How do PRs collect and safeguard assets after the grant?
The method depends on the asset type:
- Bank accounts: banks/building societies require withdrawal forms.
- Investments: sold or transferred by a financial adviser.
- Personal possessions: physically collected and secured.
- Land: transferred into PRs’ names (if not directly to a beneficiary).
All funds should be paid into a PR’s estate account or law firm client account (interest must be fair and reasonable under Solicitors’ Accounts Rules).
The key aim is to avoid mixing estate money with personal funds and ensure transparency.
What are PRs’ responsibilities when paying the deceased’s debts?
PRs must pay debts and funeral expenses as soon as practicable, exercising due diligence (normally within the “executor’s year”).
- Failure to do so when funds are available exposes them to personal liability both to creditors and beneficiaries.
- While a will can limit liability to beneficiaries, it cannot protect PRs from creditors.
- To guard against unknown creditors, PRs can publish a s.27 Trustee Act 1925 notice (in Gazette, newspaper local to their area, and any other relevant newspaper like a trade one for eg), which protects them personally if new creditors later appear.
What kinds of expenses must PRs manage and how are they prioritised?
- Beyond debts, PRs pay expenses from the estate — including probate fees, valuation costs, s.27 notices, professional fees, and repayment of any pre-grant IHT loans.
- If they gave a “first proceeds” undertaking to a bank (promising to repay IHT loans with the first cash raised), failing to do so is a breach.
- PRs should therefore settle such loans early to avoid unnecessary interest and potential breach of undertaking.
How is the burden of debts and expenses distributed across the estate?
Under s.32 AEA 1925, all property of the deceased can be used to pay debts and liabilities — any contrary will clause is void.
However, the order in which assets are used depends on:
- Whether the estate is solvent or insolvent, and
- Whether debts are secured or unsecured.
This order matters for fairness between beneficiaries.
How do solvent and insolvent estates differ in administration?
- A solvent estate has enough to pay all debts, expenses, and liabilities — even if some legacies cannot be paid in full.
- An insolvent estate cannot meet all liabilities; debts must then be paid according to the Administration of Insolvent Estates of Deceased Persons Order 1986 (similar to bankruptcy rules).
What happens to debts secured against specific property?
Under AEA 1925, property subject to a charge (like a mortgage) bears the primary liability for that debt unless the will clearly says otherwise.
- Example: If A leaves their mortgaged house “Chez Nous” to B, and the will doesn’t say the estate should pay off the mortgage, B inherits it subject to the £30,000 mortgage.
Only if the debt exceeds the property value does any shortfall become an unsecured debt.
How does the law decide which assets are used to pay unsecured debts and expenses?
For solvent estates, AEA 1925 sets out the statutory order for unsecured debts (this is because although order is not primary concern for creditors, will be for beneficiaries because could abate their share !!)
Unless the will shows a contrary intention, assets are applied as follows:
- Property not disposed of by the will (intestacy property whether full or partial)
- Residue (after retaining funds for pecuniary legacies)
- Property set aside or charged with specific debts
- Pecuniary legacy fund (legacies reduced proportionally if shortfall)
- Specific gifts (e.g. jewellery, cars)
This order ensures fairness — unsecured creditors are paid, but beneficiaries’ gifts abate proportionately only when necessary.
NOTE : (if plenty of money – doesn’t matter !! only where going to impact beneficiaries’ legacies, also if have solvent estate NEVER MATTERS what order CREDITORS get paid in !!)
What does “abatement” mean and how does it work in practice?
- Abatement occurs when pecuniary legacies are reduced because the estate cannot cover all debts.
- For instance, if B and C each get £10,000 but only £15,000 remains, their legacies abate proportionately — both receive £7,500.
- If their gifts are unequal, the reduction mirrors the value ratio of their gifts (e.g., ¾ and ¼).
How can a will override the statutory order or secured debt rule?
A will can show a contrary intention — an explicit direction altering how debts are paid.
- For unsecured debts, a general clause like “I direct my debts be paid from my residuary estate” is sufficient.
- For secured debts, the intention must be specific — e.g., expressly stating that the beneficiary takes the property free of the mortgage. However, here, a general “pay debts from residue” clause does not override s.35 AEA.
What is the doctrine of marshalling and why does it exist?
If PRs use assets “out of order” to pay creditors (e.g., taking funds from a beneficiary’s share when others should’ve been used first), that beneficiary can invoke marshalling:
- They can recover their loss from the property that should have been used.
- Creditors aren’t affected — marshalling operates only between beneficiaries to restore fairness.
How do PRs decide which assets to sell to raise funds?
PRs have a general power of sale but must respect the statutory order and any contrary intention.
When they have discretion, they consider:
- CGT impact (avoid selling appreciated assets)
- Ease of sale (shares easier than land or businesses)
- Beneficiaries’ wishes (especially if they hope to keep a particular asset).
