Unit 5 Wills

Question 1

Remedies Against Trustees: Personal Claims

What is the time limit after which personal claims may be statute barred?

Does the same apply to proprietary claims?

Answer 1

6 years after the date of the breach.

There is no statutory limitation period for proprietary claims - might remain available if the wrongdoing happened more than 6 yrs ago.

Question 2

Remedies Against Trustees: Personal Claims

What must a beneficiary identify to bring a personal claim against the trustee?

What must beneficiaries establish to successfully claim compensation? What test must be satisfied?

Answer 2

A breach of duty.

Causation - the breach of trust must have caused the loss suffered.
The ‘but for’ test must be satisfied - must show that the loss would not have occured but for the breach of trust.

Question 3

Remedies Against Trustees: Personal Claims

Are trustees automatically vicariously liable for the defaults of their co-trustees?

If more than one trustee breaches trust, how is their liability held?

Answer 3

No, they are not vicariously or automatically liable.

Joint and several liability.

Question 4

Remedies Against Trustees: Personal Claims

What can be received from a personal claim?

Answer 4

Compensation equal to the loss to the trust, plus interest from the date of breach.

Question 5

Remedies Against Trustees: Personal Claims

Which defences may be available to a trustee who is facing a personal claim for breach of trust?

Answer 5

• An exemption clause in the trust deed;
• knowledge and consent of the beneficiaries;
• s61 of the TA 1925; or
• limitation and laches.

Question 6

Remedies Against Trustees: Personal Claims

Which breaches can be excluded by an exemption clause in the trust deed?

Answer 6

Can relieve trustees from liability for negligent or innocent breaches.

But void insofar as it tries to exclude liability for fraudulent breached.

Any ambiguity in the clause will be interpreted strictly against the professional.

Question 7

Remedies Against Trustees: Personal Claims

To operate as a defence, consent from beneficiaries must be what? Which beneficiaries can give valid consent?

Can a trustee rely on the defence of knowledge and consent of the beneficiaries where the consent was given after the breach?

What happens if only one beneficiary consents to a breach of trust?

Answer 7

Mist be fully informed and freely given - the beneficiaries must be adults of fully capacity.
- minors cannot give valid consent.

Yes, if beneficiaries consent to a course of action that constitutes breach of trust, before or after the action occurred, they cannot subsequently bring a claim against the trustees.

If only one beneficiary consents to a breach of trust, that beneficiary can no longer bring any personal claim against the trustees, but the non-consenting beneficiaries can.

Question 8

Remedies Against Trustees: Personal Claims

When may the court have discretion to relieve trustees from liability (s61 TA 1925)?

Answer 8

If the trustees acted honestly and reasonably, and ought fairly to be excused.

Question 9

Remedies Against Trustees: Personal Claims

(Defence of limitation and laches) What is the limitation period?

When does time start to run? Against minors? Against remainder beneficiaries?

When does the limitation period not run?

Answer 9

Personal claim for breach of trust subject to 6 yr limitation period.

Time starts to run from the date of the breach.
For a minor, time starts to run when they reach 18.
For remainder beneficiaries, when their interest falls into possession (ie when the life tenant dies).

6 yr limitation period does not run against trustees who have committed a fraudulent breach of trust.

Question 10

Remedies Against Trustees: Personal Claims

(Defence of limitation and laches) When will the court have regard to the equitable doctrine of laches?

When do they prevent a claimant asserting a personal claim?

Answer 10

Where there is no statutory limitation period.

Will prevent a claimant from asserting a personal claim where:
- the claimant knows the facts that give rise to the breach of trust;
- the claimant delays in taking action; and
- this delay either is deemed to constitute acquiescence in or waiver of the breach by the C, or causes detriment or prejudice to the trustee. delay itself is not usually a sufficient form of detriment; the court will want to see some evidence that prejudice has been caused.

Question 11

Remedies Against Trustees: Personal Claims

What are the 2 possibilities for a defending trustee sued for the full amount of loss?

Answer 11

• may be able to claim the full amount of compensation from a co-trustee under an equitable indemnity; or
• may be able to claim a contribution towards the compensation from a co-trustee under the Civil Liability (Contribution) Act 1978.

Question 12

Remedies Against Trustees: Personal Claims

Under equitable indemnity, which co-trustees can a trustee sued for breach of trust recover a full indemnity from?

