Personal representatives and trustees in estate administration - Trusts created during estate administration

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Overview

Understanding the roles of personal representatives and trustees in estate administration, especially concerning trusts, is essential for the SQE1 FLK2 exam. This area of law involves complex legal frameworks, fiduciary duties, and practical applications that aspiring solicitors need to understand thoroughly. This article provides a thorough overview, covering key concepts, recent developments, and their significance for the exam and future legal practice.

Personal Representatives: Roles and Responsibilities

Personal representatives (PRs) are crucial to estate administration, responsible for executing the deceased's will or managing estates without a will. Their main duties include:

  1. Asset Collection: Gathering the deceased's assets, including real estate, investments, and personal items.
  2. Debt Settlement: Clearing any outstanding debts and obligations.
  3. Estate Distribution: Allocating remaining assets to beneficiaries as per the will or intestacy rules.

PRs must act in the best interests of the estate and its beneficiaries, a duty highlighted in Nestle v National Westminster Bank plc [1993] 1 WLR 1260, stressing prudent asset management.

Trustees: Roles and Responsibilities

Trustees manage assets held in trust for specified beneficiaries. Their key responsibilities include:

  1. Asset Management: Safeguarding and overseeing trust assets.
  2. Investment Decisions: Making sound investment choices to maximize growth while managing risk.
  3. Beneficiary Distributions: Distributing income or capital according to the trust's terms.

The case of Armitage v Nurse [1998] Ch 241 clarified trustees' duties, emphasizing loyalty to beneficiaries.

Creating Trusts During Estate Administration

Trusts established during estate administration serve various functions, such as tax reduction, asset protection, and accommodating specific beneficiary needs. Common types include:

  1. Discretionary Trusts: Offer flexibility in how and when distributions are made. Example: A trust for grandchildren’s education, allowing adjustments based on need.

  2. Life Interest Trusts: Provide lifetime income to a beneficiary, with capital going to others later. Example: Income to a surviving spouse, with capital to children upon the spouse's death.

  3. Bereaved Minor’s Trusts: Protect assets for minors until they reach a set age.

  4. Disabled Person’s Trusts: Support beneficiaries with disabilities while maintaining state benefit eligibility.

These trusts are guided by the will's provisions, the Trustee Act 1925 and 2000, and relevant case law such as Saunders v Vautier [1841] EWHC Ch J82.

Trustees’ Duties and Powers

Fiduciary Responsibilities

Trustees' duties, as confirmed in Bristol and West Building Society v Mothew [1998] Ch 1, include:

  1. Duty of loyalty
  2. Acting in good faith
  3. Avoiding conflicts of interest
  4. Maintaining confidentiality

Statutory and Common Law Duties

  1. Duty of Care: Section 1 of the Trustee Act 2000 requires trustees to use reasonable skill and care in their role.

  2. Investment Duties: Trustees follow investment criteria from Section 4 of the Trustee Act 2000, considering suitability and diversification.

  3. Duty to Account: Trustees must keep accurate records and provide accounts to beneficiaries, emphasized in Schmidt v Rosewood Trust Ltd [2003] UKPC 26.

Powers of Trustees

Trustees’ powers stem from the trust instrument, statute, and common law, including:

  1. Power of Investment: Section 3 of the Trustee Act 2000 grants investment power, with trust instrument restrictions.

  2. Power of Delegation: Section 11 of the Trustee Act 2000 allows delegation of certain functions, though ultimate responsibility remains.

  3. Power of Advancement: Section 32 of the Trustee Act 1925 allows advancing capital to beneficiaries with limitations.

Practical Application and Recent Developments

Case Study: Complex Estate Administration

Consider an estate with a family business, real estate, and investments, with the will establishing multiple trusts:

  1. A discretionary trust for grandchildren’s education
  2. A life interest trust for the surviving spouse
  3. A bereaved minor’s trust for a young child

Personal representatives must:

  • Identify and value all assets
  • Settle liabilities, including inheritance tax
  • Transfer assets to the trusts

Trustees of each trust must:

  • Implement appropriate investment strategies
  • Manage distributions as per trust terms
  • Ensure compliance with tax obligations

Recent Legal Developments

  1. Ilott v The Blue Cross [2017] UKSC 17: Reaffirmed testamentary freedom, impacting PRs’ and trustees’ handling of claims under the Inheritance (Provision for Family and Dependants) Act 1975.

  2. Marley v Rawlings [2014] UKSC 2: Addressed will rectification, influencing PRs' interpretation of unclear testamentary instructions.

  3. HMRC v Parry & Ors [2020] UKSC 35: This ruling on inheritance tax and pension transfers stresses the importance of considering tax ramifications in estate planning and trust management.

Conclusion

Understanding the roles of personal representatives and trustees in estate administration, particularly regarding trusts established in this process, is vital for success in the SQE1 FLK2 exam and future legal practice. Essential points include:

  1. Distinct roles and responsibilities in estate administration
  2. Various types and purposes of trusts during estate administration
  3. Fiduciary duties and statutory obligations of trustees
  4. Practical application in complex estate scenarios
  5. Impact of recent case law on estate and trust administration

With a comprehensive grasp of these topics, aspiring solicitors will be well-prepared to handle wills, probate, and trust law in both exams and professional settings.