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ADMINISTRATION, ADMINISTRATION - Coggle Diagram
ADMINISTRATION
PERSONAL REPRESENTATIVES
ROLEAdminister the estate of a deceased + role ends when administration is complete > fiduciary in nature + must be performed in accordance with their duty of care
- May be a beneficiary
- If any continuing trusts created, trust fund should be transferred to trustees as part of the administration process
Grant is confirmation of their authority to deal with deceased’s assets.PR will be a trustee of some/all of the estate property where:
- will expressly appoints executors to act in capacity of trustee of any trust arising
- intestacy; the PRs hold the estate generally “on trust with a power to sell”
- statutory trust arises under an intestacy = PRs will be the trustees of that trust on behalf of the minor beneficiary
The role of a solicitor - could have:
- been instructed by the PRs for advice on the administration
- been appointed as executor under the deceased’s will
- been instructed to act on behalf of a party to a contentious probate matter such as: terms of the will or the validity of the will is challenged OR disappointed beneficiary wants to make a claim under IPFDA
DUTIESStatutory + common law obligations to carry out the administration of the estate > personally liable for loss caused by a breach of duty
- Common law duty to dispose of the deceased’s body
- Statutory duty to provide information about the estate to HMRC and pay inheritance tax before grant is issued
- Duties of a PR under the grant owed to the estate beneficiaries and creditors:
- Collect and get in the real and personal estate of the deceased and administer it according to law = Identify deceased’s assets + liabilities and creditors + Obtain control of the assets + paying the deceased’s debts + meeting administration expenses + distributing the residue to those legally entitled
- Provide an inventory and account of the estate assets = keep a list of assets and values + record of the steps they have taken in the administration
- Duty of due diligence
- carry out the administration with due diligence and within a reasonable time within 12 months of the date of death
- If additional assets are discovered after the administration is complete the PRs have a duty to administer these assets.
- If creditors or beneficiaries, not known at the time, come to light after estate is fully administered > PRs may be personally liable
- Statutory duty of care as trustees when executing their powers
- higher standard for professional / those possessing special knowledge or experience
- Fiduciary Duties
- CANNOT place themselves in a position of conflict OR profit from their position
POWERS
- PRs must always act within powers and an ultra vires act will be a breach of duty
- PR powers primarily derive from 2 sources:
- Statute > if intestate only statutory powers will apply and/or
- Will/Codicil > may contain express administrative provisions dealing with PR powers + prioritised over statue
If more than one PR is appointed required to make decisions together + exercise discretionary powers unanimously BUT exercising a lawful power to sell / transfer an estate asset during administration, a jointly appointed PR will usually have the authority to act alone
Statutory powers
- Sell, charge or lease = soon after the grant is issued
- Appropriate = an asset in satisfaction of a beneficiary’s entitlement BUT:
- specific beneficiary must not be prejudiced
- Consent of recipient beneficiary is required
- value of the asset must be considered at the date of transfer/appropriation rather than the date of death = If value of an asset exceeds beneficiary’s entitlement not appropriate BUT If value of asset is less than entitlement > PRs may appropriate + make a balancing cash transfer.
