Learning Outcomes
After reading this article, you will be able to explain the core duties of personal representatives in estate administration, including the collection and valuation of assets, payment of debts and taxes, and the correct distribution of the estate. You will also be able to identify the legal standards and risks associated with these duties, and apply the relevant statutory and common law principles to SQE1-style scenarios.
SQE1 Syllabus
For SQE1, you are required to understand the practical and legal responsibilities of personal representatives in the administration of estates. Focus your revision on:
- the statutory and common law duties of personal representatives (executors and administrators)
- the process of collecting and valuing estate assets
- the correct order and method for settling debts and taxes
- the lawful distribution of the estate to beneficiaries
- the risks of personal liability and available protections for personal representatives
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
- What is the difference between an executor and an administrator?
- What is the correct order for paying debts and liabilities from an estate?
- What is the effect of failing to advertise for creditors under the Trustee Act 1925?
- What are the main risks of personal liability for personal representatives?
Introduction
When a person dies, their property must be managed and distributed according to law. This responsibility falls to the personal representatives—either executors (named in a will) or administrators (appointed by the court if there is no will or no executor able to act). The role of a personal representative is central to the administration of estates and is governed by both statute and common law.
Key Term: personal representative A person (executor or administrator) responsible for managing and distributing a deceased person's estate.
Personal representatives must act promptly and carefully. Their main duties are to collect and value the estate assets, pay all debts and taxes, and distribute the estate to those entitled. Failure to perform these duties correctly can result in personal liability.
Duties of Personal Representatives
Collecting and Valuing Assets
The first duty is to identify, secure, and value all assets belonging to the deceased at the date of death. This includes property, bank accounts, investments, personal possessions, and any other rights or interests.
Key Term: estate All property, rights, and interests owned by the deceased at death, subject to administration.
Personal representatives must ensure assets are protected from loss or damage and obtain professional valuations where necessary (e.g., for real property or valuable items).
Paying Debts and Taxes
Before distributing the estate, personal representatives must pay all debts and liabilities. This includes funeral expenses, outstanding bills, loans, and taxes (such as inheritance tax and any income or capital gains tax due).
Key Term: devastavit A breach of duty by a personal representative resulting in loss to the estate, for which they may be personally liable.
The order of payment is set by statute. Secured debts (such as mortgages) are paid first, followed by funeral and testamentary expenses, then unsecured debts. If the estate is insolvent, strict rules apply to the order of payment.
Distributing the Estate
Once all debts and taxes are settled, the personal representatives must distribute the remaining assets to the beneficiaries named in the will, or, if there is no will, according to the intestacy rules.
Key Term: residue The part of the estate left after payment of debts, taxes, and specific gifts, to be distributed to the residuary beneficiaries.
Distribution must be accurate and in accordance with the will or the law. If there are ongoing trusts, the personal representatives may become trustees for those assets.
Protecting Against Personal Liability
Personal representatives can be personally liable if they breach their duties, for example by failing to pay a debt, distributing the estate incorrectly, or acting negligently.
Key Term: Trustee Act advertisement A statutory notice published to alert potential creditors, which, if properly done, protects personal representatives from later claims.
To limit liability, personal representatives should:
- Advertise for creditors under the Trustee Act 1925, s.27
- Keep detailed records of all transactions
- Seek professional advice for complex issues
- Delay distribution until all claims and taxes are resolved
Worked Example 1.1
A will appoints two executors. They collect the deceased’s assets, pay the funeral expenses and most debts, but overlook a significant loan. They distribute the residue to the beneficiaries. Six months later, the lender demands repayment.
Answer: The executors may be personally liable to the lender for the unpaid debt, as they failed to settle all known debts before distribution. If they had advertised for creditors and the lender did not respond, they may be protected from personal liability.
Worked Example 1.2
An estate includes a house, bank accounts, and personal items. The executors pay the mortgage and funeral costs, but distribute the estate before paying an outstanding tax bill. HMRC later demands payment.
Answer: The executors are personally liable for the unpaid tax. Tax liabilities must be settled before distribution. They should have ensured all taxes were paid before transferring assets to beneficiaries.
Exam Warning
If personal representatives distribute the estate before all debts and taxes are paid, they risk personal liability. Always check for outstanding liabilities and consider delaying distribution until all claims are resolved.
Revision Tip
Always remember the statutory order for paying debts. Secured debts and funeral expenses come before unsecured debts and legacies.
Key Point Checklist
This article has covered the following key knowledge points:
- Personal representatives are responsible for collecting, valuing, and safeguarding all estate assets.
- All debts, taxes, and liabilities must be paid before distributing the estate.
- The statutory order of payment must be followed; secured debts and funeral expenses are paid first.
- Personal representatives may be personally liable for breaches of duty or for distributing the estate before all claims are settled.
- Advertising for creditors under the Trustee Act 1925 can protect against later claims.
- Accurate records and professional advice are essential for complex estates.
Key Terms and Concepts
- personal representative
- estate
- devastavit
- residue
- Trustee Act advertisement
