Welcome to this sqe ws an administration of estates presentation. We will be looking at the administration of estates, the assessment objectives, personal representatives and trustees paying expenses and debts, solvent estates, insolvent estates, completing the administration of an estate. Now, the assessment objectives are one, the planning management and progression of the administration of the estate and two, the law and practice relating to pr S and trustees in the administration of estates and consequent trusts, the rights powers and remedies of beneficiaries of wills and consequent trusts. Personal representatives are appointed through the will or using rule 20 or 22 of the non contentious probate rules. Trustees can be appointed in the world where the testator creates a trust to take effect after death. A trust can be fixed interest, discretionary, contingent or vested interest trusts. A trust can arise through the operation of law, for example, where it has data, gifts to a minor, then that gift will be held for the minor until the miner reaches the age of 18. So that gift will be held on bare trust until then a trustee is a fiduciary. Fiduciary means that there is a relationship of trust and loyalty. So when first being appointed, a trustee must ascertain the terms of the trust and who are the beneficiaries, then they must determine what the trust property consists of. Trustee. Duties include acting unanimously. If there is more than one trustee, they must keep accounts and records, they must be even handed between beneficiaries. So they must be impartial. They have a duty to invest. They have a duty to distribute the trust funds to the right beneficiaries. They have a duty not to delegate their tasks to others only under certain circumstances. They have a duty to be adequately informed before exercising their powers. So before they make any decisions, if they feel that they don't have the right information to make that decision, then they must go and find um find some uh get some advice, some professional advice. So they can't just make decisions on things that they have no idea about. Now, trustees owe an overarching fiduciary duty to the beneficiaries because it is a special relationship of trust and loyalty. So this includes not making a profit for themselves unless the trust instrument authorizes it. So they have duties just like personal representatives have duties. A trust comes to an end. Once all the trust assets have been distributed in accordance with the terms of the trust and the administration period starts immediately after death and ends when the P OS have distributed the estate. Let's look at question one. Mikal sets up a trust in his will to provide an income for his wife and his three Children. His will names two executors, his brother Lev and Mika's son Pavel who are also named as trustees. Unfortunately, Mikal dies from a motoring accident at the age of 41 when his son Pavel is only nine years old. Lev proceeds to administer Mika's date and then carry out the terms of the trust. The trust property consists of land, Michael's widow, Danielle and two of her adult Children are dissatisfied with the way that the trust is being run. They consider that Lev is making risky business deals and also that he is favoring Pavel in his distribution of the trust income. They want Lev and Pavel to resign as trustees and be replaced by a trust corporation. The trust set out in the will says nothing about who has the right to appoint new trustees. So Lev refuses to resign, advise Danielle and her Children. So look at the facts and pick out all the issues. So issues such as whether there is a duty that arises and whether there has been a breach of the duty or a possible risk of a breach of duty and how you think this can be remedied. So pause the video and attempt the question. The appointment of Pavel is void because the child cannot act as trustee. That's from LP A 1925 section 20 two, trustees are desirable for land and you definitely need two trustees wi land needs to be sold. Now, the trustees may need to sell trust property because they are under a duty to invest and it may be that land that's not accumulating enough income may need to be sold in order to buy another piece of land or to diversify and buy other assets. Section 19 of the Trusts of Land and Appointment of Trustees Act 1996 says that the beneficiaries cannot replace the trustees. So in this case, Danielle and her Children can't step forward and ask Lev to resign and then appoint trustees themselves. They need to first prove that Lev is unfit to act as trustee. And that's from section 36 of the trustee act. The beneficiaries can ask the court to appoint a trustee under section 41 of the trustee act. So LEV could be removed and replaced for endangering trust property and favoring one beneficiary over the others. Remember, trustees have to be impartial and they must protect and preserve trust property at all times. Ifs a couple of cases there that you could read a, the courts may think that a trust corporation is too expensive to appoint and that would really depend on the value of the trust property. Lev may be left to act but an additional independent trustee could replace Pavel. So L could also be strongly directed as to how to run the trust properly rather than just being removed. And you can read the case of Cohen and Scargill there. Personal representatives have duties to pay all the expenses and the debts of the estate. So as soon as money can be collected from bank accounts, insurance policies, et cetera, the pr should pay the outstanding debt such as utility bills and possibly the bank loan if it was taken in order to pay inheritance tax and any funeral expenses and administration expenses such as estate agent fees and valuers fees, selling assets to pay debts is covered by section 32. 1 of the administration of Estates Act 1925 does the will expressly state which part the funeral debts and liabilities should be paid from? If it doesn't, then they will be paid from the residue. If a sale needs to take place in order to pay these expenses and debts, the beneficiaries should be consulted although their permission is not needed, but it is good practice to let the beneficiaries know what's about to happen before deciding on a sale. The PR S should factor in capital gains and annual exemptions for gains or losses. So there is the annual exemption for capital gains every year. And so if there is more than one property to sell, the pr s may find it more financially um advantageous to the beneficiaries if they sell one property in one year and the other one in the following year, solvent estates. This is where there are sufficient assets to pay all expenses debts and liabilities in full section 35 and 34 3 of the A E A govern the order in which assets can be used to pay debts. Now, when you decide whether an estate is solvent or insolvent, you're looking at all of the assets together added up and then seeing whether they will cover all the expenses, debts and liabilities at this point, you're not factoring in which of those things in the estate are being given to beneficiaries that will happen afterwards. If there's anything left over now, secured debts, such as a mortgage are debts charged on a property. So if a beneficiary takes the property, then it is subject to the mortgage and the beneficiary becomes responsible