DISTRIBUTION OF ESTATES
The personal representative must distribute assets of the deceased’s
estate to the persons entitled to them in the following order of priorities;
(a)
Secured creditors as far as they can be paid out of the
proceeds of their securities.
(b)
Reasonable funeral expenses for the deceased.
(c)
Reasonably Testamentary and administration expenses.
(d)
Unsecured creditors and secured creditors for their
balances, if any. The order of priority will be as under;-
i)
Specially preferred creditors
ii)
Preferential creditors
iii)
Ordinary shares
iv)
Interest on the debts of preferential and ordinary
creditors from the date of death.
v)
Deferred creditors.
(e)
Beneficiary in the following order of priorities.
i)
Specific legatees
ii)
General legatees
iii)
Residual legatees
Marshalling
Marshalling
refers to the marshalling of assets i.e establishing an order of procedure
amongst various classes of legacies.
Solvent and Insolvent
Solvent estate
are those estates which have enough assets to discharge all liabilities of the
estate while an Insolvent estate is that estate which cannot discharge all of
its liabilities.
ACCOUNTS OF THE EXECUTORS
The executors is
called “Fiduciary”. A fiduciary is a person entrusted with another person’s
property for safe keeping, management and distribution. He is also responsible for
preparing the accounts of the transactions. The Inventory and accounting
statements which are prepared during the operation of the estate are submitted
to the court.
The following
are the accounting procedures followed;-
(a)
The assets of the deceased (Principal if the estate)
are valued at their fair market value at the date of death.
Or:-
Individual Assets Account at fair market.
Or:-
Estate Capital Account at fair market price.
(b)
Any Interest Accrued on stocks and dividends declared
on shares held by the deceased are also taken as part of the principal estate.
(c)
Life insurance policies that have the estate of the
deceased are also included in the inventory of the estate. Any loans obtained
on the security of these policies are deducted from the proceeds of these policies.
(d)
The liabilities of the deceased are not recorded
initially. These are recorded only when paid.
(e)
Any increase or decrease in the principal assets is
considered as principal. If an executor sells an asset for less than the
recorded value then loss is a decrease of the estate principal and vice versa.
In this case:-
i)
Loss of disposition:
Or: Loss in disposition of principal assets account.
Or:- Respective asset account.
ii)
Gain on disposition
Or: Respective asset account.
Or:- Gain on disposition of asset account.
(f)
Depreciation is not recorded usually unless the will
specifies that it should be recorded. If recorded, it is charged to income.
(g)
Any obligation that existed at the time of the death
are considered principal and are debited to “Debts of the Deceased Account”
when paid.
(h)
All funeral and administrative expenses of the estate
are considered obligations of principal unless the will specifies that they are
to be charged to income.
(i)
Any income received after the date of death that was
accrued and recorded as principal is considered as income. It is credited to
the “Estate Income Account”.
The following
are the accounts usually prepared by the executor:
(a)
Distribution statement
(b)
Estate Capital Account
(c)
Estate Cash Account.
(d)
Estate Income Account.
(e)
Balance Sheet of the deceased.
Example 1
After discharging all the debts,
funeral expenses and testamentary expenses, the estate of Mr. Njoroge deceased
comprised the following:
Sh.
Bank balance 316,540
Household furniture 20,000
Motor car 15,000
House 200,000
Building society deposit 163,460
Paintings 100,000
12 ½ % Kenya mortgage bond
150,000
Plot at Kahawa-sukari 90,000
1,055,000
His will provide for the following
legacies;
(i)
To his widow Jane shs.500,000 and his personal
belongings.
(ii)
To his sister Mary sh.100,000.
(iii)
To his son Alex the plot at Kahawa-sukaro and
shs.56,000.
(iv)
To his daughter Lucy shs.150,000 payable out of his
loan account with East African Building Society.
(v)
To his friend Mwaura, his ordinary shares in Tembo
SACCO.
(vi)
To his brother Kamau sh.150,000.
(vii)
To the local Gold Club, 12 ½ % Kenyan mortgage bond.
All beneficiaries are of full age.
Just before he died Mr. Njoroge had
sold his interest in Tembo SACCO for sh.500,000 and all the amount due to him
had been discharged.
