WAE - Administration I

What is an executor?

A PR appointed by a person's will

What is an administrator?

A PR appointed by operation of statute

What are the statutory duties imposed on personal representatives?

- collect in real and personal estate

- administer property to beneficiaries

- provide an inventory and account of the estate assets

- inform HMRC about the tax due on the estate

What is the grant of representation?

The High Court order confirming

- the authority of the PRs to act

- the validity of the deceased's will/that the deceased died intestate

- value of the estate

Which 3 things are added to a valid grant of representation?

An official signature, stamp and holographic seal

When can executors act? When can administrators act?

executors: from death of T, although often must wait for grant before acting

administrators: from grant of representation

What is the role of the personal representative?

- collecting in the deceased's assets

- ensuring the deceased's debts are paid

- meeting tax liabilities and other estate expenses

- distributing the assets to the beneficiaries who are entitled (either under a will or intestacy).

can a PR be a beneficiary?

yes

What kind of duty does a PR owe?

- fiduciary duty - e.g., cannot place themselves in conflict, cannot profit from their position (accepting bribes)

- must perform duties accoring to the requisite standard of care

Who has legal title to the estate?

PRs have legal title by virtue of their appointment.

Why is a grant of representation useful?

some institutions may be unwilling to release funds from the deceased's account into the hands of the PRs without seeing the grant.

e.g., LR will not transfer legal title without this

What is the difference between PR and trustee?

- both are fiduciary duties

- role of PR ends when the estate administration is complete

- trustees are the legal owners of the assets making up the trust funds as part of administration of assets, will continue to be trustees after estate administration is complete

When will a PR also be a trustee?

- if the will expressly appoints executors to act in capacity of trustee of any trust arising.

- if there is an intestacy; the PRs hold the estate generally "on trust with a power to sell"

- if a statutory trust arises under an intestacy; the PRs will be the trustees of that trust on behalf of the minor beneficiary

Why would a solicitor be involved in the administration of an estate?

- The solicitor has been instructed by the PRs for advice on the administration

- The solicitor has been appointed as executor under the deceased's will.

- The solicitor has been instructed to act on behalf of a party to a contentious probate matter.

What is a grant of probate?

a type of grant of representation when T left a will

- even when that will does not dispose of all or even any of T's property e.g., only one gift, which fails

When will a grant of probate be required?

- T left a valid will

- The will appoints executors

- At least one of the executors appointed is able to act (even if some may have died, e.g.)

Who can take out the grant of probate?

- Only those named may take out the grant

- but the named executor may formally appoint someone to act on their behalf under a power of attorney.

What is a grant of letters of Administration (with will annexed)?

the correct type of grant of representation where:

- the 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 the estate (e.g., gifts fail)

Who can apply for a grant of letters of Administration (with will annexed)?

a) executor

b) trustee of the residuary estate

c) any beneficiary of the residue of the estate/a beneficiary of the estate under intestacy if T died intestate

d) the PRs of anyone in (c) other than a trustee or life tenant of the residue

e) any other beneficiary or a creditor (e.g., recipients of gifts)

f) PRs of anyone in (e).

- someone in a lower category cannot apply if there is someone in a higher category willing to act

- those in the same category have an equal right to apply (although vested interest preferred over contingent interest)

What is 'clearing off' (for grant of letters of Administration (with of without will))

- when applying for grant, applicant(s) must explain why anyone with a better right to apply is not doing so

- e.g., if A is a trustee, must explain why there is no willing executor - clearing off the executor

or, if A is a sibling of the deceased, must show there is no spouse etc.

Do you need to clear off someone in the same category as you?

No, only need to clear off those in higher categories

What is a grant of letters of Administration (without will)?

the appropriate grant where the deceased died intestate.

- either did not make will or will is invalid or revoked

Who can apply for a grant of letters of Administration (without will)?

1. surviving spouse or civil partner

2. children of the deceased and the issue of any deceased child who died before the deceased

3. parents of the deceased

4. full siblings, issue of dead siblings

5. half-siblings, issue of dead half-siblings

6. grandparents

7. full uncles and aunts, issue of dead uncles and aunts

8. half-uncles and aunts, issue of dead uncles and aunts

9. Treasury Solicitor if she claims bona vacantia

10. a creditor, or person who does not receive benefit but would have done if the estate was larger

What must applicants for letters of Administration without a will be able to show?