- Insure = pay the insurance premiums out of either estate income or capital
- Invest = if retain assets for while have a duty to preserve estate + actively invest + have regard to the standard investment criteria + obtain advice
- Charge for PR services = Professional PRs may claim reasonable remuneration for their services if they are not acting alone + co-PRs give their written consent
- IF acting alone, needs to be express power in the will to charge for their services
- May reimburse themselves for expenses properly incurred when acting on behalf of an estate
- Delegate powers = employ agents in writing to the agent + provide them with a written policy statement EXCEPT for these powers:
- how and whether assets should be distributed
- whether fees or costs are payable from income or capital
- appointment of trustees /nominees/custodians
- Appoint trustees = for legacies to minors
- Accept receipt from parent = for minors
- Run a business = only access assets in the business at the date of death
- if deceased was sole trader they can sell w/in 1 year of death
Express powers (in Will or Codicil)
most firms draft express PR powers using a will precedent that already contains a set of express provisions
PROTECTION
- Court guidance = if foresee difficulties in the administration (expensive)
- S 48 Administration of Justice Act 1985 application = question over the construction > application to distribute in accordance with a written legal opinion
- S.27 Trustee Act 1925 notice = publish a notice of their intention to distribute to known beneficiaries 2 months after the date of the advertisement in London Gazette, a newspaper circulating in area in which any land held on trust is situated, and any other newspaper which is appropriate
- only protects against claims by unknown beneficiaries and creditors
- Benjamin Order = permitting them to distribute estate on the basis that the missing beneficiaries have died so relieves PRs from personal liability if they administer an estate + assumption turns out to be incorrect
- PRs must make full enquiries to find them + show no of knowing the true position
- only protects against known but missing beneficiaries
- Presumption of Death Act 2013 = application for a court order that person thought to have died / not known to have been alive, for 7 years or more has died
- Insurance = purchase insurance to cover risk beneficiary or creditor returns after administration + makes a claim against PRs for share they should have received
- May not be possible to obtain insurance + very expensive
- Payment to court = pay legacy amount into court + distribute balance of estate
- IF beneficiary can be located but is refusing to accept their inheritance
- Indemnity = seek indemnity from beneficiaries they can trace > beneficiaries promise to reimburse PRs for any loss a result of being sued by a disappointed beneficiary or creditor
- Exoneration by the court = in whole or part, from personal liability for breach
- An order made IF PR: acted honestly and reasonably + ought fairly to be excused for breach of trust + omitting to obtain directions of the court in the matter
Exemption clauses in a will = testator’s will may contain clauses which exclude or restrict liability for a PR's wrongdoing
LIABILITYA claim of action against a PR for breach of their PR duties = devastavitEven if no loss, if a breach of fiduciary duty has occurred = claimant may seek an account of unauthorised profit and/or for a transaction to be set asideA claim against a PR may be based on:
- Maladministration
- Making distributions to the wrong beneficiaries
- Using the residuary estate to meet liabilities which should have been paid from other parts of the estate
- Paying legacies before debts without retaining sufficient funds for creditors
- Misuse
- Making personal use of the estate assets
- Negligence
- Unreasonable delay in carrying out the administration
- Failing to invest / poor investment decisions in breach of the duty of care
- Breach of fiduciary duty
- Acting as both buyer and seller of estate assets unless the transaction is authorised (breach of ‘no conflict’ duty even where a fair price is paid)
- Receiving unauthorised remuneration (breach of ‘no profit’ duty)
- Self-dealing
PR who fails to carry out their duties properly may be effectively removed as PR by:
- court order under s.50 Administration of Justice Act 1950 appointing a replacement PR OR
- An administration action, where the court would take over the administration itself
GRANTS OF REPRESENTATION
REQUIREMENTCourt order confirming the authority of those named in it to administer the estatePRs need to provide evidence of their appointment to comply with their duty to collect in and administer the deceased’s estate > grant of representation provides proof of the PRs authority which only extends to assets which actually vest in the PRs
- Confirms: Identity and date of death of the deceased + Deceased left a valid will + Identity of the executors appointed + Value of the estate to which the grant applies
There are 3 main types of grant
- Grant of Probate
The grant of probate is required where: deceased left a valid will + will appoints executors + at least 1 of the executors appointed is going to act + even if the will does not dispose of any/all of the deceased’s propertyIssued in the name of those executors who apply
- Only those named may take out the grant + cannot simply give that right to someone else
If appointment of executor under the will is limited > reflected in authority conferred by grant.
- Grant of Letters of Administration (with will)
Grant of letters of Administration (with will) is appropriate where: deceased left a valid will but the will appoints no executors who are willing/able to act + even if the will fails to dispose of all the estate
- Grant of Letters of Administration
Grant of letters of Administration is appropriate where: deceased died without having made a valid will (i.e. died intestate)
ASSETS WITHOUT A GRANT no grant is required to deal with assets outside of the succession estate + exceptions for assets that do fall within the succession estate.Advantages:
- releases money which can be made available to beneficiaries without waiting for the grant
- provides a source of funds to meet expenses, including IHT
- if estate is small or comprises only assets which do not require a grant = cost-effective
ExceptionsIF following assets included in succession estate, no grant is required for the PRs to deal with them:
- Assets distributed under Administration of Estates (Small Payments) Act 1965
- Orders under this Act permit payments to be made to persons who appear to be beneficially entitled to the assets without formal proof of title BUT If value of asset is greater than £5,000 a grant is required to establish title to the whole sum, not just that in excess of £5,000, such as:
- National Savings (inc. Bank accounts)
- Friendly / Industrial / Provident Society deposit accounts.