Answer 12

A co-trustee who:
- acted fraudulently when the others acted in good faith;
- is a solicitor who exercised such a controlling influence that the other trustees blindly followed the solicitor’s advice;
- has benefitted personally from the breach; or
- is also a beneficiary and benefitted from the breach.

Question 13

Remedies Against Trustees: Proprietary Claims

When has there been a clean substitution?

What can beneficiaries do when there has been a clean substitution of trust property?

Answer 13

If a trustee has sold trust property and purchase another asset with the sale proceeds.

Can choose either to:
- take the substitute property;
- sue the trustee for compensation for the loss to the trust and take a charge (or equitable lien) over the property for the amount that the trust has lost.

Question 14

Remedies Against Trustees: Proprietary Claims

What is a mixed asset?

What options does a beneficiary have when a trustee purchases a mixed asset? When should a beneficiary exercise their options?

Answer 14

Mixed asset where the trustee purchase an asset with a mixture of their own money and the trust’s money.

Beneficiary has the option of:
- claiming a proportionate interest in the mixed asset - should take where has increased in value; or
- suing the trustee for compensation for the loss to the trust and take a charge over the mixed asset for the amount the trust has lost - should take where the mixed asset has decreased in value.

Question 15

Remedies Against Trustees: Proprietary Claims

What is the tracing rule in Re Hallet’s Estate?

When should it be used?

What if the rule in Re Hallet works to benefit the wrongdoing trustee?

Answer 15

Provides that the trustee is deemed to spend their own money first.

Should be used where the trustee transfers money from the trust into their own bank account and then makes various withdrawals from that bank account.

If the rule in Re Hallet works to benefit the wrongdoing trustee, equity will apply another tracing rule.

Question 16

Remedies Against Trustees: Proprietary Claims

What is the alternative tracing rule that equity will apply where the rule in Re Hallet works to be benefit the wrongdoing trustee?

What does it provide?

Answer 16

Re Oatway - the beneficiary gets first choice and can therefore generally choose how best to satisfy their proprietary claim.

Question 17

Remedies Against Trustees: Proprietary Claims

What is a trustee spends all the money in their mixed account, and then subsequently pays some extra money into their account? Can the beneficiary trace any interest into that extra money?

Answer 17

No, unless that money was specifically intended to replenish trust funds.

The trust’s interests cannot be traced beyond the ‘lowest intermediate balance’ - the lowers balance to which the account sank before exra money was paid in.

Question 18

Remedies Against Trustees: Proprietary Claims

What if the trustee takes money from one trust, mixes it with money from another trust, and then uses the entire mixed fund to buy an asset in their own name?

Answer 18

The beneficiaries of each trust will share in the mixed asset purchased, in the same proportion of their funds contributed to the purchase price.

Question 19

Remedies Against Trustees: Proprietary Claims

If the trustee transfers money from one trust and money from another trust into their own bank account and then makes various withdrawals from that bank account, what tracing rule will be used?

Alternative? When can it be used? End result?

Answer 19

Clayton’s case - the first money paid in is the first money paid out (FIFO - first in first out).

Alternative - Barlow Clowes v Vaughan - the rule in Clayton’s case can be departed from where:
- it is impossible to apply FIFO (eg where the records are so poor that ordering payments chronologically cannot be accurately undertaken);
- FIFO would result in injustice; or
- the application of FIFO would be contrary to the parties’ intention.
The end result is that generally each investor (or trust) takes a rateable share in remaining assets.

Question 20

Remedies Against Trustees: Proprietary Claims

What if the trustee takes money from 2 innocent trust funds and mixes that money with the trustee’s own money, before making various withdrawals?

Answer 20

1. Should apply Re Hallet and Re Oatway with the aim of pushing as much of the trustee’s own money into dissipation as possible; and
2. should then try to apply Clayton’s case and Barlow Clowes v Vaughan to allocate any remaining assets between the two or more innocent t rusts.

Question 21

Remedies Against Trustees: Proprietary Claims

When does the administration period begin? end?

How long are PRs liable for?

Answer 21

Commences the moment immediately following the death and ends when the PRs are in a position to vest the residue of the estate in the beneficiaries, or the trustees if a trust arises under the will or intestacy rules.