1. must demonstrate the nature of their familial relationship with the deceased

2. must be a beneficiary to the estate

Can someone who lacks mental capacity apply for a grant of letters of Administration (with or without will)?

no

- if there is no one else entitled to apply, Rule 35 will determine who can act (outside scope of this module)

- power may be reserved to them in some cases (like it is with minors)

Can a minor apply for grant of letters of Administration (with or without will)?

- cannot act as administrator

- although it is possible for someone to apply for a grant on their behalf.

- an application by an adult with equal entitlement to apply is given priority over an application made on behalf of a minor

- application on their behalf may succeed where no adult with equal or greater entitlement will act and the minor is the only person within the category having the greatest entitlement, or, all those within the category are minors.

How many administrators are required to apply for letters of administration (with and without will)?

- minimum of 1, maximum of 4 may apply

- 2 are required if any part of the estate is passing to a minor beneficiary OR is to be held on a life interest trust - unless court accepts that 1 administrator is sufficient

- if 2 are required but there is only one able to act, A1 can apply for the grant with someone from a lower category of entitlement

Can the PR of a deceased potential administrator apply on their behalf? (for letters of Administration without will)

- the PR of any applicant who survived the deceased but died before taking a grant CAN apply on their behalf

- although an application by a living person within the same category is preferred.

Which assets do not require a grant in order to be distributed?

- assets falling outside of the succession estate

- Assets which can be distributed under the Administration of Estates (Small Payments) Act 1965

- Personal household possessions

- Cash

Which types of payments are included under the Administration of Estates (Small Payments) Act 1965?

These can be paid out without need for grant of representation:

- National Savings (inc. Bank accounts, Savings Certificates and Premium Bonds)

- Friendly Society and Industrial and Provident Society deposit accounts.

- Arrears of salary and wages

- Pensions where the deceased was a member of the police, fire authority, air force or army.

- Building society accounts

PLUS some banks have their own policies and will pay out up to £15,000 without seeing a grant

What are the conditions to the Administration of Estates (Small Payments) Act 1965?

- If the value of the asset is greater than £5,000 a grant is required to establish title to the whole sum

- the rule only means that these payments without grant are PERMISSIBLE, those holding the assets are still not compelled to pay out without grant

- Each institution will have its own evidential requirements before paying out e.g., death certificate, will, PR signing an undertaking giving indemnity if payment is made to wrong person

Can PR take possession of personal belongings and cash belonging to deceased without a grant?

Yes they can.

- PR can sell personal possessions as title to personal household possessions passes by delivery

- but must check they are not being gifted by the will first

- will not need to show proof of ownership when selling them e.g., clothes - apart from for cars

- if the item was joint-owned, must get permission from co-owner before selling

What are the items that pass outside the succession estate and therefore do not require a grant in order to be disposed of?

These usually only require a death certificate (and sometimes other documents) but not a grant:

- Property owned as joint tenants

- Donationes mortis causa

- Life policies/discretionary pension lump sums nominated for a third party

- Assets held in a trust in which the deceased had an interest (trustee will decide whether to do anything)

What are the benefits of not requiring a grant to administer some assets?

- releases money which can be made available to beneficiaries

- provides a source of funds to meet expenses, including IHT

- can be a cost-effective way to carry out the administration

Will a PR need to obtain a grant of representation if some assets do not require it?

will always need to obtain a grant, unless an estate comprises only assets where a grant is not required

What are the first steps between death and funeral?

- family registers the death and provides PR with a death certificate

- PR sends copies of the DC to institutions where the deceased held assets e.g. banks / building societies/ insurance companies.

- notify government departments such as HMRC, DWP of the death

- funeral takes place after the death is registered

What is the PR's duty re the value of the estate?

- PRs have a duty to preserve the value of the estate

- may be personally liable to account for loss or damage to the estate assets

- If a property/car is left vacant it should be secured and the insurers notified

What should PR do regarding obtaining the will?

- must obtain original will and any codicils (not just copies)

- if the will cannot be found: can take steps to reconstruct it

When does a will become public?

once the grant is issued

before this, only the executors appointed in a will are legally entitled to see it

Once the will has been found, what must the PR do?

Cannot obtain a grant without calculation of value.

- Identify and value the estate assets

- Identify the deceased's creditors (to whom the PRs owe a duty)

- 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

Why would a PR need to contact other organisations (e.g., banks) after they have found the will?