Mary and Alex had been killed in a
road accident six months before Njoroge died. Mary is survived by her son Mark,
while Alex is survived by his widow Alice and daughter Ann. Alex’s will left
the whole of his estate to his widow Alice.
Required:
To prepare a Distribution Account
showing the final distribution of the estate.
Answer:
Distribution Statement
Estate capital account balance
brought forward is sh.1,055,000 which should be distributed as under;-
Specific Legacies
Sh. Sh.
Widow Jane:
- Household furniture 20,000
- Paintings 100,000 120,000
Alex (Plot) 90,000
Golf Club 150,000 360,000
General Legacies
Before Abatement Amount Due to
Abatement Legacies
Sh. Sh. Sh.
Widow 500,000 91,180 408,820
Alex 50,000 9120 40,880
Lucy – daughter 150,000 27,350 122,650
Kamau-brother 150,000 27,350 122,650 695,000
850,000 155,000 1,055,000
Note:
(i)
In general legacies if the balance
in the estate capital account is not enough to pay to all legatees then
abatement is made and balance due to each legatee is calculated accordingly. In
this example, the balance in estate capital account is shs.695,000 after
specific legacies and this amount is less than the total amount due against
general legacies by sh.155,000 (shs 850,000 – sh. 695,000).
To total abatement for widow is
calculated as under:-
Shs
115,000 x shs 500,000 = sh.91,180
Shs
850,000
(ii)
Sh 100,000 to sister Mary Lapses
(iii)
Sh 150,000 to daughter Lucy out of
Loan A/C with East African Buildings Society is an administrative legacy which
falls into general legacy and it cannot be adeemed.
(iv) Ordinary shares to friend
Mwaura adeems.
Example 2
Jackson Kamau died Intestate on
April 19-6, survived by his widow and two infant children, Janet and James.
His estate at death consisted of:
Sh.
Sh 280,000, 9% Government stock 231,000
(Interest 1st February
and 1st August
Shs 240,000 2 ½ % savings bond 200,200
(Interest 1st May and 1st
November)
Policy on his life 300,000
Building Society Deposit at 8% 45,000
(interest 1st Jan and 1st
July)
Accrued interest thereon 900
Balance at bank 47,350
Household furniture and effects 30,000
854,450
Debts and funeral expenses 6,500
847,950
Interest on government stocks was
received on due dates.
Jackson had made no chargeable
transfers during his life. In addition, the following transactions took place
during the year ended March 19-7:
19-6
31 May Expenses of shs.111,630 were paid in respect of estate.
5 June The sum assured by life policy was received.
30 June The Building
Society Deposit was repaid to personal representative, together with interest
due.
12 July sh. 180,000, 9%
government stock was sold ex-int; due to 1 August, the net proceeds amounting
to sh 147, 600.
10 August The debts and
funeral expenses were paid.
30 September Bank debited the
personal representative’s account with interest amounting to sh 670 (chargeable
to income).
2 October The effect was given
to the widow’s statutory rights in the capital of the estate.
19-7
31 January Administration
Expenses of sh.4,000 (all chargeable against capital) were paid.
Required:
(a)
Write up the cash book and estate capital account for
the year ended 31 March 19-7.
(b)
Prepare the balance sheet as on that date, the widow
and children being still alive.
