The Executor Who Is Also the Main Beneficiary
Ms. D died leaving a will appointing her son, S, as sole executor and leaving him 60% of the residue, with 40% to her daughter, Dg. The estate includes a residential property valued at £350,000, quoted shares worth £120,000, and a small business interest valued at £80,000. S has taken no steps for 14 months. He has used estate funds to pay his own legal fees for a dispute with Dg, has not prepared estate accounts, and has not paid the inheritance tax instalment due. Dg has written twice requesting information and received no reply. She now seeks advice on removing S and on his personal liability.
1. Advise Dg on the grounds and procedure for removing S as executor and on the standard of conduct expected of a personal representative.
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Removal. S is the named executor; once he has taken a grant (or intermeddled) he is a personal representative. The court has jurisdiction to remove a personal representative under the Administration of Justice Act 1985, s.50 (and its inherent jurisdiction), and may appoint a substitute. Grounds include: failure to administer the estate, conflict of interest, breach of fiduciary duty, and conduct that jeopardises the estate. Fourteen months of inactivity, misapplication of estate funds, and failure to account are strong grounds. Dg (as beneficiary) has standing to apply.
Standard of conduct. A personal representative is a trustee of the assets and owes fiduciary duties: to administer the estate with due diligence, to keep estate and personal funds separate, to keep proper accounts, to act impartially between beneficiaries, and not to profit from the office or use estate funds for personal purposes. S's use of estate money to fund his own litigation is a clear breach - he must restore the funds with interest.
Procedure. Dg should (i) issue a citation or apply under s.50 for removal and substitution; (ii) seek an order for accounts and inquiries; (iii) seek an order that S make good the misapplied sums. She should also notify the beneficiaries and consider a without-notice application if assets are at risk. The court will consider the welfare of the estate and beneficiaries as paramount.
2. S has not paid the inheritance tax instalment. Explain the consequences and who is liable.
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Liability. Inheritance tax on death is a testamentary expense borne by the estate, but the personal representative is personally liable for the tax to the extent of the assets he has received or should have received (Inheritance Tax Act 1984, s.199–200). Failure to pay the instalment means HMRC can pursue S personally, and interest and penalties accrue. S cannot shelter behind the beneficiaries.
Instalment option. IHT on certain property (e.g. land, shares in unquoted companies) may be paid by instalments over ten years, but the election and first instalment must be made on time; missing it forfeits the option and the whole becomes due.
Practical steps. Dg should (i) prompt immediate payment of arrears to stop interest; (ii) require S to produce the IHT account (form IHT400/IHT205 as appropriate) and the instalment election; (iii) apply for accounts and, if necessary, for S's removal so a substitute PR can regularise the position. S's failure also exposes him to a claim for breach of duty by the beneficiaries. Advise Dg to preserve evidence of the non-payment and her written requests.