Learning Outcomes
After reading this article, you will be able to identify the distinct roles and legal duties of personal representatives and trustees during estate administration, explain how and why trusts may be created in the course of administering an estate, and apply the relevant statutory and fiduciary principles to practical SQE1-style scenarios. You will also be able to distinguish between different types of trusts commonly arising in estate administration and understand the key powers and responsibilities of those managing estate assets.
SQE1 Syllabus
For SQE1, you are required to understand the legal responsibilities of personal representatives and trustees in estate administration, and the circumstances in which trusts are created during the administration process. As you revise this topic, focus on:
- the distinction between personal representatives (executors and administrators) and trustees in the context of estate administration
- the statutory and fiduciary duties owed by personal representatives and trustees
- the creation and operation of trusts arising during estate administration, including discretionary trusts, life interest trusts, and trusts for minors or disabled beneficiaries
- the statutory powers available under the Trustee Act 2000 and related legislation
- practical implications for the administration and distribution of estate assets
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 primary difference between the role of a personal representative and a trustee in estate administration?
- Name two statutory duties imposed on trustees by the Trustee Act 2000.
- In what circumstances might a trust arise during the administration of an estate, even if not expressly created by the will?
- What is a discretionary trust, and why might it be used in estate administration?
Introduction
When a person dies, the process of collecting, managing, and distributing their assets is governed by strict legal rules. The individuals responsible for this process are known as personal representatives. In many estates, the administration will also involve the creation and management of trusts—either because the will directs it, or because the law requires it (for example, for minor beneficiaries). Understanding the distinction between personal representatives and trustees, and the legal framework for trusts created during estate administration, is essential for SQE1.
Key Term: personal representative A person (executor or administrator) legally responsible for collecting the deceased’s assets, paying debts, and distributing the estate according to the will or intestacy rules.
Personal Representatives: Duties and Powers
Personal representatives (PRs) are the starting point for estate administration. They are either executors (appointed by will) or administrators (appointed under intestacy rules). Their core duties are to collect in the estate assets, pay all debts and liabilities, and distribute the remaining assets to those entitled.
Key Term: executor A personal representative appointed by will to administer the estate of the deceased.
Key Term: administrator A personal representative appointed by the court to administer the estate where there is no valid will or no executor able or willing to act.
Statutory and Fiduciary Duties
PRs must act with care and in good faith. They are personally liable for losses caused by breach of duty. Their main duties include:
- collecting and safeguarding all estate assets
- obtaining accurate valuations for tax and distribution purposes
- paying all debts, taxes, and liabilities before distributing assets
- distributing the estate in accordance with the will or intestacy rules
PRs must also comply with statutory duties, such as those under the Trustee Act 2000 when acting as trustees (for example, when holding assets on trust for a minor).
Key Term: fiduciary duty The obligation to act honestly, in good faith, and in the best interests of the estate or trust beneficiaries, avoiding conflicts of interest and unauthorised profit.
Powers of Personal Representatives
PRs have wide powers to manage estate assets, including the power to sell, insure, or invest assets, and to appropriate assets to satisfy legacies. These powers may be extended or limited by the will or by statute.
Trustees in Estate Administration
A trustee is someone who holds and manages assets for the benefit of others (the beneficiaries) according to the terms of a trust. In estate administration, trustees may be appointed by the will, or may arise automatically by law (for example, where a beneficiary is under 18).
Key Term: trustee A person who holds and manages property for the benefit of others, bound by the terms of the trust and statutory duties.
Statutory Duties Under the Trustee Act 2000
Trustees must comply with the Trustee Act 2000, which imposes a statutory duty of care when exercising powers or making decisions. Key duties include:
- investing trust assets prudently, considering suitability and diversification
- reviewing investments regularly
- taking proper advice where appropriate
- acting impartially between beneficiaries
Key Term: statutory duty of care The legal obligation under the Trustee Act 2000 to exercise such care and skill as is reasonable in the circumstances, having regard to any special knowledge or experience.
