Administration of Estates Overview
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Questions and Answers

The personal representatives sold the shares for ______.

£225,000

The painting was transferred to the beneficiary when its value had risen to ______.

£510,000

The Capital Gains Tax rate during this period was ______%.

20

The annual exemption for Capital Gains Tax was ______.

<p>£3,000</p> Signup and view all the answers

After deducting the annual exemption, the taxable gain is ______.

<p>£9,000</p> Signup and view all the answers

In the case of an insolvent estate, the order of distribution should follow the Administration of Insolvent Estates of Deceased Persons Order _____ (SI 1986/​1999).

<p>1986</p> Signup and view all the answers

Secured creditors may realize the security, meaning they can sell the property by exercising a power of _____ as mortgagee or chargee.

<p>sale</p> Signup and view all the answers

Funeral and testamentary expenses are paid in _____ to ordinary unsecured debts and liabilities.

<p>priority</p> Signup and view all the answers

In an insolvent estate, unsecured debts will abate equally due to insufficient _____ to pay all debts.

<p>funds</p> Signup and view all the answers

Rashid's estate includes £10,000 in a bank account and personal effects worth £_____.

<p>2000</p> Signup and view all the answers

Rashid had a credit card debt of £_____, which is an unsecured debt.

<p>15000</p> Signup and view all the answers

The mortgage on Rashid's house is a _____ debt and is paid first from the proceeds of the house sale.

<p>secured</p> Signup and view all the answers

After paying the Building Society, the total assets available to the PRs amount to £_____ before other expenses.

<p>37000</p> Signup and view all the answers

The beneficiary acquires the asset at ______ at the date of death.

<p>market value</p> Signup and view all the answers

For each income tax year during the administration period, the PRs must calculate their income tax and any ______ liability on assets disposed of.

<p>CGT</p> Signup and view all the answers

Provided the estate is not classified as a complex estate, they can make an informal ______ without having to provide a tax return.

<p>payment</p> Signup and view all the answers

An estate is considered complex if the value of the estate exceeds ______.

<p>£2.5 million</p> Signup and view all the answers

CGT on the disposal of UK residential land must be paid within ______ days of completion.

<p>60</p> Signup and view all the answers

Once the outstanding tax, legal costs and other matters have been disposed of, PRs should consider transferring any remaining assets to the ______ beneficiaries.

<p>residuary</p> Signup and view all the answers

If the beneficiaries are adults and have a vested entitlement to property in the residuary estate, their ______ can be transferred to them.

<p>entitlement</p> Signup and view all the answers

If any beneficiaries are under 18 years of age, the property will usually be held in ______ for them until the age of majority is reached.

<p>trust</p> Signup and view all the answers

The 'administration period' commences at the moment immediately following the ______.

<p>death</p> Signup and view all the answers

The primary duty of the PRs is to 'collect and get in the real and personal ______ of the deceased.'

<p>estate</p> Signup and view all the answers

A PR who breaches their duty may be personally liable for loss to the ______.

<p>estate</p> Signup and view all the answers

A breach of duty by a PR is known as ______.

<p>devastavit</p> Signup and view all the answers

Section 61 of the Trustee Act 1925 allows the court to relieve a PR from ______ for a breach of duty.

<p>liability</p> Signup and view all the answers

If further assets or liabilities are discovered after the residue has been ______, PRs must still deal with them.

<p>transferred</p> Signup and view all the answers

PRs must pay funeral and testamentary expenses and ______.

<p>debts</p> Signup and view all the answers

Completing the administration involves distributing the ______ estate.

<p>residuary</p> Signup and view all the answers

The gross income was £4,000, and after interest paid of £1,000, the taxable income became £______.

<p>3,000</p> Signup and view all the answers

Income tax payable is 20% of the taxable income, which amounts to £______.

<p>600</p> Signup and view all the answers

After settling the tax position, the net income paid to the beneficiary is £______.

<p>2,400</p> Signup and view all the answers

Capital gains tax (CGT) is charged on the gains made on the disposal of a ______ asset.

<p>chargeable</p> Signup and view all the answers

CGT is assessed based on the difference between the purchase price and the sale price, or ______ value if given away.

<p>market</p> Signup and view all the answers

For the tax year 2024/25, there is an exemption for the first £______ of gains made by an individual.

<p>3,000</p> Signup and view all the answers

On death, there is no ______ for CGT purposes, meaning no liability to CGT arises.