- Arrears of salary and wages
- Pensions where deceased was a member of police, fire authority, air force or army.
- Building society accounts
- Personal possessions & cash
- Title to personal household possessions owned solely by the deceased passes by delivery + proof of ownership is not required when they are sold
- PRs should check whether any particular items were gifted specifically by the deceased's will
- PR does not need a grant to take possession of cash found at the deceased’s home.
Assets which pass outside of the succession estate NOT require a grant in order for them to be released.Death certificate sufficient to release the following assets:
- Property owned as joint tenants = survirorship (land and bank accounts)
- Donationes mortis causa (DMC)
- Life policies written in trust, discretionary pension lump sums nominated for a third party, and other nominated assets.
- Assets held in a trust in which the deceased had an interest = trust deed will determine what happens to the trust fund
PRELIMINARY STEPS
- Death Certificate / Funeral = PRs / family register death + obtain death certificate to send to institutions where the deceased held assets
- Family members usually arrange the funeral = cost of a funeral is post-death administration expense payable from the estate funds + taken into account when calculating IHT
- Secure the estate assets = PRs preserve the value of estate + personally liable to account for loss / damage to estate assets
- Locate original Will / Codicil = ensure its valid / check for errors
- Basis of distribution = will plus any codicils read in full and beneficiaries identified + provide them with a realistic timescale for distribution of the estate OR if no will = intestacy rules
- Schedule of assets & liabilities
- Identify and value the estate assets
- Identify the deceased’s creditors
- Work out what steps are required to manage the distribution of the assets
- Calculate the IHT due
- Establish whether the estate is solvent
- Estimate what each beneficiary is entitled to
Once done, PRs should contact any appropriate organisation to: notify them of the death and provide a copy death certificate + request confirmation of the value of the asset at the date of death + close an account / transfer ownership of the items to the PRs
- Bank accounts = summary of balance on the date of death
- Joint accounts = PRs must establish what proportion of the bank account was owned by the deceased
- Low value chattels = estimate their value
- Quoted shares = special rules for establishing the date of death value
- Private co shares / partnership interests / sole trader business = specialist valuer
- Land = if owned jointly the value of the deceased’s share should be established
- PRs need to collect details of debts owed by deceased at death + locate possible creditors + repay debts
- Lifetime transfers = made by deceased in 7 years before death will have an impact on IHT so establish: nature / Date it was made / Amount or value / Identity of the donee
ENTITLEMENT TO THE GRANT
EXECUTORSExecutor is a PR appointed by will + their authority to act derives from the willIF deceased left a valid will + executor appointed is going to act as PR = Grant of Probate neededAn executor named in a will is unable to act as PR if they: pre-deceased the testator / are a minor (power reserved till 18) / lack capacity / are the testator’s former spouse/civil partner and the divorce/dissolution took place after the will was madeOnly 1 executor is required, but for practical reasons at least 2 to be appointed
- If more than 1 appointed, not all of them will apply for the grant of probate
- Testator may appoint as many executors as he likes in will but maximum of 4 people can be named on the grant > power can be reserved to any remaining executors so they can apply at later date if vacancy arose
Death of a proving PR - if grant has been taken out + 1 of PRs appointed dies before administration is complete:
- 1 PR remains: may continue administration + if number of PRs falls below minimum additional PR can be appointed
- If no PR remains: 2 options
- Chain of representation applies if last surviving executor dies having appointed an executor of their own estate + this person takes out the grant probate for dead executor’s estate AND becomes executor of the original testator’s estate
- Grant of letters of administration de bonis non is issued (if chain does not apply) = second grant will be issued if: administration is incomplete + no remaining personal representatives + there was previous grant of representation