Fiduciary Responsibilities
Trustees must act solely in the interests of the beneficiaries, avoid conflicts of interest, and not profit from their position unless expressly authorised. Breach of fiduciary duty can result in personal liability.
Powers of Trustees
Trustees have powers to invest, delegate certain functions, advance capital to beneficiaries, and apply income for maintenance or education, subject to the trust instrument and statutory rules.
Trusts Created During Estate Administration
Trusts may be created during estate administration in several ways:
- by express provision in the will (e.g., a life interest trust or discretionary trust)
- automatically by law (e.g., where a beneficiary is a minor)
- by intestacy rules (e.g., statutory trusts for children)
Key Term: trust A legal arrangement where one or more persons (trustees) hold property for the benefit of others (beneficiaries) according to specified terms.
Types of Trusts Commonly Arising
Discretionary Trusts
A discretionary trust gives trustees the power to decide how and when to distribute income or capital among a class of beneficiaries. This provides flexibility to respond to changing needs or circumstances.
Key Term: discretionary trust A trust where trustees have discretion over how to distribute trust income or capital among beneficiaries.
Life Interest Trusts
A life interest trust (also called an interest in possession trust) gives a named beneficiary the right to income (or use of property) for life, with the capital passing to others (the remaindermen) on their death.
Key Term: life interest trust A trust where a beneficiary has the right to income or use of trust property for life, with capital passing to others on their death.
Trusts for Minors
Where a beneficiary is under 18, the law may require assets to be held on trust until they reach adulthood. Trustees must manage the assets and may apply income for the minor’s maintenance, education, or benefit.
Trusts for Disabled Beneficiaries
Special trusts can be created for disabled beneficiaries to protect their interests and, in some cases, preserve eligibility for means-tested benefits.
Statutory Trusts
If a will fails to dispose of all the estate, or where there is a partial intestacy, the law may impose a statutory trust. The personal representatives hold the assets on trust for the persons entitled under the intestacy rules.
Administration and Funding of Trusts
Once all debts and liabilities are paid, PRs transfer assets to the trustees of any trusts created by the will or by law. Trustees then manage those assets according to the trust terms and statutory duties.
Worked Example 1.1
A will leaves the residue of an estate to be held on trust for the testator’s spouse for life, with the remainder to their children equally. The spouse survives the testator. What are the roles of the personal representatives and trustees?
Answer: The personal representatives collect the estate, pay debts, and transfer the residue to the trustees. The trustees then hold the assets, pay income to the spouse during their lifetime, and distribute the capital to the children on the spouse’s death.
Worked Example 1.2
A testator dies leaving a minor child as the sole beneficiary. The will does not create a trust. What happens to the child’s inheritance?
Answer: The personal representatives must hold the assets on statutory trust for the child until they reach 18. Trustees (who may be the same people as the PRs) manage the assets and may apply income for the child’s maintenance or education.
Key Duties and Liabilities
Both PRs and trustees are personally liable for losses caused by breach of duty. They must act promptly, keep accurate records, and act impartially. Trustees must also comply with any express powers or restrictions in the trust instrument.
Exam Warning
If a personal representative or trustee fails to comply with their statutory or fiduciary duties, they may be personally liable to replace lost assets or pay compensation to beneficiaries.
Revision Tip
For SQE1, be able to distinguish between the roles and duties of personal representatives and trustees, and explain when a trust arises during estate administration.
Key Point Checklist
This article has covered the following key knowledge points:
- The distinction between personal representatives and trustees in estate administration.
- The statutory and fiduciary duties owed by personal representatives and trustees.
- The creation of trusts during estate administration, including by will, by law, or under intestacy.
- The main types of trusts encountered: discretionary trusts, life interest trusts, trusts for minors, and trusts for disabled beneficiaries.
- The key statutory powers and duties under the Trustee Act 2000.
- The personal liability of PRs and trustees for breach of duty.
Key Terms and Concepts
- personal representative
- executor
- administrator
- fiduciary duty
- trustee
- statutory duty of care
- trust
- discretionary trust
- life interest trust
