Power of Distribution

In the Estate of Herbert North Summary The answer to the question is that none of the individuals described have authority to act as the situation stands. A representative needs to be appointed before the estate can be administered. Herbert North’s assets will therefore have to be collected in by a court appointed representative and divided among those who are entitled to inherit his assets. It must be impressed upon Mary that Flo, as Herbert’s girlfriend may have the status of a dependant, and this will be discussed throughout the course of the essay. The key actor therefore in this set of circumstances may very well be Flo as if she is able to establish that she had the status of a dependant, she may be entitled to what is known as a statutory payment or other financial provisions, or may be entitled to apply for the status of a spouse, in which case she could in some ways benefit from the estate as if she were married to Herbert. Mary must remember that even if she is appointed as a personal representative, this does not mean that she is going to be the main beneficiary. A personal representative must divide the estate in accordance with succession law, and may be personally liable if this is not done responsibly and in accordance with these rules.

Personal representatives, their powers and responsibilities, the technicalities of how an estate is administered, and what happens if there are more than one personal representative are issues which will be discussed in detail as the essay progresses. However, for the purposes of summarising, it is suffice to say that the situation of Mary and Luke depends very much on that of the other actors in the scenario, and Flo is the person whose situation may have the largest impact upon Mary. The issues which are highlighted in the essay are therefore complex and inter-related and they raise questions about current debates about the current status of the law relating to intestacy and the administration of trusts. These questions will be discussed throughout the course of the essay, but first the question of whether Herbert has made a valid will must be examined. Is the Will of Herbert North Valid? A will is a legally recognised document which can direct that a deceased person’s estate be administered in accordance with their wishes. Herbert spent the last six months of his life in a nursing home and there may be a question over whether he was capable of making a will in these circumstances.

This of course is a matter which will be determined by the construction of the will itself, how sensibly it reads, and by the views of any individuals who may wish to question its validity. In order to make a will which is valid in law, a testator must demonstrate both testamentary capacity and testamentary intention. Testamentary Capacity was defined in the 1870 decision in Banks and Goodfellow (1870)

[1] as being ‘soundness of mind, memory and understanding’ (Bamford et al. (2002) p331). In these circumstances, according to Bamford et al. (2002) p331) a testator must understand a)the nature and effects of his act, b)the extent of what he owns, and c)the moral obligation which he should consider. Under certain circumstances a will may be open to challenge on the grounds of validity if, for example it can be established that there were suspicious circumstances, if the will was not signed properly or if there may have been undue influence.

Given that none of these circumstances appear to have influenced Herbert’s actual will, the writer will assume that it is a valid document. Intestacy Definition, Trusts and the Results of Intestacy The intestacy rules are laid out in the Administration of Estates Act 1925

[2] and apply in order to establish how a deceased person’s property is distributed after their death, where the deceased person has not made a will to dispose of the property (Bamford et al. (2002) p331). Partial Intestacy is where the deceased has only distributed part of his property, and in this case the part which is not distributed will be distributed under the rules of intestacy (Bamford et al. (2002) p331). It must be remembered that intestacy rules only apply to property which can be disposed of by operation of a will, but for the purposes of this question, there is not such property to deal with. The intestacy rules impose what is referred to as a trust which encompasses all of the property, both personal and real which an intestate person has not disposed of by making a will. This trust is an express trust which creates obligations upon and accords certain powers to whoever is nominated as the personal representative (Bamford et al. (2002) p332). Personal Representatives and the Powers and Responsibilities of a Personal Representative A personal representative will have to administer the estate in accordance with the will and/or in accordance with the intestacy rules. A personal representative may be known either as an administrator, or as an executor. Any surviving executor who is named in a will will automatically be appointed as the personal representative, and a personal representative will be entitled to extract a grant of probate in respect of the property of the deceased. In other circumstances an individual or a group of individuals may apply to the court to ask to be appointed as a personal representative.