The guiding aim is to preserve estate value while respecting equitable distribution.
What CGT issues arise when PRs sell estate assets?
PRs inherit assets at their probate value.
If an asset increases in value after death, any sale profit may trigger CGT (beyond the annual exemption).
To minimise CGT:
- Sell assets that haven’t appreciated, or
- Transfer appreciated assets directly to beneficiaries (a non-disposal for CGT purposes).
Example: Sell a car that hasn’t risen in value instead of a painting that has (and so directly transfer painting to B instead - which doesn’t incur CGT)
What is “appropriation,” and how should PRs handle beneficiaries’ preferences/wishes?
- Appropriation lets PRs satisfy a legacy (or residuary entitlement) by transferring an asset instead of its cash value.
- Though PRs aren’t bound by beneficiaries’ wishes, they should consider them — for instance, allowing a beneficiary to take an heirloom rather than sell it.
- This keeps administration fair and personal while complying with statutory priorities.
What are PRs main tax responsibilities? (outside of IHT)
They must:
- Finalise the deceased’s income tax (IT) and capital gains tax (CGT) up to the date of death.
- Pay any IT or CGT arising during the administration period.
- Distinguish between the deceased’s income/gains and those generated by the estate itself.
What must PRs do regarding the deceased’s final tax position?
PRs submit a tax return for the period 6 April to the date of death to:
- Pay any outstanding IT or CGT the deceased owed, or
- Claim any refund due.
These liabilities are paid out of estate assets and are deductible for IHT purposes.
Why must PRs distinguish between the deceased’s and estate’s income/gains?
Because different tax rules, rates, and allowances apply before and after death.
- Deceased: taxed as an individual (full allowances apply).
- Estate: taxed as a separate entity (no personal allowance, basic rate).
What counts as the deceased’s income for IT purposes?
- Income actually received before death, and
- Income due but unpaid before death (e.g. rent due, declared but unpaid dividends).
PRs use the deceased’s tax-free allowances and pay tax at their usual rates. - No date apportionment for bank interest (CIR v Hendersons Executors): (so just look at payment date, don’t consider when became due.)
Interest paid before death → taxed on deceased.
Interest paid after death → taxed on PRs.
If testator’s income (and not estates) then deductible for IHT purposes !!
How is CGT handled for the deceased?
- PRs check for any disposals made before death → pay CGT using the deceased’s allowances/rates.
- Death itself is not a disposal → no CGT arises.
- Assets are “re-based” to their market value at death, wiping out lifetime gains (a “tax-free uplift”).
When does “estate income” arise, and who pays the tax?
Estate income arises between death and distribution of assets — e.g. bank interest, dividends, or rent.
PRs pay IT on this income at basic rate, with no personal allowance (unlike individuals):
- Interest/rent → 20%
- Dividends → 8.75%
After distribution, any future income is taxable on the beneficiary.
(note £500 de minimis rule tho!)
What is the £500 de minimis rule for estate income?
If total estate income ≤ £500 in a tax year → no need to report or pay any tax.
If it exceeds £500 → all the income is taxable (not just the excess).
What is Form R185 and why is it used?
PRs issue Form R185 (Estate Income) when distributing income to beneficiaries. It shows how much tax PRs paid.
Beneficiaries:
- Can claim refunds if non-taxpayers, or
- Must top up tax if higher/additional rate taxpayers.
When do PRs pay CGT during the administration?
- If they sell assets and make post-death gains, those are taxable.
- PRs get the same annual CGT allowance as individuals (contrast here with income tax)
- If they transfer assets directly to beneficiaries, that’s not a disposal, so no CGT.
What happens to asset values for CGT when someone dies?
Asset values are reset (“uplifted”) to their market value at death.
→ All gains from the deceased’s lifetime are wiped out.
→ Only gains made after death are taxable (by PRs or beneficiaries).
Example: Deceased bought an asset for £50,000; at death it’s worth £80,000; PRs sell for £100,000. What’s taxable?
£30,000 lifetime gain → ignored (death not a disposal).
£20,000 post-death gain → taxable on PRs.
What’s the CGT difference between selling and transferring an asset?
- Sale: PRs make a taxable gain; CGT paid by estate.
- Transfer to beneficiary: not a disposal → no CGT for PRs.
The beneficiary inherits the probate value as their base cost.
When they later sell, they pay CGT on the difference between sale price and probate value. Eg: if probate value was 50k, then when was transferred to them was actually 80k, and then they sell it for 100k - the gain will be 50k rather than just 30k
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Intestacy and Succession23
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Wills: validity37
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Wills: drafting70
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Changes to estate distribution following death49
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IHT: the charge to IHT75
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IHT: IHT exemptions & relief42
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[Administration]209
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Tax planning and anti-avoidance72
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Amendments and revocation48
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Administration: application for a grant99
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Administration: role of prs74
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Administration: grants of representation18
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Administration: post-grant practice38
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Professional conduct10
