims against estates under the Inheritance (Provision for Family and Dependants) Act 1975

Answer 26

Must typically be made within 6 months of the date of grant of probate or letters of administration

Question 27

Who can bring a claim under the Inheritance (Provision for Family and Dependants) Act 1975

Answer 27

1. The surviving spouse or civil partner, if married to or in a civil partnership with the deceased at the date of death. 2. A former spouse or civil partner who has not remarried nor formed another civil partnership. 3. A child of the deceased or a person treated as a child of the family of the deceased before death (such as a stepchild) a) If the adult child is in employment and likely to have earning capacity for the foreseeable future, it is unlikely that their application will succeed without some special circumstance such as: i) a moral obligation owed by the deceased; ii) the adult child having a disability; iii) the adult child working for the deceased for many years for a low wage; or iv) the child making sacrifices in order to care for the deceased. 4. A person who was being maintained, wholly or partly, by the deceased before death. 5. A person who was living with the deceased during the whole of the 2-year period immediately before the death as a spouse, civil partner or same sex partner of the deceased.

Question 28

Grounds for bringing a claim under the Inheritance (Provision for Family and Dependants) Act 1975

Answer 28

* For a spouse applicant: what would be reasonable in all circumstances whether or not required for their maintenance. * For other applicants: the standard is such provision required for their maintenance such that they can live decently and comfortably according to their situation.

Question 29

Possible outcomes of a claim under the Inheritance (Provision for Family and Dependants) Act 1975

Answer 29

If the court approves the grounds have been met the estate devolves according to the terms of the court order and not in accordance with the will or rules of intestacy.

Question 30

What are Post- death disclaimers ?

Answer 30

- Disclaimers amount to a rejection of the assets inherited under the will or the intestacy law or by survivorship. - The disclaimed assets then pass as though the original beneficiary had predeceased. - Disclaimers are, therefore, appropriate only if, following the rejection, the property passes to the person whom the original beneficiary intends to benefit.

Question 31

What are Post- death variations ?

Answer 31

- A beneficiary who varies a benefit can direct where benefit is to go and on what terms. - The original beneficiary who effects the variation must be aged 18 or more and have mental capacity. - If the beneficiary is not legally capable of effecting the variation, an application could be made to the court.

Question 32

PR's tax liability

Answer 32

- IHT - Income (paid to the estate, dividend, rent etc) - CGT ( if assets disposed to raise cash, in administration, PR's rate = 20%)