Geldart (1995, p128) explains the early stages of how a will must be administered: ‘…..the property, whether real or personal, does not go directly to those for whose benefit it is given, nor does property passing on intestacy go directly to those entitled under the rules above stated…[3]’. Where there has been a valid will, a personal representative may be nominated under the rules outlined in Rules 20-22 of the Non-Contentious Probate Rules 1987[4]. These rules provide that in the case where there is no named executor, a ‘residuary legatee’ or ‘any other person entitled to share in the undisposed of residue’ (Bamford et al. (2002) p356) may apply to be a personal representative in the category of an administrator. When a person applies to be an administrator under the later criteria he or she must show the court why they are entitled to act in this role and they must explain why there are no other people from a higher category (for example a ‘residuary legatee’), who are entitled to act. Several people can act as administrators (Bamford et al. (2002) p341), and where there is a dispute over who should act as personal representative, the court decides who is nominated. Therefore in the circumstances of this case Flo, Luke and Mary may be entitled to make an application to be appointed an administrator of the will according them or one of them, the powers associated with personal representatives, however it must be remembered that depending upon the status of Flo, Luke or Mary may not be able to show a court that they are better placed to be appointed as personal representative and therefore extract a grant of probate. When the grant of probate has been obtained, the personal representative has a power of sale, an obligation to discharge the funeral, testamentary and administrations expense and all of the debts owed by the deceased person (Bamford et al. (2002) p384). The personal representative will have powers to discharge the cost of having the emergency repairs done and the nursing home expenses dealt with. Also, any council tax rebate will form part of Herbert’s estate and the discretion to have Herbert buried with his grandparents falls to the personal representative, who must pay any bills in this regard. It probably does not matter that Luke has paid the gas and electric bills, however, the personal representative should check that this has been done honestly and in full and that Luke has not taken any money for himself in discharging these payments. In this investigation the personal representative should look at the bank statements of Herbert North and ask the companies concerned to send final bills with a breakdown of all payments received. The rest of the estate which remains after these expenses are discharged is referred to as the ‘residuary estate’ and this is the estate that the personal representative must distribute.

Therefore it must be impressed upon Mary that the powers of a personal representative are quite limited until a grant of probate is extracted in respect of the estate (Bamford et al. (2002) p339). The early responsibilities and powers of a personal representative are described by Geldart (1995, p128) in the following way: ‘The executor or administrator, whose duties in many ways resemble those of a trustee, must in the first instance discharge the funeral expenses, the cost (including the payment of inheritance tax) of obtaining probate of the will or ‘letters of administration’, and the debts of the deceased. It is only after these claims are discharged that the executor or administrator will transfer the property to those entitled; or, if the property is settled by will and the executor is not himself trustee, to trustees for them. In many cases, as where the persons entitled are not of age, or not yet in existence, or not to be found, an executor or administrator will have to retain the property in his hands for a considerable time, though he may sometimes relieve himself by a payment or transfer into court, and in any case he can obtain the direction of the court when doubts arise as to the proper course which he should take.[5]’. Therefore, Mary should be aware that she is not entitled to act in respect of funeral directions unless she has been appointed as the personal representative. A problem arises therefore that she has already ordered Herbert’s funeral in a somewhat extravagant way. The duty of a personal representative is to discharge only reasonable funeral expenses (Bamford et al. (2002, p384) and therefore if another is appointed personal representative she may be asked to refund some of these monies and to pay for what is not reasonable herself. Equally, if Mary is the personal representative, she has a duty to discharge reasonable expense in the organisation of the funeral. Also, what Mary pays for the funeral, if she has been nominated as personal representative is still open to challenge by other interested parties in the situation and these parties may apply to the court to fix any unreasonable costs, upon Mary personally. Mary should be advised not to take any further action until she knows whether she will be appointed as personal representative, and perhaps she could be advised to try to recover any deposit she has already paid out in ordering Herbert’s funeral or indeed to attempt to cancel arrangements already made if it transpires that she will not be nominated as personal representative.