<p>disposal</p> Signup and view all the answers

The probate value acquired by the PRs becomes the base cost for future ______ purposes.

<p>CGT</p> Signup and view all the answers

The court will require evidence that the fullest possible enquiries have been made to trace the missing ______.

<p>person</p> Signup and view all the answers

A Benjamin order protects the ______ from liability.

<p>PRs</p> Signup and view all the answers

Applying to court is an expensive process, but it is the only solution that offers the PR full ______.

<p>protection</p> Signup and view all the answers

The PRs will be personally liable if the assets have been distributed and an applicant under the Inheritance (Provision for Family and Dependants) Act ______ then successfully obtains an order.

<p>1975</p> Signup and view all the answers

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

<p>six</p> Signup and view all the answers

The AEA ______ gives some powers specifically to PRs.

<p>1925</p> Signup and view all the answers

Assets which pass under the will or intestacy rules automatically devolve on the ______.

<p>PRs</p> Signup and view all the answers

For executors, devolution happens immediately on the ______.

<p>death</p> Signup and view all the answers

Flashcards

Insolvent Estate

A situation where a deceased person's assets are insufficient to cover all their debts and expenses.

Secured Creditor

A creditor who has a legal claim on specific assets of the deceased, like a mortgage.

Unsecured Creditor

A creditor who has no specific claim on assets and relies on remaining assets for payment.

Priority debts

Debts like funeral and testamentary expenses that must be paid before other unsecured debts.

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Order of Distribution

The specific order in which debts are paid from an insolvent deceased's estate.

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Power of Sale

The right of a secured creditor (like a mortgage lender) to sell property/asset to recover the debt if the estate is insolvent.

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Administration of Insolvent Estates

The process of managing and distributing the assets of a deceased person's estate when assets are insufficient to meet all debts.

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Abatement of Unsecured Debt

Reduction of the amounts available to unsecured creditors, when the estate has insufficient funds to cover all of them equally.

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Beneficiary's Asset Acquisition

The beneficiary receives assets at market value on the date of death.

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Administration Period Taxes

Personal Representatives (PRs) calculate income tax and Capital Gains Tax (CGT) during the estate administration period for assets sold.

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Complex Estate Criteria

An estate is considered complex if its value exceeds £2.5 million, tax due exceeds £10,000, or asset sales in a tax year exceed £500,000.

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Informal Payment

For non-complex estates, income tax and CGT can be paid in one lump sum at the end of the administration period, without a formal tax return.

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UK Residential Land CGT

CGT on the disposal of UK residential land must be paid within 60 days of completion.

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Interim Distributions

Partial payments to beneficiaries before final distribution, accounting for previous payments.

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Adult Beneficiary Transfers

Vested adult beneficiaries receive their portion directly, while contingent beneficiaries receive funds through a trust.

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Minor Beneficiary Transfers

Assets for minor beneficiaries are held in trust until they reach the age of majority or a contingent event occurs.

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Administration Period

The time between a person's death and when the estate's remaining assets are given to beneficiaries or trustees.

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PRs (Personal Representatives)

Individuals responsible for managing and distributing a deceased person's estate, including executors and administrators.

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Primary Duty of PRs

To collect and manage all assets of the deceased and distribute them according to the law.

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Devastavit

A breach of duty by a personal representative resulting in loss to the estate.

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Liability of PRs

Personal representatives are personally liable for losses caused by their breaches of duty.

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Protection Against Liability

PRs can be protected from liability if they acted honestly and reasonably, or through clauses in the will.

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Collecting the Assets

A key duty of PRs involves gathering all the deceased person's assets, including property, money, and belongings.

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Paying Debts and Expenses

PRs are responsible for paying the deceased's debts and funeral expenses.

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Net Income for Beneficiaries

The remaining income after deducting taxes and expenses from the estate's gross income. It's distributed to the beneficiaries.

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Beneficiary's Income Tax

The beneficiary includes the received net income in their personal tax return. They receive credit for the tax already paid by the estate.

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Capital Gains Tax (CGT)

Tax on gains made during the sale of assets. It's calculated as the difference between the purchase and sale price, minus allowable expenses.

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Annual CGT Exemption

A set amount of capital gains is exempt from tax each year. Currently, it's £3,000 for the 2024/25 tax year.

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CGT on Death

No CGT is due on the death of an individual. The assets are passed on at their market value at death.