Answer:
(a)
Cash Book
Estate Cash
Account
|
19-6
April
|
Income
|
Capital
|
19-6
|
Income
|
Capital
|
|
Balance b/f
Aug 1 2 ½ %
Savings bond
Jun 5
Life Policy
June 30 Building society
Deposit Bonds
July 12
9% Govt stock
Interest
Nov 1
2 ½ % Savings
Bonds – Interest
|
Sh
-
500
900
8400
3,000
|
Sh
47,350
2,500
300,000
45,000
900
147,600
4,200
|
May 31
Estate Capital
Accounts
Debts and
Funeral expenses
Sep 30 Personal
Repres:a/c
19-7
Mar 31 Bal c/d
|
670
12,130
|
111,630
6,500
425,420
|
|
|
12,800
|
547,550
|
|
12,800
|
547,550
|
Estate Capital Account
19-6 sh 19-6 sh
Apr 1 Debts and Apr
1 9% Govt Stock 231,000
Funeral
expenses 650 Apr 1 2 ½ % Savings
Bonds 200,200
Apr 1 Balance c/d 847,950 Apr
1 Life Policy 300,000
Apr
1 Building Society
Deposit 45,000
Apr
1 Accrued interest
On
Building Society
Deposit 900
Apr
1 Cash a/c 47,350
Apr
1 Household effects 30,000
854,450 854,450
19-6
May 31 Cash a/c 111,630 Apr 1 Bal:b/d 847,950
July 12 9% Govt stock 900 Aug
1 2 ½ % Savings Bond 2,500
Oct 30 Household effects 30,000 Aug
1 9% Govt stock 4,200
19-7
Jan 31 Administration expenses
4,000
Mar 31 Bal c/d 712,120
854,650 854,650
19-7
Mar
31 Bal b/d 712,120
(b)
Balance Sheet
As at 31st
March 19-7
Sh sh
Estate capital
account 712,120 100,000 9% Govt stock
82,500
Income account 8,130 240,000 2 ½ % Savings Bonds
200,200
(balancing figure) Cash
a/c – capital 425,420
Cash
a/c – income 12,130
720,250 720,250
Workings:
w-1 2 ½% Savings Bond Account
|
|
Nominal
|
Income
|
Capital
|
|
Nominal
|
Income
|
Capital
|
|
19-7
Apr 1
Balance b/f
May 1 Estate
Capital
19-7
Mar 31 Estat
Income a/c
|
Sh
240,000
|
3,500
|
200,200
2,500
|
19-6
May 1 Cash a/c
Nov 1 cash a/c
19-7
Bal:
Mar 31 c/d
|
24,000
|
500
3,000
|
2,500
200,200
|
|
|
240,000
|
3,500
|
202,700
|
|
240,000
|
3,500
|
202,700
|
Note: It is
assumed that price quoted on this 2 ½ % Bond is cum-int.
Interest received
on May 1, 19-6 is calculated as under:-
5/200 x Sh
240,000 x ½ = sh 3,000
Income account
(one month) = 1/6 x sh 3,000
= sh
500.
Capital account
(5 months) = 5/6 x sh 3,000
=
sh. 2500
w-2 9% Government Stock Account
|
|
Nominal
|
Income
|
Capital
|
|
Nominal
|
Income
|
Capital
|
|
19-7
Apr 1 Estate
Cap; a/c
Aug 1 Estate
Cap; a/c
19-7
Mar 31
Income a/c
|
Sh
280,000
|
_____
12,900
|
231,000
4,200
|
19-6
July 12 cash a/c
July 12 Loss
On sale of stock
Aug 1 cash a/c
19-7
Feb 1 cash a/c
Mar 31
Bal: c/d
|
180,000
100,000
|
8,400
4,500
|
147,600
900
4,200
82,500
|
|
|
280,000
|
12,900
|
235,200
|
|
280,000
|
12,900
|
235,200
|
|
April 1 Bal;
|
100,000
|
|
82,500
|
|
|
|
|
Note: (i)
(i) 180,000 x 231,000 = sh
148,500
280,000
Loss on sales of stock = sh 148,850 – sh
147,600 = sh 900
(ii) 280,000 x 9/100 x ½ = sh 12,600
Capital a/c (1/3 x 12,600) = sh 4,200
Income a/c (2/3
x sh 12,600) = sh 8,400
Example 3:
Mr. Ole-Kaparo died on 1st
February 19-8, leaving the following estates:
Sh
Building Society Deposit 50,420
Interest accrued to date 390
Balance at Bank 49,650
Personal chattels 36,000
Freehold house 240,000
Sh 60,000, 10% Govt: stock 420,000
7,000 ordinary shares of sh 10 each
in Kenya Breweries 100,000
3,000 ordinary shares of sh.10 each
in B.A.T (K) Ltd. 30,000
926,460
Debts and funeral expenses 10,460
916,000
His will included the following
legacies:
(i)
To his wife, Jane the freehold house, personal
chattels, the ordinary shares in both Breweries and B.A.T and the sum of
shs.150,000.
(ii)
To his daughter Swan, his land at Ngong and the sum of
hs.216,000.
(iii)
To his sons George, Herold and Fredrick the sum of
shs.120,000 each.
(iv)
To his sister Caroline the sum of shs.100,000.
(v)
To his friend Charles the sum of shs.24,000.
