Administration of estates - Duties of personal representativ...

Learning Outcomes

This article outlines the administration of estates by personal representatives, including:

• Core duties of personal representatives (PRs): collecting and safeguarding assets, obtaining accurate valuations, paying debts and taxes in the correct order, and lawful distribution of legacies and residue
• Legal standards and administrative powers, including the statutory duty of care under the Trustee Act 2000
• Risks of personal liability (devastavit), the protective effect of Trustee Act s.27 advertisements, and options for managing missing or contingent claims
• Distinctions between solvent and insolvent estates and principles such as marshalling and “free of mortgage” for resolving payment and distribution issues in SQE1-style scenarios

SQE1 Syllabus

For SQE1, you are required to understand the duties of personal representatives in estate administration, with a focus on the following syllabus points:

• 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
• the duty of care under the Trustee Act 2000 and core administrative powers (sell, lease, mortgage, appropriate, insure, invest, delegate)
• the order of payment in insolvent estates and practical safeguards (advertisements, insurance, payment into court, Benjamin orders)
• use of appropriation and assent in distribution, including receipts for minors and advancement of capital

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.

1. What is the difference between an executor and an administrator?
2. What is the correct order for paying debts and liabilities from an estate?
3. What is the effect of failing to advertise for creditors under the Trustee Act 1925?
4. 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.

Executors derive authority from the will and can act from the date of death, but in practice will need a grant of probate to prove title to assets and effect transfers. Administrators obtain authority only on the issue of a grant of letters of administration.

Key Term: executor’s year
The informal expectation that PRs collect assets, settle liabilities and be ready to distribute within 12 months of death. PRs are not bound to distribute before the end of that year but should act with due diligence.

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. PRs should obtain a grant of representation to demonstrate authority to institutions holding the assets and to register transfers of land and shares.

Key Term: estate
All property, rights, and interests owned by the deceased at death, subject to administration.

PRs must ensure assets are protected from loss or damage. Practical steps include securing the home, changing locks if appropriate, notifying insurers, and arranging immediate insurance cover for chattels and property. Valuable items (land, antiques, classic cars, art) should be professionally valued to support accurate inheritance tax reporting and fair distribution. Where investments are held, PRs should review risk and may need to liquidate holdings to raise estate cash.

Not all property passes through PRs’ hands. Property owned as beneficial joint tenants passes by survivorship to the surviving joint tenant(s). Life assurance policies written in trust for named beneficiaries and certain pension death benefits are paid directly outside the estate.

Key Term: duty of care (Trustee Act 2000)
A statutory duty requiring PRs to exercise reasonable care and skill, taking account of any special knowledge or professional status, when performing administrative functions such as investment, acquisition of land, appointing and reviewing agents, and insuring trust property.

PRs are fiduciaries. They must act in the best interests of the estate as a whole, avoid conflicts, and keep full records and accounts. While a sole PR can give a valid receipt for sale proceeds of land, all PRs must usually join in executing transfers of land and shares.

Paying Debts and Taxes

Before distributing the estate, personal representatives must pay all debts and liabilities. This includes funeral expenses, administration and testamentary expenses, outstanding bills, loans, and taxes (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 for a solvent estate is set by statute. Secured debts (such as mortgages) are paid from the charged asset unless the will shows a contrary intention.

Key Term: statutory order of payment
The prescribed order for using assets to pay funeral and testamentary expenses and unsecured debts in a solvent estate, and the priority rules for categories of unsecured creditors in an insolvent estate.

Key points:

• Secured debts: A devisee or legatee takes property subject to its mortgage unless the will directs otherwise. Express wording such as “free of mortgage” shifts the mortgage to residue.
• Unsecured debts and expenses: PRs apply assets following the statutory order. Property undisposed of by will is used first (subject to retaining a fund to meet pecuniary legacies), then residue, and only then property specifically devised or bequeathed rateably according to value if other funds are insufficient. These rules can be displaced by contrary provisions in the will.

Key Term: marshalling
An equitable principle used to compensate a disappointed beneficiary where assets not, as between beneficiaries, normally liable for certain debts have been used to pay those debts.

If the estate is insolvent, secured creditors have priority to the value of their security. Unsecured creditors are paid in statutory order. PRs must not prefer creditors within the same category and must act in good faith. If PRs pay lower-ranking debts knowing of higher-ranking debts, they may impliedly warrant that higher debts will be met and risk personal liability.

Tax duties:

• PRs must deliver an inheritance tax account and pay any tax due. Estates that meet “excepted estate” criteria have simplified reporting.
• To fund IHT before grant, PRs can use the Direct Payment Scheme for UK-bank funds, borrow from a bank (often against an undertaking to repay from first proceeds), or (with clear documentation) borrow from beneficiaries. PRs should minimise interest and ensure the estate—not a beneficiary—ultimately bears estate taxes (subject to the incidence of tax rules).

Distributing the Estate

Once all debts and taxes are settled, PRs must distribute the remaining assets to the beneficiaries named in the will, or, if there is no will, according to the intestacy rules. Distribution should be by formal assent for land and by transfer for personalty. PRs should prepare estate accounts and obtain appropriate receipts.