PRs hold office for life - if further assets or liabilities are discovered after the residue has been transferred, the PRs are still required to deal with them.

Question 22

Administration: Dealing with the Estate

What is the primary duty of PRs in s25 AEA 1925?

Are PRs liable for breaches committed by their co-PRs?

What is a breach of duty by a PR called when it results in loss to the estate?

Answer 22

Must ‘collect and get in the real and personal estate of the deceased and administer it according to the law.

There is generally no liability for breaches committed by a co-PR.

Devastavit.

Question 23

Administration: Dealing with the Estate

How can PRs protect themselves against unknown beneficiaries and creditors?

How long should they wait before distributing the estate?

Are there any searches that the PRs should make?

Answer 23

By advertising for claimants in compliance with the requirements of s27 TA 1925:
- in the London Gazette
- in a newspaper circulating in the district in which land owned by the deceased is situated; and
- such other like notices, including notices elsewhere than in E&W, as would, in any special case, have been directed by a court of competent jx in an action for admin.

Must wait at least 2 months before distributing the estate to protect from liability if an unknown claimant later appears.

Should make searches which the prudent purchase of land would make in the Land Registry, the Land Charges Register and the Local Land Charges Registry, as appropriate to reveal the existence of any liability in relation to the deceased’s ownership of an interest in land.

Question 24

Administration: Dealing with the Estate

What should a PR do if earlier distribution is required, but they want to limit their liability against applicants under the Inheritance (Provision for Family and Dependants) Act 1975?

Answer 24

They should retain sufficient assets to satisfy an order should an applicant be succesful within 6 months of the grant.

Question 25

Administration: Dealing with the Estate What do testamentary expenses include? When will PRs not be liable for IHT?

Answer 25

* The costs of obtaining the grant; * the costs of collecting in an preserving the deceased's assets; * the costs of administering the deceased's estate; * any inheritance tax payable on the deceased's property in the UK which vests in the PRs. Not liable for IHT payable on property falling outside the above definition, such as passing by survivorship (will be borne by beneficiary). PRs can claim reimbursement of any tax they have paid from the person in whom the property is vested.

Question 26

Administration: Dealing with the Estate Who pays for a debts owed by the deceased on particular items of property? What must be present to constitute a contrary intention?

Answer 26

A beneficiary taking the asset takes it subject to the debt and will be responsible for paying it. Applies unless a contrary intention is shown in the will, deed or other document. To constitute a contrary intention, there must be an express reference to the, eg mortgage.

Question 27

Administration: Dealing with the Estate What is the statutory order PRs must follow when deciding which part of the deceased's estate should be used for the purposes of payment of funeral and testamentary expenses and unsecured debts? Can it be disapplied?

Answer 27

1. Property undisposed of by will subject to retention of a fund to meet pecuniary legacies. 2. Property included in a residuary gift subject to retention of a fund to pay pecuniary legacies not already provided for. 3. Property specifically given for the payment of debts. 4. Property charged with the payment of debts (where the testator directs in the will that the asset is to be used for this purpose but provides that any money left over is to go to a beneficiary). 5. The fund, if any, retained to meet pecuniary legacies. 6. Property specifically devised or bequeathed, rateably according to value. 7. Property appointed by will under a general power rateably according to value. Yes, applies subject to contrary intention shown in will.

Question 28

Administration: Dealing with the Estate Which document vests legal estate in a property to a beneficiary? Who is responsible for sending the document to the Land registry for registration? What are the formalities for this document? Is a deed required?

Answer 28

Should be vested in a beneficiary by an assent - beneficiary's responsibility to send the assent to the Land Registry for registration. Must be in writing, signed by the PRs, and in the name of the person in whose favour it is made. Deed not required, but a PR may choose to use a deed, for example where they require the beneficiary to give them the benefit of an indemnity covenant.

Question 29

Administration: Dealing with the Estate Who is responsible for income tax due on the income produced by a property since death, in the case os specific gifts?

Answer 29

The beneficiary is entitled to the income, and therefore they are liable to be assessed for any income tax due on that income since death.

Question 30

Administration: Dealing with the Estate If the deceased's title to an asset is disputed by a third party, who will be responsible for the cost if litigation (specific gift)?

Answer 30

The specific legatee (beneficiary) will be responsible for the cost of litigation to establish ownership.