(vi)
To his brother Victor his holding of shs.50,000 saving
bond.
His will also directed that the
residue and any income arising during the administration of the estate should
go to his wife Jane.
The land at Ngong was sold for
shs.150,000 in 19-6 and the savings bonds encashed in 19-7. His sister Caroline
had died in 19-5 and his son Harold died in 19-4, leaving the sons John and
Philip. All beneficiaries are of full age.
The following transactions took
place during the three months period ended 30th April 19-8.
28th February Received
dividends of shs 10 per share for the year ended 31 December 19-7 on shares in
Breweries Ltd.
31st March Received proceeds of sale of
Government stock of shs.410,000.
30th April Withdrew
balance of shs.51,570 from Building Society a/c including interest to date.
Paid
debts and funeral expenses.
Distributed all legacies and
completed the administration of the estate.
Required:
Estate Capital Account and Cash
Account for the period ended 30th April 19-8, showing the
administration of the estate.
Answer:
Estate Capital Account
19—8 sh 19-8 sh
Feb 1 Debt and funeral Feb 1 Building
Society deposit 50,420
Expenses 10,460 Interest accrued 390
Cash
at bank 49,650
Bal:
c/d 916,000 Personal chattels 36,000
Freehold house 240,000
Govt
stock 420,000
Breweries
shares 100,000
B.A.T.
shares 30,000
926,460 926,460
Govt stock 10,000 Feb
1 Bal:b/d 916,000
Distribution:
Specific Legacies: Dividends
from Breweries 7,000
Wife (Jane):
House 240,000
Personal chattels 36,000
Breweries shares 100,000
BAT shares 30,000
406,000
General Legacies:
(To be shared among the
Legatees as shown in
Cash c/a) 507,000
923,000 923,000
Cash Account
|
|
Income
|
Capital
|
|
Income
|
Capital
|
|
19-8
Feb 1 Bal:b/f
Feb 28
Dividends
Breweries
Mar 31
Govt stock
Apr 30
Building
Society
|
Sh.
760
|
Sh.
49,650
7,000
410,000
50,810
|
19-8
Feb 1 Estate
Capital a/c
Debt and
Funeral exp:
Apr 30
General
Legacies:
Wife – Jane
Daughter –
Susan
Son – George
Estate of
Harold
Son-Fredrick
Friend – Charles
|
Sh
760
|
Sh
10,460
101,400
146,020
81,120
81,120
81,120
16,220
|
|
|
760
|
517,460
|
|
760
|
517,460
|
Workings:
W – 1 Building Society’s Interest
= sh 51,570 – sh. 50,420 – sh 390 =
sh 760
W – 2 Abatement of general
legacies is calculated as follows:-
Amount
available is shs.507,000.
Amount
Due Amount to be Paid
Sh sh
Jane 150,000 sh
150,000 x sh 507,000 = 101,400
Sh
750,000
Susan 216,000 sh
216,000 x sh 507,000 = 146,020
Sh
750,000
George 120,000 sh
120,000 x sh 507,000 = 81,120
Sh
750,000
Harold 120,000 sh
120,000 x sh 507,000 = 81,120
Sh
750,000
Fredrick 120,000 sh 120,000 x sh 507,000 = 81,120
Sh
750,000
Charles 24,000 sh 24,000 x sh 50,700 = 16,220
Sh
750,000
Caroline______ _______
750,000 507,000
Note:-
Sister Caroline died before his
brother. Share of Harold will be equally distributed between his two sons John
and Philip.
EXERCISE 1
1.
Describe the main provisions of the Law of Succession
Act (Cap.160).
2.
Describe the procedure to be followed in the
distribution of estates.
3.
Maisha Mingi died on 31 October 1993 and left his
estate as follows:-
Sh.
Household
furniture 45,000
Cash
in house 1,000
Cash
in Bank 125,000
10,000
ordinary shares of sh.10 each in
BAT
Kenya Limited, valued at sh.15 per share 150,000
Investment
at 5 per cent on freehold property shares
(Interest
thereon paid to 30 June 1993) 200,000
Share
in business of Maisha Mingi & Co. valued at
Date
of death 613,200
Sundry
debtors 10,000
His
liabilities amounted to 2,500
Funeral
expenses amounted to 5,000
A legacy of sh.10,000 was
bequeathed to his executor and was paid on 28 January 1994. The residue of the
estate was left in trust of this infant SON.
