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Administration of Estates The administration periodp398
? Once the PRs have obtained the grant, they have full power to undertake the administration of the estate.
? The administration of an estate may be divided as follows:
1. considering the duties of and powers available to the PRs in carrying out their task;
2. collecting the deceased's assets;
3. paying the deceased's funeral and testamentary expenses and debts;
4. distributing the legacies; and
5. completing the administration and distributing the residuary estate.
? 'Administration period': starts at moment immediately following death and ends when PRs are in a position to vest the residue of the estate in the beneficiaries (or trustees). Duties of the PR (p398) Duties Inheritance (Provision for Family
? The Administration of Estates Act 1925 (AEA and Dependants) Act 1975 1925), s 25 (as substituted by AEA 1971, s 9) ? The PRs will be personally states that the PRs of a deceased person liable where an applicant under shall be under a duty to 'collect and get in the I(PFD)A 1975 successfully the real and personal estate of the deceased obtains an order for and administer it according to law'. 'reasonable financial provision'
? A PR who has accepted liability is personally from the estate. liable for loss to the estate resulting from any ? Can protect themselves against breach of duty he commits as PR (not such liability by waiting more generally liable for breaches committed by than six months following the co-PR) date of the grant of Types of breach: representation before (a) failing to protect the value of assets; distributing the assets. If (b) failing to pay the people entitled to assets. earlier distribution is required,
? TA 1925, s 61 gives court power & discretion to PRs should ensure they retain sufficient assets to satisfy an relieve PR from liability for breach of duty if order should an applicant be satisfied that the PR acted honestly and successful within six months of reasonably and ought fairly to be excused for the grant. the breach'.
? NB. Executor may also be able to rely on clause in will for mistakes made in good faith Protection against liability Missing beneficiaries
? TA '25, s 27?Publish that the estate is being ? TA '25, s 27won't help distributed in case of unknown beneficiaries. Administrative powers of PRs (see 31.6 for more) (p398)
? The PRs have a wide range of powers which they may exercise in carrying out the administration of an estate.
? These powers are largely conferred on them by statute. The AEA 1925 gives some powers specifically to PRs. The TA 1925 and the TA 2000 confer powers on trustees for use in administering a trust.
? The TA 2000 deals with powers to invest trust property, appoint agents and nominees, remuneration of trustees (and PRs) and to insure trust property.
? A duty of care requires trustees (and PRs) when exercising many of their powers under the Act to exercise the skill and care reasonable in the circumstances, having regard to any special knowledge or expertise of the trustee. Power of maintenance Power to advance capital Statutory provisions: Statutory provisions:
Where trustees are holding a fund for ? The TA 1925, s 32 allows trustees in a minor beneficiary, the TA 1925, s 31 certain circumstances to permit a gives them power to use income they beneficiary with an interest in capital receive for the minor's maintenance, to have the benefit of up to half of his education or benefit. The section capital entitlement sooner than he provides that if the trustees continue would receive it under the basic to hold the trust funds after the provisions of the trust. beneficiary reaches 18 (for example, ? s.32: where the interest is contingent on (1) Trustees may, at their reaching 21 or 25), they must pay the discretion, apply capital money income to the beneficiary from 18 subject to a trust for the onwards. advancement or benefit of any
? TA '25 (as amended by TA '00), person entitled to the capital, s.31: whether or not contingent on (1) Applies to any property held in age, and whether in remainder trust for any interest. Subject to or reversion, provided that; prior interests or charges the (a) Benefit widely construed trustees may; (education/living (i) At sole discretion pay any income expenses) to parent or guardian of infant (b) Money doesn't exceed beneficiary or apply money to half of that person's maintenance, education, or any interest. other benefit that is reasonable, (c) The money is taken into whether or not there is: account when that person (a) Another fund doing the becomes absolutely same, or entitled. (b) Any other person bound by (d) The advancement doesn't law to do the same. prejudice someone else's (ii) When the child reaches 18 and still interest (unless they doesn't have a vested interest, the consent in writing). trustee must then pay the income Extending s.32: of the property and any accretion ? May want to extend limit of (1)(a). to him.
? May want to supersede (1)(b) - i.e. (2) While under 18 the trustee(s) shall remainder still split equally between accumulate residue of income (not beneficiaries regardless of used for maintenance) and invest advancement to one. it.
? May want to allow loans to people w/
Extending s.31: interest only in income and not
? May want to remove 'reasonable' capital. limitation (giving trustees complete discretion).
? May want to remove right of contingent beneficiary to receive income on reaching 18. Collecting the deceased's assets Duty of the PRs
? Some assets pass independently of will & intestacy rules - see earlier.
? Those that don't, must be collected by the PRs.
? Generally, will have to produce their grant of representation to whoever is holding the asset. Paying the deceased's funeral and testamentary expenses Preliminary considerations Immediate sources of money Repayment of loan to pay IHT
? As soon as monies can be collected ? It may be necessary to raise money to from the deceased's bank or building repay a loan from the deceased'ssociety, or realised through insurance bank to pay IHT to obtain the grant. policies etc, the PRs should begin to ? If undertaking given to bank to get pay the deceased's outstanding debts loan, will likely to be a "first proceeds" and the funeral account. undertaking. Means that PR's must
? Administration expenses, for example use money 1st realised during estate agents' and valuers' fees, will Administration to repay bank arise during the course of otherwise in breach!!
administration of the estate and will have to be settled from time to time while the administration is proceeding. Which assets to sell?
? The PRs must take considerable care when deciding which assets they will sell to raise money for payment of the various outgoings from the deceased's estate.
? Should bear in mind: o Provisions of the deceased's will - e.g. specific legacies shouldn't be used to pay off debts if other options!
o The beneficiaries' wishes. o Tax consequences - consider the impact of selling a particular thing on capital gains (or losses), and the availability of any exemptions etc. Full use should be made of annual exemption for CGT. If assets are sold at loss, may get 'loss relief' for IHT. Funeral and testamentary expenses and debts Funeral expenses Testamentary expenses
? The phrase 'testamentary and administration expenses' is not funeral defined in the AEA 1925, but it is generally considered to expenses are mean expenses incident to the proper performance of the payable from duties of a PR. The phrase will include: the deceased's (a) the costs of obtaining the grant; estate. In all (b) the costs of collecting in and preserving the deceased's cases, it is a assets; question of (c) the costs of administering the deceased's estate, for fact what example solicitors' fees for acting for the PRs, valuers' funeral fees incurred by PRs in valuing the deceased's stocks expenses are and shares or other property; and reasonable. (d) any IHT payable on death on the deceased's property in the UK which vests in the PRs (IHTA 1984, s 211). Administration of assets Solvent estates Insolvent estates
? Section 34(3) of the AEA 1925: look at Part II ? An estate is insolvent if the of First Schedule for order to pay debts out assets are insufficient to of. discharge in full the funeral,
? Under the order generally, assets forming testamentary and administration expenses, debts part of the residue are to be used before and liabilities. using property given to specific legatees. to administer an
? However, this order is 'subject to' two ? Failure insolvent estate in accordance important rules or provisions: with the statutory order is a (a) The AEA 1925, s 35, which deals with breach of duty by the PRs. secured debts. A common example is a loan secured by legal mortgage on the ? In the case of an insolvent deceased's house. The effect of this estate which is being rule is that a beneficiary taking the administered by the asset takes it subject to the debt and deceased's PRs out of court will be responsible for paying the debt. (this being the most common (b) The deceased's will can vary the method of administration), the
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