for that debt. So for example, I devise my home 19 Jupiter Place to my daughter X. So that would mean that 19 Jupiter Place will pass to the daughter. And if it has a mortgage, the mortgage will also pass to the daughter. But if there is a contrary intention in the world, then the debt is to be paid by the residue and that would be worded as follows. I devise my home 19 Jupiter Place to my daughter X free of mortgage, unsecured debts and expenses that these must be paid in the order set out in part two of schedule one insolvent estates. This is where there are insufficient assets to pay all the expenses, debts and liabilities in full the administration of insolvent estates of deceased persons. Order 1986 should be followed. Assets are used up until all the debts are paid. Sometimes creditors will not be paid in full or at all and the beneficiaries will receive nothing. So secured debts such as a mortgage are debts that are charged on a property and are more likely to be paid over unsecured creditors, then unsecured debts and expenses will be paid. So creditors will look to the remaining assets for payment. Just remember that funeral administration and testamentary expenses get paid first and then what's left over will abate equally between the other unsecured creditors. Let's put both of those into practice. So question two, looking at administration of its states. When X died, he left everything in his estate by his will to his nephew Z the estate comprised of 10,000 pounds in a bank account, a flat valued at 200,000 with an outstanding mortgage of 100 and 75,000 pounds in favor of a building society credit card debts of 15,000 pounds. Funeral expense of 5000 pounds. Personal effects worth £2000 and outstanding debt of 30,000 pounds for a kitchen he has installed but never paid for calculate the assets and liabilities. So pause the video and attempt this question. Once you've done that, go back to the slides which set out how to pay debts and expenses for either solvent or insolvent estates and see if you can work out which of these debts must be paid or would be paid first over the other debts. And if there's not enough left in the estate to pay the debts, how will they abate equally amongst the remaining unsecured creditors? So once we add up the assets and take away their liabilities, we can see there are insufficient assets to pay XS debts and expenses. The order in which they would be paid would be like this. So firstly, the mortgage on the flat is paid as it is a secured debt. So the pr s would sell the flat and pay 100 and 75,000 back to the building society. That would mean that the assets left over would be the 25,000 pounds equity in the flat 10,000 pounds in the bank account and personal effects of 2000 totaling 37,000 pounds. Next, you would pay funeral expense of 5000 pounds. So just remember that funeral and testamentary expenses get priority. So this will leave 32,000 pounds and then we have the debt of the credit card and the kitchen totalling 45,000 pounds. So this is where you would do your abating equally. The credit card company will get 10,666 pounds and 67 pence and the kitchen company 21,333 pounds and 33 pence completing the administration of the estate. So first, once the administration of the estate is coming to an end, there will be an adjustment of the inheritance tax payment. This is when perhaps there's been some kind of losses such as where poverty was sold below the market value. So initially, inheritance tax was paid right at the beginning before the grant was obtained. And so um that was paid on the value of assets, what we call the probate value. Now, if assets were sold below that probate market value, we can now have to recalculate inheritance tax and claim some of that money back. There may have been some lifetime chargeable transfers. So, money into trusts, for example, or into or sorry, potentially exempt transfers that may have been made in the last seven years of the deceased person's life. In which case, some of those transfers will now become chargeable at the full rate of 40% income tax and capital gains payment from the sixth of April before the deceased died. And up to the date of death must be calculated. So the deceased would have worked if they were working and not retired from the sixth of April until they died. And so during uh for that time, the pr s must sort of act on behalf of the deceased person and make a tax return as the deceased would have done income could be coming in during the administration of the estate by property owned by the deceased that for example, has been let out or it may be just interest received from the bank in from savings. And so the PR S would need to pay tax on that. Income capital gains may also arise on assets being sold during the administration. There is the annual exemption of 12,300 a year and a loss can be offset against um a gain in the same tax year. So right at the end, then we have the fact that personal representatives must produce estate accounts. So this final task of the PR S is to produce accounts to show and give to the reidy beneficiaries. Now, the purpose of the account is to show all of the assets of the estate and the payment of all the debts and expenses and including the legacies and then whatever balance is remaining uh to be divided amongst the regulatory beneficiaries. Now, the balance will normally be represented by a combination of assets transferred to the beneficiaries and some cash. The registry beneficiaries will sign accounts to indicate that they approve them. Then they will also require their signatures in order to release the personal representatives from further liability to account to the beneficiaries. Now, there is no prescribed form for estate accounts. So any kind of presentation should just be clear and concise and easily understood by the reidy beneficiaries. Normally these accounts will show capital assets and income produced by those assets during the administration period and it will have a separate capital and income account in small estates. Um This may not be necessary so they may just have one account showing capital and income. The very last thing that will happen is that where the pr s are have also been named as the trustees. There will now be a transition from their role as personal representative which now ends and the beginning of their role as trustee thinking points, problems and disputes during the administration of Interstate by personal representatives on the rise. These issues are usually because one of the following fraud by personal representatives, negligence by personal representatives obstructing or delaying the estate administration, lack of knowledge on how to deal with a trust in the world and the executors are also trustees. Now the courts will only remove an executor where the executor has a criminal conviction is physically or mentally disabled to the point where they cannot manage to deal with the administration or if there is a conflict of interest or serious misconduct. It seems that most people are not aware of the substantive and procedural framework for the administration of estates and as professional fees are on the rise, more and more to status, choose their family members as pr s and as trustees. So what do you think can be done to overcome this problem? Thank you for listening.
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