The household furniture was sold on
15th December 1993 for sh.48,000. The shares were sold on the same
date at sh.14.50 ex. Div, a dividend being received on 25 January 1994 at 10%
for the year ending 31 December 1993. Interest on investment in freehold
property shares was received on 31 December 1993, on which date the share in
the business of Maisha Mingi & Co. was received with interest at 5 per cent
per annum.
The liabilities and funeral
expenses were discharged on 20 December 1993 on which date sh 5,000 of the
debtors due were received, the balance being unpaid at the date of preparation
of the accounts.
Required:
(c)
Journal entries to record the above transactions.
(d)
The Estate Cash Book.
(e)
The Estate Capital Account.
(f)
The Estate Income Account.
(g)
Balance sheet of Maisha Mingi, deceased, as at 31
January 1994.
- Wakili Kali was named executor of the estate of Mzee
Bunda, who died on 20 June 1994. On 31 March 1995, the executor prepared
the following trial balance.
ESTATE OF MZEEBUNDA
TRIAL BALANCE 31
MARCH 1995
Sh. Sh.
Investments:
Shares 185,000
Bonds 420,000
Accrued interest
receivable 750
Cash – principal 108,500
Cash – Income 21,250
Household effects 23,750
Loss on
realization 6,500
Gain on realization 12000
Assets
subsequently discovered 55,200
Debt of decent
paid 56000
Funeral expenses 9,500
Administration
expenses 25700
Estate corpus 792,750
Income 35,750
Expenses – Income 3,800
Distribution of
income to beneficiary 9950
Legacy – Mtoto
Bunda 25,000 _______
895,700 895,700
Required:
A charge and
discharge statement for the estate of Mzee Bunda.
(C.P.A)
- D. Kimeu died (intestate) on 1 April 1994. He was
survived by his ‘widow’ and two infant children, Tala and Turi. His estate
at death consisted of:
£
£28,000,
9% Funding Stock 2,000 – 2002 23,100
(Interest
1 February and 1 August)
£24,000,
2 ½ % savings Bonds 1998 – 2001 20,020
(Interest
1 May and 1 November)
Policy
on his life 30,000
Building
Society deposit at 8%
(Interest
1 January and 1 July) 4,500
Accrued
interest thereon 90
Balance
at bank 4735
Household
furniture and effects 3000
85,445
Less:
Debts and funeral expenses 650
84,795
Interest on the Government stocks
was received on the due dates. D. Kimeu had made no chargeable transfers during
his life.
In addition the following
transactions took place during the year ended 31 March 1994.
1993
31 May Property taxes of £11,163 was paid by means
of a temporary overdraft at the bank.
15 June The sum assured by life policy was received.
30 June The Building
Society deposit was repaid to the personal representative, together with interest to date.
12 July £18,000, 9%
Funding Stock 2000 – 2002 was sold ex-interest due 1 August, the net proceeds
£14,760.
10 August The debts and
funeral expenses were paid.
30 September The bank debited the
personal representative’s account with interest amounting to £67. (chargeable
to income).
2 October Effect was given to
the widow’s statutory rights in the capital of the estate.
1994
31 January Administration
expenses of £400 (all chargeable against capital) were paid.
Required:
(a)
Write up the cash book and estate capital account for
the year ended 31 March 1994.
(b)
Prepare the balance sheet as on that date, the widow
and children being still alive..(ignore income tax) (C.P.A)
- (a) Tantu died on 31st October 1994 and
was survived only by Mwanda his grandson, the son of his son Maga.
By his will, which
barred equitable apportionment and was silent on the date of payment of
legacies, he left his estate as follows:
To my cousin
Mwamba my beach plot.
To my friend
Nyambaya my car
To my nephew Pamba
my boat
To each of my two
sons £10,000
To my
brother-in-law £2,000
To my housekeeper
Awa if still in my employment £20,000:
To the pastor of
my church, Charles £5,000
To my local church
£5,000 to buy a piano in memory of my deceased mother.
To my shamba-boy,
Akida, if still in my employment £2,000;
To each of my neighbours
Nyawawa, Weru and Langa £1,000
To the watergames
club, my outboard engine and to my grandson Mwanda
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