- notify them of the death and provide a copy death certificate (if this has not already been done)

- request confirmation of the value of the asset at the date of death

- request instructions for how to close an account / transfer ownership of the items to the PRs

How does PR establish value of bank account?

should request from the bank a summary of the account balance on the date of death plus any accrued interest.

How does PR establish value of JOINT bank account?

- must establish what proportion of the bank account was owned by the deceased.

- 50/50 is often presumed but enquiries should be made to ensure that an alternative arrangement had not been made.

How does PR establish value of low-value chattels?

for items under £500:

- usually acceptable to estimate their value.

- The probate value (what they would fetch if sold) will normally be lower than their value for insurance purposes (replacement cost).

for single items worth more than £500, or unusual ones:

- a formal probate valuation should be obtained.

- can use a commercial organisation and the costs are payable from estate funds.

How does PR establish value of quoted shares?

- there are special rules for establishing the date of death value linked to the stock exchange prices on that date.

- valued by taking the lower of the two prices on the Stock Exchange Daily List and adding one-quarter of the difference between the higher and the lower value.

e.g., A man held 2,000 shares in Blue Bottle plc. On the date of his death, the Daily List gave the following high and low value for Blue Bottle plc shares:

High: 550p

Low: 546p

The shares are valued by adding one-quarter of the difference (1p) to the low value i.e. 546p + 1p. Each share is worth 547p at date of death.

How does PR establish value of private company shares/partnership interests/interests in a sole trader business?

- a specialist valuer would usually be instructed

- If the deceased held these through a financial services company the broker will provide a list of shareholdings /investments and the date of death values.

How does PR establish value of land?

- PRs will usually instruct estate agents to prepare a valuation.

- often more than one is instructed, and average value is used

- where land is owned jointly the value of the deceased's share should be established

- may need to view the official copies to establish the basis on which joint property was owned and the identity of the co-owner(s).

How does PR establish value of debts?

- debts continue against the estate following death and the PRs stand in the position of the deceased and must make repayment.

- often there are bills as evidence

- PRs should take steps to locate possible creditors who exist but are not known, as a post-grant step

How does PR establish value of lifetime transfers?

- will have an impact on IHT

- important for the PRs to ask questions of the family to establish: the nature of any transfer; date it was made; amount or value; identity of the donee

When will an executor be unable to act?

- they pre-deceased the testator (or survived but died before taking out the grant) - will may expressly appoint a substitute executor to act in their place.

- they are a minor.

- they lack capacity

- they are the testator's former spouse/civil partner and the divorce/dissolution took place after the will was made. By s.18A/C Wills Act 1837 the former spouse/civil partner is treated as having pre-deceased the testator and therefore cannot be appointed (unless the will expressly overrides the effect of s.18A/C).

Does a minor have capacity to act as an executor?

- Although a minor cannot act as PR, their appointment by will is valid.

- Power can be reserved to the minor who can make an application at age 18 if the administration remains incomplete.

What must Es do if only some of the appointed Es are applying for grant of probate?

- may make the application.

- however, will need to explain to the probate registry why not all of those named are applying e.g. by providing a copy of the death certificate of the pre-deceased executor

How many executors can be named on the grant?

- maximum of 4

- despite the fact that T can name as many as he wants in the will

- if more than 4 are named in the will, must decide between them who will take out the grant

What is a grant of double probate?

- second grant of probate for the same estate

- allows a previously unappointed executor to administer the estate after the original executor obtained the initial grant and then became unable to act

What happens if a grant has been taken out and one of the PRs appointed dies before the administration is complete?

- if there is at least one PR remaining, remaining PR(s) can continue

if no PR remains,

- either a chain of representation applies

- or grant of letters of administration de bonis non is issued

Will using the chain of representation be necessary when there are still other living executors?

No, only to be used as a last resort

How does the chain of representation work?

- E2 is the executor of E1's estate.

- the last surviving executor (E2) dies AFTER taking out the grant of probate for E1's estate, and having appointed an executor of their own estate

- E3 takes out the grant of probate for E2's estate

- and automatically becomes executor of E1's estate as well as E2's

- no need for additional grant of probate for this

What are examples of when chain of representation will not apply?