Question 31

Administration: Dealing with the Estate What happens if the will does not contain an express provision for payment of pecuniary legacies?

Answer 31

The PRs will have to decide which assets are to be used to pay the pecuniary legacies.

Question 32

Administration: Dealing with the Estate What is the general rule used for payment of pecuniary legacies? Effect? What happens if payment is delayed past this date? What is the testator stipulates that the legacy is to be paid 'immediately following my death', or that it is payable at some future date, or in the happening of a particular contingency?

Answer 32

Payable at the end of the 'executor's year - one year after the testator's death. PRs are not bound to distribute the estate to the beneficiaries before the expiration of one year from the death. If payment is delayed past this date, the legatee will be entitled to interest by way of compensation. Then interest is payable from either the day following the date of death, the future date, or the date the contingency occurs.

Question 33

Administration: Dealing with the Estate What are the 4 exceptions where interest is payable on a pecuniary elgacy from the date of death?

Answer 33

When legacies are: - payable in satisfaction of a debt owed by the testator to a creditor; - charged on land owned by the testator; - payable to the testator's minor child; or - payable to any minor.

Question 34

Administration: Dealing with the Estate When does inheritance tax loss relief apply? What is a qualifying investment? When is it normally available?

Answer 34

Where qualifying investments are sold within 12 months of death for less than their market value at death then the sale price can be substituted for the market value at death and the IHT liability will be adjusted accordingly. Qualifying investments are shares or securities which are quoted on a recognised stock exchange at the date of death and also holdings in authorised unit trusts. Normally available only when the PRs make the sale and not where a beneficiary does.

Question 35

Administration: Dealing with the Estate Who is liable to pay the instalments of IHT on instalment option property once assets have been transferred to the entitled? What should PRs do to cover remaining IHT on the property?

Answer 35

The PRs continue to be liable for remaining instalments. PRs should consider retaining sufficient assets in the estate to cover the remaining tax.

Question 36

Administration: Dealing with the Estate When will PRs become liable for tax on lifetime transfers? What is the extent of their liability? What if the deceased gave away property during their lifetime but reserved a benefit? Who is responsible for tax?

Answer 36

General rule - donees of lifetime transfers are primarily liable. PRs become liable if the tax remains unpaid by the donees 12 months after the end of the month in which the donor died. PRs liability limited to the extend of the deceased assets which they have received or would have received in the admin of the estate, but for their neglect or default. Such property is treated as part of his estate on death. The donee of the gift is primarily liable to pay the tax attributable, but if the tax remains unpaid 12 months after the end of the month of death, the PRs become liable.

Question 37

Administration: Dealing with the Estate What will the PRs do to confirm the discharge of liability for IHT?

Answer 37

Can apply for confirmation to be provided in the form of a clearance certificate to HMRC.

Question 38

Administration: Dealing with the Estate When must PRs make a return to HMRC of the income and capital gains of the deceased for the period starting on 6 April before the death and ending on the date of death? At what rates do PRs pay income tax? Allowances? When will PRs pay no income tax? What reliefs may be available to PRs on income tax?

Answer 38

Immediately following death. Do not pay income tax at higher rates. Do not receive any allowances available to individuals. Following rates: - dividends - 8.75% - other income - 20% When the income of the estate in a tax year does not exceed £500. May be able to claim relief for interest paid on a bank loan to pay IHT.

Question 39

Administration: Dealing with the Estate What is the flat rate at which PRs pay CGT? What is the annual exemption available for CGT? For how long may PRs claim annual exemption? Does CGT liability arise on death? When must CGT on UK residential land be paid?

Answer 39

24%. £3,000. For disposals in the tax year in which the deceased died and the following 2 tax years only. No, there is no disposal for CGT purposes on death. Within 60 days of completion.

Question 40

Administration: Dealing with the Estate When is an estate considered complex? Effect?

Answer 40

If either: (1) the value of the estate exceed £2.5 million; or (2) tax due for the whole of the administration period exceeds £10,000; or (3) the value of assets sold in a tax year exceeds £500,000. If the estate is complex, they must make a tax return to HMRC of the income they receive on the deceased's assets, and any gains they make on disposals of chargeable assets for administration purposes.

Question 41

Administration: Dealing with the Estate To whom will property be transferred where a minor beneficiary has a vested interest?

