Introduction to wills and estate planning - Roles of personal representatives and trustees

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Overview

Understanding the roles of personal representatives and trustees is essential for aspiring legal professionals preparing for the SQE1 FLK2 exam. These roles involve managing a deceased person's estate, ensuring their wishes are fulfilled and assets are distributed according to law. This article provides an overview of their duties, legal framework, and practical applications in the context of wills and estate planning.

Personal Representatives: Executors and Administrators

Personal representatives, including executors and administrators, are central to estate administration. Their appointment and duties are governed by the Administration of Estates Act 1925 and the Senior Courts Act 1981.

Appointment and Legal Basis

  • Executors are named in a valid will and derive authority from the testator's appointment.
  • Administrators are appointed by the court when there is no will, the will lacks an executor, or the named executor is unable or unwilling to act.
  • Letters of administration follow the order of priority in intestacy under the Non-Contentious Probate Rules 1987.

Key Responsibilities

  1. Asset Management:

    • Identify, secure, and accurately value all assets of the deceased's estate.
    • Work with banks, investment firms, and property valuers.

  2. Debt and Tax Settlement:

    • Pay outstanding debts, including funeral costs.
    • Calculate and pay inheritance tax, completing complex tax returns and negotiating with HM Revenue & Customs.

  3. Estate Distribution:

    • Distribute remaining assets according to the will's terms or intestacy rules.
    • Demonstrate thorough knowledge of succession law and rules of will construction.

  4. Account Keeping:

    • Maintain detailed records of all transactions and decisions.
    • Provide beneficiaries access to inspect accounts.

Legal Powers and Limitations

Personal representatives possess certain powers under the Trustee Act 2000 and common law, including:

  • Selling or transferring estate assets
  • Temporarily continuing the deceased's business
  • Handling claims by or against the estate

However, they must act in the best interests of the estate and beneficiaries, following fiduciary duties imposed by law.

Trustees: Guardians of Trust Assets

Trustees are appointed to manage trusts, which can be created during a person's life, by will, or by operation of law. For SQE1 FLK2 exam purposes, focus on express trusts created by will in estate planning.

Trustee Duties and Obligations

  1. Fiduciary Duty: Act in the best interests of beneficiaries, avoiding conflicts of interest and personal profit.

  2. Duty of Care: Exercise reasonable care and skill, considering any special knowledge or expertise.

  3. Investment Duty: Invest trust assets wisely, following the "standard investment criteria" outlined in the Trustee Act 2000:

    • Ensure suitability of investments
    • Maintain appropriate diversification

  4. Impartiality: Balance interests of different classes of beneficiaries when applicable.

  5. Account and Information: Keep accurate accounts and provide beneficiaries with relevant information.

Powers of Trustees

Trustees' powers derive from the trust instrument and statute, primarily the Trustee Act 2000, which grants broad default powers including:

  • Power of investment
  • Power to acquire land
  • Power to delegate certain functions to agents

These statutory powers can be limited or expanded by the trust instrument.

Key Differences Between Personal Representatives and Trustees

  1. Temporal Scope: Personal representatives have a finite role, concluding once the estate is fully administered. Trustees often have ongoing responsibilities.

  2. Asset Control: Personal representatives have immediate control over the deceased's assets, while trustees control only trust property.

  3. Beneficiary Relationship: Personal representatives owe duties to the estate generally, whereas trustees have direct fiduciary relationships with identified beneficiaries.

  4. Discretion: Trustees often have more discretion in decision-making, particularly in discretionary trusts. Personal representatives generally follow the will's terms or intestacy rules.

  5. Accountability: While both are accountable, trustees face more ongoing scrutiny, with beneficiaries able to request regular updates.

Practical Applications: Real-World Scenarios

Complex Estate Administration

Consider Dr. Emily Chen's estate, which includes a medical practice, international investments, and intellectual property. Her executor, James, must:

  1. Obtain probate
  2. Value the medical practice with specialist assistance
  3. Repatriate foreign assets
  4. Manage royalties from medical textbooks
  5. Calculate and pay inheritance tax, potentially claiming business property relief
  6. Distribute specific legacies and residuary estate as per the will

This scenario highlights the complex nature of a personal representative's role and the breadth of knowledge required.

Trustee Investment Decisions

In a testamentary trust established by William for his grandchildren's education, trustees Sarah and Mark must:

  1. Regularly review the investment strategy
  2. Diversify investments to mitigate risk
  3. Consider ethical investment criteria if specified
  4. Balance current and future beneficiaries' needs
  5. Provide updates on trust performance

This example illustrates the decision-making process trustees undertake, balancing various legal and practical considerations.

Interplay of Roles

Margaret's will appoints her son Peter as executor, leaves her house to daughter Jane outright, and places investments in trust for grandchildren with Peter and Jane as trustees. This scenario demonstrates how both roles can intersect within a single estate plan, requiring clear delineation of responsibilities.

Conclusion

Mastering the roles of personal representatives and trustees is crucial for success on the SQE1 FLK2 exam and future legal practice. These positions are vital to effective estate planning and administration, ensuring orderly distribution of estates and long-term management of assets. Key points to remember include:

  1. Personal representatives handle the immediate administration of estates, while trustees provide ongoing asset management.
  2. Both roles carry significant legal responsibilities and fiduciary duties.
  3. Thorough knowledge of the legal framework, including relevant statutes and case law, is necessary for both roles.
  4. Practical application is vital, demonstrated through complex estate scenarios and investment decisions.
  5. The interaction between personal representative and trustee roles can be complex, requiring clear differentiation and management.

As legal practices evolve, especially with digital assets and cross-border estates, professionals must update their knowledge and skills in these vital areas.