Executor self-dealing

I have a question about the value to be used when appropriating property to yourself as executor. I have been instructed to draw up a memorandum of appropriation by an executor of a share of a property which the executor owned with the deceased (her mother).

My query concerns the valuation. The valuation she is asking me to state in the memorandum includes a 10% discount for the jointly owned property as stated in the IHT forms submitted to HMRC and not the market value before the discount. There are other residuary beneficiaries.

I wonder if the appropriation value should be the full market value not the discounted value. The executor, an accountant, is sure that she is correct and that she should get the property at the discounted value but I just want to be sure of the position before I proceed.

Sharon Edelstyn
Phoenix Legal Group

We would use the true date of death value before discount. The discount is a concession by HMRC which can reduce the amount of IHT in the estate and which in turn potentially increases the value of the residuary estate. However it would create anomalies if the appointment were to take place based on the discounted value.

For estate accounts purposes, the capital account will show the true value at the date of death. To appropriate any property at a discounted value would distort the estate accounts. It could also give rise to increased CGT charges at a later date.

Michael McCabe
Heath Square Private Client Limited.

I believe valuation may be a secondary issue in this matter.

Can the executor safely appropriate to herself where there are other residuary beneficiaries?

I recall that the appropriation of a property by an executor to herself has previously been set aside by the courts under the self-dealing rule. However, if the will in question specifically permits this, it may be unobjectionable. If there is no such provision, I suggest that the executor only appropriate the share of the property to themselves with the agreement of the other beneficiaries.

Turning back to the valuation question, whilst this may become the subject of negotiation with the fellow residuary beneficiaries, the principle is market value as at the date of appropriation (Re Charteris 1917). However, this may create an unreal situation, so far as the beneficiaries are concerned, as the market value of a half share of a property held as tenants in common is likely to be significantly discounted from a half share of the entirety value. Would a stranger pay 45% of the entirety value for a half share of an asset they may not be able to realise for many years?

However, by acquiring the other half, the value of the asset to the executor increases immediately and significantly. The other beneficiaries may object to the adoption of any valuation that improves the position of the executor to a greater extent than they also benefit.

It might be appropriate to seek an opinion from Chancery counsel to validate the actions the executor should take to ensure an orderly administration of the estate.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

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So that equity may be seen to be done, the half share of the house should be valued at the date when appropriation is to take place. In valuing it, the valuer should make an allowance for joint ownership which I would suggest would still be 10%. Whether the value used for probate purposes will be the same, will of course depend on market conditions.

Patrick Moroney

I believe the accountant is correct as the co-owners we’re not spouses/CPs or parent/child

Sue Howard
Talbots Law

For fairness I believe there should be a sharing of the marriage value agreed with the residuary beneficiaries

Simon Northcott

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An executor’s duty to the beneficiaries is to obtain the best price for the assets of the estate and generally speaking would be expected to realise these by selling on the open market. Therefore if the executor was to put the half share of the property in the hands of estate agents and obtain their advice as to the best method of sale and act accordingly, I do not think that she could be criticised. Indeed in the circumstances I would suggest that it be sold by public auction with a reserve equal to the probate value +10%. However I think it is most likely that the highest offer received would be well below the probate value of the half share before applying 10% discount and consequently the residuary beneficiaries would be worse off. I have no doubt that in the end the most beneficial way of dealing with the matter, from the point of view of the other residuary beneficiaries, would be to accept the executor’s suggestion of having the share appropriated at PV. This would avoid the expense of auction and indeed with property prices falling as a result of Covid19, it is arguable that the appropriation figure may be higher than the current value ignoring any discount.

Patrick Moroney
BWL solicitors

Thank you for your replies. In the Will there is a clause extending the right of appropriation conferred by s 41 of the AEA 1925 by the PR’s so that they may “…at any time at their discretion appropriate any part of my residuary estate in its then actual condition or state of investment in or towards satisfaction of any legacy or any share of my residuary estate without the necessity of obtaining the consent of any person.” In light of this would the executor need to obtain consent before appropriating?

Sharon Edelstyn
Phoenix Legal Group

I suspect Paul is referring to the case of Kane v Radley-Kane (1998).

Subject to any appropriate provision in the will it would seem sensible for the agreement of the other residuary beneficiaries be obtained.

With respect to valuation, market value at the date of appropriation applies (Re Charteris [1917]) and there doesn’t seem any justification for not adopting a percentage discount as would normally apply. Is not the simple question what would an unrelated third party be prepared to pay for the interest given the circumstances.

Malcolm Finney

I would be very wary about making the proposed appropriation without either the sanction of the court, or the properly informed consent of all affected beneficiaries, being of full age. The rule against self dealing by trustees applies also to executors, as amplified and confirmed by Kane v Radley-Kane [1998] 3 All ER 753. It would need the clearest words in the will to oust the rule : I doubt that the general words quoted would suffice.

Clifford Payton
Alpha Court Chambers

In cases where an Executor wishes to appropriate to his/herself and there are other beneficairies, then in the absence of specific provision in the Will, I always obtain consent from the other residuary beneficairies before the appropriation is made. Usually a letter setting out the terms of appropriation (incl value) signed by each residuary beneficiary for the file.

Justin Wallace
Brewer Harding & Rowe

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I had the same thought as Paul. I am not convinced that the clause in the will you mention, extending the power under s.41 AEA1925, is intended to allow self-dealing. The requirement for consent under s.41 is for the consent of the legatee to whom the property is being appropriated, so presumably that is what the clause is intended to dispense with. Maybe these words are wide enough to cover it on a literal reading, but the STEP provisions of course have a separate provision setting out when PR can safely engage in self-dealing, so out of an abundance of caution I would advise following that route, if available, or getting the agreement of all other residuary beneficiaries (which would deal with the valuation point), or at least ensure the client is well aware of the risk of proceeding.

Alexander Learmonth
New Square Chambers