Answer 41

PRs may be able to transfer their entitlement to them (if expressly authorised in the will), or to the parents/guardians of the minor.

Question 42

Administration: Dealing with the Estate What is the purpose of estate accounts? When will the PRs produce them? Effect?

Answer 42

To show all the assets of the estate, the payment of the debts, administration expenses and legacies, and the balance remaining for the residuary beneficiaries. The final task for beneficiaries. In the absence of fraud or failure to disclose assets, the signatures will release the PRs from further liability to account to the beneficiaries.

Question 43

(5.9-5.11) Will Drafting Do the PRs need the consent of legatees to appropriate assets? Does this apply to trustees?

Answer 43

s41 AEA 1925 gives PRs the power to appropriate any assets in the estate in or towards satisfaction of any legacy or any interest in residue provided that the appropriation does not prejudice any beneficiary of a specific legacy BUT the legatee to whom the assets are appropriated (or their parent/guardian) must consent to the appropriation. Possible to remove the need for the legatee's consent. s41 does not apply to trustees - necessary to include an express provision to permit the trustees to appropriate trust property towards beneficial interests arising under the trust without obtaining the consent of the beneficiaries.

Question 44

(5.9-5.11) Will Drafting What power do trustees have to use capital for advancement of beneficiaries? To which beneficiaries does it apply? Can the beneficiaries compel trustees to make an advancement? Limitations? Where the trust creates a life interest, how can the power be altered?

Answer 44

In certain circumstances can give a beneficiary a payment of trust capital sooner than they would receive it under the basic provisions of the trust. Only applies to beneficiaries who have an interest in trust capital. Absolute discretion on the trustees - beneficiaries cannot compel trustees to make an advancement. Cannot make an advancement of the whole of a beneficiary's share of capital. Where the trust creates a life interest, common to extend the power to permit trustees to make advancements of capital to the life tenant.

Question 44

(5.9-5.11) Will Drafting How can trustees use income for the maintenance of beneficiaries?

Answer 44

Where trustees are holding a fund for a minor beneficiary, have the power to use income they receive for the minor's maintenance, education or benefit.

Question 45

(5.9-5.11) Will Drafting What can beneficiaries do when sui juris and together entitled to the whole fund (s19 Trusts of Land and Appointment of Trustees Act (TLATA) 1996)?

Answer 45

Where beneficiaries are sui juris (18 or more with full capacity) and together entitled to the whole fund, they may direct the trustees to retire and appoint new trustees of the beneficiaries choice. Provision may be expressly excluded by the testator.

Question 46

(5.9-5.11) Will Drafting When do beneficiaries have an interest in possession? What special powers are given to a beneficiary under a trust of land who has an interest in possession? Can these be provisions be excluded?

Answer 46

Beneficiaries have an interest in possession if they are entitled to claim the income of the fund as it arises. - Duty to consult beneficiaries (of full age and beneficially entitled) - MAY BE EXCLUDED. - Beneficiary's right to possession - even if not of full age, has the right to occupy the land if the purposes of the trust include making the land available for occupation by them, or if the trustees acquired the land in order to make it available - CANNOT BE EXCLUDED, but a declaration that the purpose of the trust is not for occupation of land may be included in will.

Question 47

(5.9-5.11) Will Drafting What powers do the trustees have to carry on the testator's business?

Answer 47

May only run the business with a view to selling it as a going concern and may only use the assets at the date of death. Powers may be extended by will.

Question 48

(5.9-5.11) Will Drafting Professional Conduct and Ethics Can solicitors take instructions from a third party for the drafting of a will? Can a solicitor be benefitted in a will? Can a solicitor be appointed as executor?

Answer 48

Should not take instructions from anyone but the client for the drafting of a will. Solicitors should not prepare a will giving significant amounts to themselves, their spouses/CPs or family members unless the client has obtained independent advice. Should not encourage clients to appoint you or the business you work for as an executor unless clearly in the client's best interests. Professional executor more likely to be expensive than lay person, therefore little to no advantage. Before rafting will which appoints you or business, should be satisfied that client has made decision on fully informed basis, including: - explaining the options available to the client regarding choice of executor; - ensuring client understands executor does not have to be a professional, could be a family member or beneficiary, or lay person; - recording advice that is given convening the appointment of executors and the client's decision.