Key Term: residue
The part of the estate left after payment of debts, taxes, and specific gifts, to be distributed to the residuary beneficiaries.

Appropriation is a useful tool in distribution.

Key Term: appropriation
The use of a particular asset to satisfy a legacy or share, instead of cash. PRs can appropriate assets in or towards a beneficiary’s entitlement, subject to required consents and ensuring no prejudice to specific beneficiaries.

Appropriation can satisfy pecuniary legacies with non-cash assets of equivalent value and can assist when limited cash is available. For minors, PRs should appoint trustees to hold assets until vesting, and can rely on statutory powers to apply income for maintenance (TA 1925, s.31) and advance capital (TA 1925, s.32, as amended), subject to any express terms of the will. Where a will creates ongoing trusts, PRs will usually become trustees of those trusts and must then apply trust law duties and powers.

PRs must also recognise valid disclaimers and variations made by beneficiaries. Variations meeting statutory conditions can be “read back” for IHT purposes, but PRs are not obliged to advise beneficiaries to vary; good practice is to inform beneficiaries of their interests and keep neutral in any family arrangements.

Protecting Against Personal Liability

Personal representatives can be personally liable if they breach their duties, for example by failing to pay a debt or tax, 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 claimants under the Trustee Act 1925, s.27 by placing notices in the London Gazette, a local newspaper circulating in the district of any land in the estate, and any other appropriate publication (e.g. a trade journal), requiring claimants to respond within at least two months. Conduct prudent searches (Land Registry, Land Charges, Local Land Charges) to identify liabilities affecting land.
• Keep detailed records of all decisions, valuations, receipts, and payments; prepare clear estate accounts; and obtain appropriate receipts on distribution.
• Seek professional advice for complex issues (tax, business assets, foreign property) and observe the Trustee Act 2000 duty of care when appointing and reviewing agents.
• Deal with missing beneficiaries by one or more protective options: payment into court, beneficiary indemnities (noting their limitations), insurance against missing claims, or a Benjamin order authorising distribution on an assumed basis after full enquiries.

Key Term: Benjamin Order
A court order permitting distribution on an assumption (often that a missing beneficiary is deceased), protecting PRs from personal liability should the beneficiary later reappear.

• Manage future and contingent liabilities (e.g. guarantees, possible litigation) by setting aside funds, obtaining indemnities, seeking court directions, or insuring appropriate risks.
• Protect against Inheritance (Provision for Family and Dependants) Act 1975 claims by delaying distribution for six months from the date of the grant, or retaining a suitable reserve if earlier distribution is necessary.

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. The lender can still trace assets into beneficiaries’ hands.

Worked Example 1.1

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. HMRC can collect interest and may recover assets from beneficiaries who received distribution.

Worked Example 1.2

A testator leaves their house to A and residue to B. The house is subject to a mortgage. The will states “I give my house to A free of mortgage.”

Answer:
The mortgage must be redeemed from residue, shifting the burden away from the devise to A. If residue is insufficient, PRs may have to realise other assets in line with the statutory order and equitable principles (including marshalling) to satisfy the direction.

Worked Example 1.3

PRs cannot locate a known residuary beneficiary despite extensive enquiries. Other beneficiaries press for distribution.

Answer:
PRs can apply for a Benjamin order permitting distribution on an assumption (e.g. that the missing beneficiary predeceased). With such an order, PRs gain protection against personal liability if the beneficiary later appears. Alternatives include payment into court, insurance, or distribution with indemnities, though indemnities may be inadequate if the indemnifier lacks funds.

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. Do not prefer creditors within the same category and take care when paying lower-ranking debts if you have notice of higher-ranking debts.

Revision Tip

Always remember the statutory order for paying debts. Secured debts and funeral/testamentary expenses come before unsecured debts and legacies. Use appropriation to solve practical distribution problems where cash is tight.

Key Point Checklist

This article has covered the following key knowledge points:

• Personal representatives are responsible for collecting, valuing, and safeguarding all estate assets and must act within the Trustee Act 2000 duty of care.
• Authority differs: executors can act from death (but usually require a grant), administrators act only after the grant is issued.
• All debts, taxes, and liabilities must be paid before distributing the estate; observe the statutory order for solvent and insolvent estates.
• Mortgages attach to property unless the will directs otherwise; wording such as “free of mortgage” shifts the burden to residue.
• The doctrine of marshalling may compensate disappointed beneficiaries when non-liable assets are used to pay debts.
• PRs may be personally liable for devastavit or for distributing the estate before claims are settled; prepare full accounts and obtain receipts.
• Advertising for claimants under Trustee Act 1925 s.27 and conducting prudent searches can protect PRs from unknown claims.
• Options to manage missing beneficiaries include payment into court, insurance, indemnities, and Benjamin orders.
• Delay distribution for six months from the grant to guard against Inheritance (Provision for Family and Dependants) Act 1975 claims.
• Appropriation can satisfy legacies and shares with non-cash assets, subject to consent and no prejudice to specific beneficiaries.

Key Terms and Concepts

• personal representative
• executor’s year
• duty of care (Trustee Act 2000)
• estate
• devastavit
• residue
• Trustee Act advertisement
• appropriation
• statutory order of payment
• marshalling
• Benjamin Order