ADMINISTRATORSAdministrator is a PR appointed under the Non-Contentious Probates Rules 1987 (‘NCPR’) + authority to act derives from the grant
- Someone who lacks mental capacity may not apply for a grant
- Minor cannot act BUT someone can apply on their behalf > application by adult with equal entitlement to apply is given priority over application behalf of a minor
- Minor given priority if: No adult with equal entitlement will act / minor is only person within category having greatest entitlement
- Only 1 administrator is required, unless, there are minor or life interests in estate = 2 required > max 4 can apply
- Grant of letters of administration (with will) = deceased left a valid will but there are no executors who are willing/able to act so administrators are appointed + entitlement to apply derives from Rule 20 NCPR NOT will
Statutory order of entitlement to be appointed as administrator under Rule 20 NCPR:
a. executor
b. trustee of the residuary estate
c. any residuary beneficiary OR of partial intestacy, a beneficiary of the estate under intestacy
d. PRs of anyone in (c) other than a trustee or life tenant of the residue
e. any other beneficiary or a creditor
f. PRs of anyone in (e)
- A person in lower category cannot apply if anyone in higher category is able + willing to act as administrator
- Those within the same category have an equal right to apply
- The applicant must explain why anyone with a better right to apply is not doing so = clearing off
- Grant of Letters of Administration = deceased died without a valid will so administrators are appointed + entitlement to apply derives from Rule 22 NCPR NOT will
Statutory order of entitlement to be appointed as administrator under Rule 22 NCPR (same priority rules as above):
a. surviving spouse or civil partner
b. children of the deceased
c. father and mother of the deceased
d. whole blood siblings (share both parents)
e. half-blood siblings (share one parent)
f. grandparents
g. uncles / aunts of whole blood
h. uncles / aunts of half blood
- Issue of b, d, e, g, and h are included where their parent has pre-deceased.
- If there is no-one who can apply from (a) – (h): The Crown may apply OR If the Crown does not apply, a creditor, or person who does not receive benefit
- PR of any applicant who survived deceased but died before taking a grant may apply on their behalf
- Applicants must demonstrate the nature of their familial relationship with the deceased + have a beneficial entitlement under the estate
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ADMINISTRATION
POST-GRANT PRACTICE
Collecting in assetsAfter obtaining grant of representation PRs collect in and administer the estate - method of collection will vary depending upon the asset involved
- Money collected in should be paid into: PR’s bank account OR law firm client account
Payment of debtsAs soon as assets can be collected PRs should pay deceased’s debts + funeral expenses.
- If fails to pay = liable to creditor +beneficiary for consequent loss UNLESS express clause in the will may limit a PR’s liability OR PRs comply with the s.27 TA 1925 notice procedure
Payment of expensesPRs should also pay general administration expenses as and when they arise during the administration
- For example: Cost of valuing the estate assets / Probate fees / S.27 notice costs / Professional legal fees for services provided to the estate
Burden of debts / expenses
- deceased's property available for payment of deceased’s debts and liabilities and any clause to the contrary in a will is void BUT there are rules which determine the order in which estate assets are used for these purposes
- Solvent / Insolvent Estates = solvent if the assets are sufficient to pay all the funeral, testamentary and administration expenses, debts and liabilities, and will be insolvent if the assets are insufficient to do so
- Secured Debts = charged on part of the deceased’s property during their lifetime > primary liability for payment of debt secured against it unless a contrary intention is shown in the will
- Unsecured debts = outstanding loan is greater than the value of the asset + not a primary concern for a creditor as they will be paid in any event
Statutory order for application of assets towards payment of unsecured debts - each category are exhausted in full before moving to the next as required.
