Is this mis-use of estate funds?

Savvy_Sue

I've got to ask: is the OP A, B, or a.n.other?

My advice stands (that A and B need their heads knocking together), but how you go about that might depend on who you are, IYSWIM.

Yorkshireman99

What law prevents the executors simply transferring ownership? AIUI There is no law that forces the executors to liquidate the estate assets where the asset can readily be transferred as is. Nor do I know of any law that allows the beneficiaries to pick and choose what assets are liquidated. Executors have the responsibility, amongst other thinks, to gather in the estate and distribute according to the terms of the will. It is emphatically not their function to sell a property or apply for planning permission in an attempt to increase the estate value. Of course one can imagine estate assets that cannot be readily divided such as a car but in such academic the normal procedure is that the asset would be auctioned off and the proceeds divided. In such a case it is quite reasonable for a beneficiary to buy the vehicle at an agreed price. Back to the house if the executor did get planning permission and sell the property the estate would, AFAIK, have to pay CGT which would be more than any CGT paid if the beneficiaries sold it themselves. Maybe I am wrong so please point out why if you think so.

securityguy

"There is no law that forces the executors to liquidate the estate assets where the asset can readily be transferred as is."

At the point of transfer, a half share in a house is worth substantially less than half the proceeds of the sale of a house in cash. So the beneficiary would trivially be able to show that they had not received full value from the estate ("I'm entitled to half the value of the estate, and instead I received this unsaleable asset"). Not only is a half share in a house essentially unsaleable, it also carries with it legal and financial obligations which are the executors', not the beneficiaries (who's going to insure it? Pay council tax on it? Maintain it?). The beneficiary is not obliged to accept these obligations, but is entitled to their share of the value. Under those circumstances, how can the executor convey the proper value to the beneficiary other than in cash?

Yorkshireman99

The asset is neither worthless, nor is it unsaleable. The owner of the share can force a sale if they so wish. The potential liabilities of the property owner have no relevance as far as distribution of the estate is concerned. The beneficiary can refuse to accept it but then they are not entitled to a cash alternative. If you believe it is possible for a benefciary to demand a cash alternative please provide a cite of a decided case in an appellant court or the legislation that allows it.

securityguy

I doubt it would come to court, at least not to a reported one. The residual beneficiaries are entitled to the residual value of the estate, as shown in the estate accounts. Passing an asset with liabilities - and all property carries liabilities - doesn't do this. Usually the dispute is the other way around: someone wants "the family house" when there are other demands on the estate which require its sale. But I would be astounded if an executor could successfully pass a share in an asset to an unwilling residual beneficiary. If that were the case, the executor's life would be hugely simplified: put all the deceased's assets into a storage unit and say "there you go, beneficiaries, half each, over to you". An executor's responsibilities to the residual beneficiaries (and it's rare for us to be having this discussion with me saying the responsibilities are greater than you think!) are to wind up the deceased's affairs, and an asset with liabilities on it isn't wound up.

securityguy

For clarity, the exchange of letters goes like this:

Executor: here's the estate accounts, showing a residue of £Y. Your share of £X has been paid to you as a half-share in a house.

Residual beneficiary: Sorry, I want my share of the residue as shown in the accounts. I don't believe the house is worth that, and I believe you have treated other beneficiaries more favourably by giving them cash or immediately saleable items.

E: I've transferred a share in a house, which is worth £2X. Sell it yourself.

RB: Prove it's worth £2X plus sale costs plus liabilities during the time it takes to sell less CGT over the period I hold it. Or give me my £X.

As the only way to prove the value of a house is to sell it, the exchange of letters stops there. It won't get to a court.

Yorkshireman99

securityguy wrote: »

For clarity, the exchange of letters goes like this:

Executor: here's the estate accounts, showing a residue of £Y. Your share of £X has been paid to you as a half-share in a house.

Residual beneficiary: Sorry, I want my share of the residue as shown in the accounts. I don't believe the house is worth that, and I believe you have treated other beneficiaries more favourably by giving them cash or immediately saleable items.

E: I've transferred a share in a house, which is worth £2X. Sell it yourself.

RB: Prove it's worth £2X plus sale costs plus liabilities during the time it takes to sell less CGT over the period I hold it. Or give me my £X.

As the only way to prove the value of a house is to sell it, the exchange of letters stops there. It won't get to a court.

Sorry but this is complete nonsense. Consider if the only estate asset is the house and there is only a single beneficiary. The executor has no responsibility to sell the house. No different in this case. Also the executor has no liability for the costs that occur after the asset has ben transferred. The value of the house does not need to be established except for probate.

securityguy

"Consider if the only estate asset is the house and there is only a single beneficiary."

Which is a different scenario, as the recipient can sell it as easily as the executor, for the same value as the executor would receive for it, on the same timescale as the executor would sell it.

That's not true of shares in houses, which can in the limit only be realised by legal action against the other beneficiary. Are you saying that, for example, an executor would be acting properly by taking a house and then transferring half shares to violently estranged siblings?

"The value of the house does not need to be established except for probate."

The residual beneficiary is entitled to be paid the residue of the estate as stated in the estate accounts.

Yorkshireman99

securityguy wrote: »

"Consider if the only estate asset is the house and there is only a single beneficiary."

Which is a different scenario, as the recipient can sell it as easily as the executor, for the same value as the executor would receive for it, on the same timescale as the executor would sell it.

That's not true of shares in houses, which can in the limit only be realised by legal action against the other beneficiary. Are you saying that, for example, an executor would be acting properly by taking a house and then transferring half shares to violently estranged siblings?

"The value of the house does not need to be established except for probate."

The residual beneficiary is entitled to be paid the residue of the estate as stated in the estate accounts.

Any squabbles between beneficaries really is not the responsibility of the executor in any way. Providing the executor deals with the assets correctly and distributes then according to the rukes they have correctly discharged their duties. Indeed there is no obligation on the executor to have any contact with the beneficiaries until they distribute the estate. The residuary beneficiaries are entitled to their appropriate shares but there is no law, AFAIK, that says they are entitled to just receive cash. Please provide a cite to substantiate you claim that they do.

securityguy

Can you cite anything which says that a part share in a property is a valid form of payment from the residue of an estate? I can't find anything which says that it is. If it were, it would render moot all those discussions about the payment of costs of sale from the estate: just pass it to the residual beneficiaries to deal with.

For clarity, I am saying that the following would be easily challenged: the payment of a share of the residue of an estate in the form of a share in a property (which was not previously held in shares: obviously, it will be different if the assets of the estate include a share). I don't believe the powers of an executor extend to dividing the beneficial ownership of an asset and then using those shares to fulfil the final distribution of an estate. The reason there isn't an explicit law to say "you're entitled to cash" is because it's implicit in the requirement to obtain fair value and distribute it. Do you have an example of someone passing newly-created shares in a property to unwilling recipients and getting away with it?