Again, it needs to be impressed upon Mary that she will not be able to discharge debts for example those owed to Bill’s Bookies, unless she has achieved the status of personal representative. Powers of Distribution According to Bamford et al. (2002, p339) a personal representative must wait until six months after the issue of a grant of probate, before they are entitled to distribute assets under it, otherwise they may be personally (Bamford et al. (2002) p341) liable to satisfy any valid claim to the estate if insufficient assets are left after distribution. Luke is not entitled to distribute the estate unless he has the power to act afforded through the grant of probate and through his nomination as a personal representative. In these circumstances some common sense steps may help Mary to ensure that Luke does not benefit from the residuary estate unlawfully. Given that Mary suspects that Luke may have taken some items of household furniture for himself, she should tell him by notice in writing (sent by recorded delivery) that he is not entitled to distribute the estate without having the powers to act which are vested in personal representatives. Mary could consider making a report to the police and if Luke is clearing the house, this may be unlawful activity. It may also help Mary to try to compile an inventory of all items of household furniture which remain. She can ask the police to assist her in this regard, for the purposes of gaining entry to the house. Alternatively she may consider suing Luke to potentially recover her share of what she suspects he has taken for himself, but this could be difficult if she does not know exactly what has been taken and it may be difficult if she is not personal representative. In all of these circumstances, Mary will be in a better position to act if she has been appointed personal representative.

Mary, or indeed another party charged with the responsibility of personal representative may also be able to ask the court to make an order for Luke to surrender his keys. Is Flo a Dependant? The status of spouse may be applied for where a person can show that they were dependant upon the deceased person in accordance with the criteria laid down in The Inheritance (Provision for Family and Dependants) Act 1975. Geldart (1995) describes the purpose and provisions of this Act: ‘…. (The)…Inheritance (Provision for Family and Dependants) Act 1975, which increases the range of dependants who may apply for provision on death and gives the court wider powers than previously existed so that it can make whatever type of order may be most appropriate in the circumstances…. (A dependant is)…a person who was being wholly or partly maintained by the deceased immediately before his death. To qualify in this…category a dependant need not have been related to the deceased, and thus a mistress would be included. Furthermore, there is no qualifying period during which the applicant must have received maintenance from the deceased…….[6]’. These rules may be of relevance to Herbert’s long term girlfriend, Flo, and if this is the case Mary should be advised that her entitlement to a legacy may be drastically affected by Flo’s status in this regard.

The status of dependant in many ways is akin to that of a married spouse, depending on the circumstances and where a status equivalent to a married spouse is achieved by a dependant this must be the result of a court order. Mary should be advised that under Section Four of these provisions, Flo has only six weeks from the issue of a grant of probate to apply for the status of a dependant, although the court may extend this time period as a matter of discretion (Bamford et al. (2002, p337). If Flo does make an application under this legislation, she must be able to show that she was being maintained by Herbert, either partially or wholly. ‘Maintained’ means that a ‘substantial’ contribution was being made towards the reasonable requirements of that person. Geldart (1995) gives us further detail on what is meant by the idea of being ‘maintained’: ‘’Maintained’ means that the deceased was making a substantial contribution in money or money’s worth towards the reasonable needs of the applicant, and he did not receive full valuable consideration for this: thus food and shelter are included in the definition. The court may attach to its grant such conditions as it sees fit.

The maintenance ordered may be in the form of a lump sum, by way of periodical payments of income, or by transfer or settlement of specific property, or the variation of a settlement. Such payments to a spouse will normally end if he or she remarries, but……provisions….excluding a child from further benefit on attaining the age of majority or on marriage have been repealed by the 1975 Act. The court must take into consideration the nature of the testator’s property, the pecuniary position of the dependant, his or her conduct to the testator, and any other relevant circumstance, and the testator’s reasons for the dispositions made by him in his will…[7]’. As Herbert’s house is his main asset Flo may be entitled to an absolute interest in her share of it, if she achieves the status of a dependant under these provisions. She may also be entitled to a statutory legacy which is currently £200000 and is tax free. However, under the rules of intestacy, a spouse is defined as a person to whom the spouse was married to when he or she died. Therefore, if there is no spouse or person to whom the Inheritance Act 1975 applies to, then issue of the deceased will be the beneficiaries, and in this case, the issue are Luke and Mary, who are entitled to take the undisposed property of Herbert under the intestacy rules, in the event of a failure by Flo to establish that she is a dependant. The Squatter Squatting is not regarded as a criminal offense.