- will not apply when administrators are acting instead of executors

- will not apply when the executor has predeceased T1 - will not work in this case as E did not have the chance to take out the grant of probate

What will happen when the chain of representation does not apply?

- If the chain of representation cannot operate a second grant will be issued

- this is the grant of letters of administration de bonis non.

What are the 3 requirements for grant of letters of administration de bonis non?

- the administration is incomplete

- there are no remaining personal representatives

- there has been a previous grant of representation.

Can you complete on a property transaction without grant of probate?

No

- possible to exchange without it, but this is rare in practice

What is a grant on credit? (for IHT)

- HMRC agree to permit the grant of representation being issued even though all the IHT strictly due at that time hasn't been paid

- only allowed in exceptional circumstances where executors have no other way of raising funds

- alternative to obtaining a commercial loan

e.g., grant would allow them to sell T's house, and therefore pay off remaining IHT

What is the direct payment scheme for IHT?

possible to get banks, building societies or investment providers to pay some or all of the Inheritance Tax due from the deceased person's accounts, when you are unable to access them due to not having received grant of representation (due to not having paid IHT)

What must you do when assets are held by T under an alias?

may cause some issues, must show there is a good reason for them to put an alias for that property

Will PR be liable if beneficiaries suffer loss from PR's breach of duty?

PR is personally liable for loss caused by a breach of duty.

What common law duty will bind PR before the issue of a grant?

- common law duty to dispose of the deceased's body

- usually done by surviving family members

What statutory duty will bind PR prior to issue of grant?

- duty to provide information about the estate to HMRC and pay inheritance tax

- by filling in form IHT400 for any estate that is not excepted

- necessary in order to obtain a grant

What are the duties on the PR, under the terms of the grant?

Who are them owed to?

1. Collect and get in the real and personal estate of the deceased and administer it according to law

2. Provide an inventory and account of the estate assets

- owed to beneficiaries and creditors

What is included within the duty to 'collect in'?

- Identify and locate D's assets, including sums owed to the deceased (already done by reporting to HMRC)

- Identify the D's liabilities and creditors (already done by reporting to HMRC)

- Obtain control, possession, or legal ownership of the assets

What is included within administering the estate?

- keeping the assets secure

- paying the deceased's debts and liabilities

- meeting administration expenses

- paying legacies

- distributing the residue to those legally entitled

only applies to assets within the succession estate - no duty over assets outside of this

What is included within the duty to provide 'inventory and account'?

- inventory - must keep a list of assets and values

- account - record of the steps they have taken in the administration

Can beneficiary/creditor see the estate accounts?

- can ask to see the accounts

- if they are refused, or PRs have not maintained accurate records, can make an application to court for an order to produce an inventory and account

what is a PR's duty of due diligence?

- PRs have a general duty to carry out the administration with due diligence and within a reasonable time

- still has overall power to make decisions about how to best carry out their duties within this duty

How long should PRs take to complete the estate administration?

- within 12 months of the date of death

- 'the executor's year' - also applies to administrators

- if they take longer than this, may not automatically be a breach, but should justify the delay

how long is a PR's appointment, and what does this mean in practice?

- their role ends once the administration is finalised but appointment is for life

- If additional assets are discovered after the administration is complete, they have a duty to administer these assets

- If creditors or beneficiaries, who were not known at the time, come to light after the estate is fully administered and demand their entitlement, the PRs may be personally liable.

What duty of care are PRs subject to?

- general duty of due diligence

- also statutory duty of care of trustees

- higher standard of care expected of professional PRs than of lay PRs

- higher standard is expected of those possessing special knowledge or experience, or those holding themselves out to have this

When does the statutory duty of care under TA 2000 apply to PRs?

when PRs exercise their power to invest, delegate, insure and purchase land.

What can PRs not do, as fiduciaries?

- Place themselves in a position of conflict

- Profit from their position (payments for services of professional trustees and payments authorised in the will do not count!)

Can an executor buy any of the estate assets?

- usually cannot buy as this would place them in position of conflict, being both buyer and seller

- can only buy with authorisation from the court, or from a beneficiary

Where do PRs derive their statutory powers?

- Administration of Estates Act 1925

- Trustee Acts 1925 and 2000 and Trustee Acts 1925 and 2000 include powers for trustees, that also apply to PRs

when will PR be able to use statutory powers?