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Probate Value for CGT

The value of the deceased's assets assessed at death, which becomes the starting point for future CGT calculations.

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Income Tax on Estate

Personal Representatives (PRs) pay income tax on the estate's income during the administration period.

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Beneficiary's Credit for Estate Tax

The beneficiary receives credit for the income tax already paid by the PRs on their income.

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Benjamin Order

A court order protecting Personal Representatives (PRs) from liability when distributing assets before finding all beneficiaries, allowing claimants to recover assets from beneficiaries instead.

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Inheritance (Provision for Family and Dependants) Act 1975

This Act allows family members or dependents of a deceased person to apply to the court for "reasonable financial provision" from the estate, even if not mentioned in the will.

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PRs' Liability under the Inheritance Act

PRs are personally liable if they distribute the assets before six months and a successful claim under the Inheritance Act is made, meaning they may have to personally pay the awarded amount.

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Administrative Powers of PRs

Personal Representatives have broad powers to manage the estate, including collecting assets, paying debts, and distributing the remaining assets to beneficiaries.

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Devolution of Assets

The process where assets in an estate automatically pass to the PRs. Real property passes via statute, personal property by common law.

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PRs' Duty to Collect Assets

Once assets devolve, PRs have a duty to gather them as soon as possible, managing them efficiently for distribution and debt repayment.

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Awaiting Grant of Representation

The process where PRs must wait until the grant of representation is issued before they officially inherit the estate's assets.

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Executors vs. Administrators

Executors are named in the will to manage the estate, while administrators are appointed by the court when there's no will. Both have legal powers to handle the estate.

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CGT on Share Sale

Capital Gains Tax (CGT) is calculated on the profit made from selling shares. The profit is the difference between the selling price and the original purchase price.

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Annual Exemption

A certain amount of capital gains is exempt from CGT each year. This means you don't pay CGT on that part of the gain.

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CGT on Estate Assets

Personal Representatives (PRs) are responsible for calculating and paying CGT on assets sold from the deceased person's estate.

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Transferring Assets to Beneficiaries

When assets are transferred to beneficiaries, CGT is not usually payable. The beneficiary inherits the asset at its value on the date of death.

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Calculating CGT

To calculate CGT, multiply the taxable gain (profit after the exemption) by the CGT rate.

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Study Notes

Administration of Estates

  • Introduction: The administration period begins immediately after death and ends when assets are transferred to beneficiaries.
  • Duties of Personal Representatives (PRs): PRs must collect, manage, and distribute the deceased's estate according to the law. They are personally liable for breaches of duty.
    • Failure to protect asset value
    • Failure to pay beneficiaries
  • Protection for PRs: PRs can protect themselves from liability by advertising for unknown claimants/creditors and waiting the statutory minimum time before distributing assets
    • Section 27 of the Trustee Act 1925 governs this process.
  • Estate Accounts: PRs must prepare estate accounts detailing assets, expenses, and distributions, for beneficiary approval.
  • Inheritance Tax: The process of dealing with inheritance tax liability during estate administration.
  • Payment of Debts: PRs must pay funeral, testamentary expenses, and debts in a specific order as established in the law.
    • Secured debts (like mortgages) take priority over unsecured debts
  • Legacies: Paying legacies according to the terms of the will or intestacy laws.
  • Distribution of Residuary Estate: Transferring remaining assets (residuary estate) to beneficiaries.
    • Consider interim distributions, adult/minor beneficiaries, and estate accounts.

SQE1 Syllabus

  • Wills: Validity, interpretation, and distribution of testate, intestate, and partially intestate estates
  • Inheritance Tax: Lifetime gifts and transfers on death, claims made under the Inheritance (Provision for Family and Dependants) Act 1975
  • Personal Representatives and Trustees: Rights, powers, and remedies of beneficiaries, and duties of PRs and trustees in administering estates
  • Liability of PRs: Liabilities and protection for PRs acting in the estate administration.
  • Distribution of Estates: Process of distributing the estate's assets.
  • Inheritance Tax: Burden and incidence of inheritance tax, beneficiaries' liability,
    • Includes a discussion of income tax and capital gain tax obligations.

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Wills and Administration of Estates PDF

Description

This quiz covers the essential aspects of estate administration, including the duties of personal representatives, the protection measures available to them, and the preparation of estate accounts. It also addresses the management of debts and inheritance tax during the administration process. Test your knowledge on these crucial topics related to estate management.

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