- Property not disposed of by a will subject to retention of £ for any pecuniary legacies
- Residue
- Property the will sets aside
- £ in the pecuniary legacy fund
- Property specifically given
Contrary Intention
- Unsecured Debts = Express wording in a will can override the statutory order if contrary intention is shown
- Secured Debts = Express wording in a will can override the general rule that secured assets are subject to the related debt
Marshalling
- If PRs do take assets ‘out of order’ to pay creditors then beneficiaries whose assets have been ‘wrongly taken’ can marshalling allowing beneficiary to compensate himself by going against property which ought to have been used to pay debts
Choice of assets for sale
- CGT considerations = If PRs sell an asset which has increased in value after death ‘profit’ they make may be subject to CGT if the gain is greater than any tax-free allowance
- Ease of sale and wishes of beneficiaries = Quoted shares and other financial investment products can usually be sold fairly quickly and easily BUT Unquoted shares, business interests and land will usually take longer + PRs are not bound to comply with the wishes of a beneficiary but should take these into account when reaching a decision
Deceased's income & gainsPRs are liable to pay any IT + CGT deceased owed at the date of their death > record information and notify HMRC by submitting a tax return on behalf of the deceased for the period 6 April to date of death
- These tax liabilities are an estate expense and payable from the estate assets
Deceased’s income = when calculating IT due PRs should utilise deceased’s tax-free allowances + account for untaxed income due and paid before death + some income paid after death which relates to a period before deathDeceased’s gains = to work out if deceased had any outstanding CGT liability on date they died PRs will need to consider disposals made by deceased before they died + utilise the deceased’s tax-free allowances
Estate income = PRs may be liable to pay IT if estate assets generate income in the hands of PRs
- Interest / dividends / rent = PRs pay IT at the basic rate depend on the type of income AND not entitled to claim an income tax personal allowance
- Income generated by assets after they have been distributed to beneficiaries is taxed as the beneficiary's income + Income Tax will have been collected at source + PRs give a Form R185 to beneficiaries when the estate income is distributed recording the IT paid by PRs
Estate gains = PRs are potentially liable to CGT if they make a disposal / sale of estate assets during the administration period
- If assets have increased in value since the date of death + amount of the gain is greater than the tax-free allowance = PRs will pay CGT
- If assets have fallen in value since the date of death there will be a loss = off-set against other gains made during the administration
- only post-death gains are chargeable SO gains made by deceased during their lifetime in relation to assets which they still own at the date of death are not taxed
- Chattel exemption = PRs can sell chattels without having to worry about CGT because a gain made on the disposal of a tangible moveable asset is exempt from CGT if the disposal is for a consideration of £6,000 or less
Tax efficiency
If an asset is going to be sold the PRs should consider whether it is more tax efficient for PRs to: sell it as part of the administration; or transfer it to the beneficiary so the beneficiary sells it
- If beneficiary has no tax-free allowance = better for PRs to sell assets
- If PRs have used their tax-free allowance but beneficiary has not = better for PRs to transfer asset to beneficiary
Distributions to beneficiariesPRs will make payments of legacies other than the residuary legacy firstOnce PRs have collected in assets + paid debts, funeral, testamentary and administration expenses > duty to distribute remaining estate assets to beneficiaries in accordance will and /or intestacy rules
- Identity of the beneficiaries entitled to legacies & apply rules of construction / intestacy rules
- Nature of the interest = vested or contingent interest, or, an interest under an express trust in the will
- Property to which they are entitled = which items fall within a general gift of chattels or collection of items + follow right method of transfer
- Chattels: delivery to the beneficiary / £ legacies: cheque or bank transfer / Shares: stock transfer form / Land: Assent for a legal estate in land
PRs have a duty not to delay the administration and should complete this within 1 year of death, before making significant distributions, PRs need to consider: claim under the IPFDA 1975 / S 27 TA notice
Order of payment of legacies
- specific
- general = I give £1,000
- residuary
- When paying general and residuary legacies the PRs are free to choose which assets to appropriate to the beneficiaries in settlement of their entitlement
Obtaining receiptPRs should obtain confirmation of receipt from the beneficiary when making a distribution.Minor beneficiaries have a vested interest because they cannot give good receipt > PRs have the following options:
- express clause in the will which gives PRs the power to accept receipt from a minor aged 16 or 17
- s 3 Children Act 1989 (where a parent/guardian provides receipt)
- PRs to hold the gifted property themselves until the child is 18
- Appoint trustees to hold the property for the minor (s 42 AEA) and make payment to the trustees
- Pay the legacy into court
Estate accountssigned/approved by both PRs and residuary beneficiaries
- Capital Account
- Sets out the estate assets and liabilities at death + Records what has happened to each item + balance which is available for distribution to the residuary beneficiaries
- Income Account
- Sets out the income received in relation to estate assets during administration + how this was spent + Income expenses are then deducted as liabilities
- Distribution Account
- sets out the residuary beneficiaries’ entitlement + includes distributions made during course of administration of estate + final balance due to be distributed
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