- if D died intestate, can only use statutory powers

- if D left a will, statutory powers apply to the extent these do not conflict with express provisions - the provisions of the will take priority

What statutory powers do PRs have?

power to:

- Sell, charge or lease

- Appropriate (aka transfer)

- Insure

- Invest

- Charge for PR services

- Delegate powers

- Appoint trustees

How does the power to appropriate (transfer) work?

- power to transfer any part of the estate to satisfy the beneficiary's entitlement

- must have consent from the recipient B unless the will removes need for consent (parent can consent for minor B)

- must make sure that gift is not expressly given to someone else

example: The will states that X is to be given £2,000. X wants a desk instead, worth £1,500 at time of appropriation. Can substitute this as long as X consents, it is not specifically given to someone else, and that X gets £500

How is the value of the asset calculated for the sake of distribution?

- determined at the date of appropriation, not the date of death

- if the asset is worth less than B's entitlement, PR must make up the shortfall from the other assets e.g., by giving them cash

Can PR give B an asset that has a higher value than their entitlement? is there an exception?

- cannot transfer an asset which has a greater value than the beneficiary's entitlement

- may be able to sell the asset to them instead.

Can PRs use the power of appropriation for giving themselves assets of which they are beneficiaries?

- appropriation of non-cash assets would usually break the rule against self-dealing imposed on fiduciaries

- this must be authorised by the other beneficiaries or by the court if approval cannot be obtained

What is the exception for when PR can have a non-cash asset appropriated to them?

- PR is a surviving spouse and the deceased's share of the home was included in the succession estate

- D died intestate

PR is entitled to have D's property interest appropriated to them without breaching the self-dealing rule as long as PR is not the sole administrator of the estate!

What is included in the power to insure?

- can take out insurance to insure estate assets comprehensively and for full value.

- can pay the insurance premiums out of either estate income or capital.

What is included in the power to invest?

- duty to preserve the estate and actively invest if PRs retain assets for a while

- PRs have general power of investment under TA 2000 and can invest as if the money was theirs absolutely, but must still have regard to standard investment criteria

- they also have ability to acquire freehold or leasehold land in the UK

- must carry out regular reviews of investments (usually annually)

- duty to obtain advice unless the PRs reasonably conclude that it is unnecessary or inappropriate.

Can PRs charge for their services?

- professional PRs can claim reasonable remuneration for their services as long as they are acting with other PRs and their co-PRs give written consent

- professional PRs acting alone, and lay PRs, must have express power to charge for their services written into the will

- payment as remuneration for services is not to be treated as a gift

Can PRs have their expenses reimbursed?

- PRs can reimburse themselves for expenses properly incurred when acting on behalf of an estate e.g., travel costs

- only for expenses, not for time spent on administering the estate, even if PR has had to turn down work to carry out this role.

Which powers can PRs not delegate?

- how and whether assets should be distributed

- whether fees or costs are payable from income or capital

- appointment of trustees

How can PRs delegate powers?

- put this in writing to the agent

- give them a written policy statement that agent must comply with

- keep the use of the agent and the terms of the statement under review

What must PRs do for minor beneficiaries?

- minors cannot give valid receipt, and therefore a legacy cannot be paid to a minor before they turn 18

- PRs must hold the asset(s) on trust for the minor, investing and using powers of maintenance and advancement if needed until M turns 18

- or, can appoint the minor's parents or someone else as trustee of the legacy, and pass it over to them

Can a minor's parent or guardian give a good receipt to the PRs?

- possible, and usually included expressly in the will if so for clarity

- if T does not want parent to receive the legacy on child's behalf, will can be drafted expressly to give the legacy to trustees to hold until the child reaches majority.

- can also validly include an express clause permitting PRs to accept the receipt from a minor that is 16 or old

What should be consulted on the death of a shareholder?

the company articles or shareholders agreement will often contain provisions that apply on the death of a key shareholder

can a partnership survive the death of a partner?

- partnership agreement should contain terms which enable the partnership to continue after the death of a partner.

If T was a sole trader, can PRs sell the business? Can they run the business?

- there is a limited common law power to enable PRs to sell the business as a going concern within a year of death.

- common to include an express power so PRs can run/manage a sole trader business in accordance with the testator's wishes.

When can PRs access business assets if T was a sole trader?

at date of death

Are PRs personally liable to business creditors when T was a sole trader?

yes!

- but may indemnify themselves from the estate for liabilities incurred when running the business