However, it must be explained to Mary that she must not try to enter the property by damaging windows or doors. Equally, a squatter who damages windows or doors is liable to be arrested. Mary or the personal representative may be entitled to obtain a court order to evict the squatter. The personal representative should make immediate efforts to have this squatter removed, bearing in mind that it is illegal to force entry in some circumstances and that it is illegal to intimidate the squatter through the use or the threat of force. Luke may also be a squatter if he moves in immediately and wishes to occupy the property rent free and if he does so he is liable to be evicted also. Inheritance Tax Mary is right to suspect that the assets may attract inheritance tax, although a recent change to the Inheritance tax legislation operates favourably in this regard as the lower threshold for Inheritance tax has just been increased to £285,000, as of April 2006. This newspaper extract shows the full nature of the change to the legislation: ‘Inheritance tax is currently charged at 40 per cent of the value of all assets passed on above the £275,000 threshold, although this is set to increase to £285,000 in April…[8]’. However, only the person entitled to inherit should be concerned with Inheritance tax and it is not clear yet that Mary will be entitled to inherit Herbert’s assets. Gifts Any gifts given by Herbert may be taxable as this extract from the Mail on Sunday indicates: ‘Gifts given within seven years of death are taxable, except those to a husband or wife….and gifts to charities are exempt as are [pounds sterling] 250 cash handouts, certain cash wedding gifts and payments into a life policy..[9]’. The responsibility to open an account with the Inland Revenue falls to the personal representative who should ensure that all tax is paid properly. If there was an undue influence involved in the giving of this gift or if Herbert was not of sound mind at the time, as might have been the case in the case of the gift to the Matron, a court may order the money or jewelry to be returned.

However, it may be difficult to prove the circumstances surrounding the bequest of these gifts and accordingly, the person nominated as personal representative should use their discretion to see if it is worthwhile to pursue this avenue. Conclusion These are the issues that Mary should be made aware of by the solicitor. She must understand both the limitations of her power at each stage of the process and the extent of any power a nomination as personal representative may lead to. She must understand that she may not be entitled to benefit in the way that she might like and must understand the entitlements that Flo may secure. Bibliography Books Geldart, W. (1995) Introduction to English Law. Publisher: Oxford University Press. Place of Publication: Oxford. Publication Year: 1995. Bamford, K., Bramley, S., Fraser, J., Halberstadt, R., Morgan, A., Norris, M., Pooley, S. and Riddett, R. (2001-2002) The College of Law: Legal Practice Course, Pervasive and Core Topics. Publisher: Jordans.

Place of Publication: Bristol. Publication Year: 2001-2002. Articles Anonymous (March 2006) Budget 2006 – Inheritance Tax Hopes Dashed.

Available at: << https://www.myfinances.co.uk/news/economy/the-budget-and-pre-budget/budget-2006-inheritance-tax-hopes-dashed-$340734.htm >>. Anonymous (1996) Avoid the Grief Bequeathed Without a Will. The Mail on Sunday. Publication Date: October 13, 1996. p15. 1

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Footnotes

5)

[1] LR 5 QB 549

[2] (AEA 1925)

[3] p128. Geldart, W. (1995) Introduction to English Law. Publisher: Oxford University Press. Place of Publication: Oxford. Publication Year: 1995.

[4] (NCPR 1987)

[5] p128. Geldart, W. (1995) Introduction to English Law. Publisher: Oxford University Press.

Place of Publication: Oxford. Publication Year: 1995.

[6] p122. Geldart, W. (1995) Introduction to English Law. Publisher: Oxford University Press. Place of Publication: Oxford. Publication Year: 1995.

[7] p122. Geldart, W. (1995) Introduction to English Law. Publisher: Oxford University Press. Place of Publication: Oxford.

Publication Year: 1995.

[8] Anonymous (March 2006) Budget 2006 – Inheritance Tax Hopes Dashed Available at: << https://www.myfinances.co.uk/news/economy/the-budget-and-pre-budget/budget-2006-inheritance-tax-hopes-dashed-$340734.htm >>.

[9] p1. Anonymous. Avoid the Grief Bequeathed Without a Will.

The Mail on Sunday. Publication Date: October 13, 1996. p15.

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