## **Learning Outcomes**

This article explains the legal rules for distributing specific and pecuniary legacies in estate administration, including:

- how specific, pecuniary, demonstrative and residuary legacies are classified and distributed and why the classification matters
- the effect of ademption, partial ademption, and when a change in name or form does not adeem a gift
- the limited circumstances where sale by an attorney/deputy for an incapable testator avoids ademption and how traceable proceeds may be treated
- the rules of abatement, including proportional abatement within classes and how demonstrative legacies abate
- the statutory order for payment of expenses, debts and legacies, and how the order differs in insolvent estates
- who bears the burden of inheritance tax and charges on gifted property, including the effect of wording such as “free of tax” and “free of mortgage”
- when pecuniary legacies carry interest and from what date (executor’s year) and how this interacts with trustees’ powers for minors
- how appropriation can satisfy pecuniary legacies in specie and the doctrine of marshalling to compensate a disappointed beneficiary
- practical steps for executors to protect against personal liability (retentions, statutory notices, waiting for I(PFD) 1975 claims) and to time distributions correctly
- practical application to SQE1-style scenarios and identification of common pitfalls

## **SQE1 Syllabus**

For SQE1, you are required to understand the practical and statutory rules governing the distribution of legacies in estate administration, with a focus on the following syllabus points:

- the distinction between specific, general, demonstrative, pecuniary, and residuary legacies and their treatment on death
- the doctrine of ademption, partial ademption, and when a change in name or form avoids ademption
- the rules of abatement and the order in which legacies are reduced if the estate is insufficient
- the statutory order for payment of expenses and debts and the position in insolvent estates
- the impact of inheritance tax and other liabilities on the distribution of legacies and gifts of property subject to a mortgage (AEA 1925 s35)
- interest on pecuniary legacies and the executor’s year
- appropriation of assets to satisfy legacies and the doctrine of marshalling
- how executors approach distribution, including protections (Trustee Act 1925 s27 notices) and the six‑month I(PFD) 1975 waiting period

## **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._

1. What is the difference between a specific legacy and a pecuniary legacy?
2. What happens if a specific item left in a will is not owned by the testator at death?
3. If an estate is insufficient to pay all legacies, in what order are they abated?
4. Who bears the burden of inheritance tax on a specific legacy if the will is silent?

## **Introduction**

When administering an estate, executors must distribute assets according to the will and the law. This article explains how specific and pecuniary legacies are dealt with, the effect of ademption and abatement, and the order in which debts and legacies are paid. Understanding these rules is essential for SQE1 and for advising clients on the consequences of their will instructions.

## Classification of Legacies

A will may contain different types of gifts. The classification determines how the gift is treated on death and if the estate is insufficient.

> **Key Term: specific legacy**
> A gift of a particular, identifiable asset owned by the testator at death, such as “my diamond ring to Sarah”.
>
> **Key Term: pecuniary legacy**
> A gift of a sum of money, such as “£5,000 to my nephew”.
>
> **Key Term: demonstrative legacy**
> A gift of money to be paid primarily from a specified fund, e.g., “£2,000 from my savings account at XYZ Bank”.
>
> **Key Term: residuary legacy**
> A gift of the remainder of the estate after debts, expenses, and other legacies have been paid.

Practical consequences flow from these definitions. A specific legacy gives the asset in the state it is in at death (including accretions and income from death), but fails if the asset is not part of the estate. A general pecuniary legacy is paid from general estate funds and does not depend on ownership of a particular asset. A demonstrative legacy is hybrid: it is satisfied first from the named fund, with any shortfall paid from the general estate.

## Distribution of Specific Legacies

A specific legacy only succeeds if the asset is part of the estate at death. If the asset is missing, the gift usually fails.

### Ademption

If a specific item is not owned by the testator at death, the gift is said to be “adeemed” and the beneficiary receives nothing.

> **Key Term: ademption**
> The failure of a specific legacy because the asset is not part of the estate at death.

Ademption is strict, but three recurrent points arise:

- partial ademption: if part of a specifically gifted holding is disposed of during life, the gift operates on what remains
- change in name or form only: substitutions arising from corporate restructurings or account renumbering generally do not adeem
- sale by an attorney/deputy for an incapable testator: courts may avoid ademption in equity, or the donee may take traceable proceeds where the substance of the gift is maintained (fact-sensitive)

### **Worked Example 1.1**

A will leaves “my antique watch to Ben”. The testator sells the watch before death. What does Ben receive?

> **Answer:** Ben receives nothing. The gift is adeemed because the watch is no longer in the estate.

### Exceptions to Ademption

Ademption may not apply if the asset was disposed of by someone acting under a power of attorney for a mentally incapable testator, or if the asset has changed form but remains essentially the same (e.g., shares converted in a company reorganisation). Minor administrative changes (e.g., bank account number change or the bank replacing the account product) typically do not adeem. Where an insurance payout for a specifically gifted asset is received after death, the specific legatee generally takes that payout.

### **Exam Warning**

> If a will describes a gift ambiguously, or the asset has changed in substance (not just in name or form), the court may find the gift is adeemed. Always check if the asset is still part of the estate and whether the change is substantial.

## Distribution of Pecuniary Legacies

A pecuniary legacy is a gift of money. It is paid from the general estate, not from a specific asset. The timing and source of payment are subject to the order for paying expenses and debts and the rules of abatement if funds are insufficient.

### Interest on Pecuniary Legacies

If a pecuniary legacy is not paid within one year of death (the “executor’s year”), the beneficiary is usually entitled to interest from the end of that year until payment, unless the will provides otherwise.

> **Key Term: executor’s year**
> The period of 12 months from death during which executors are not required to distribute legacies.

The rate is the applicable statutory/prevailing rate from time to time. The will can set a different start date or a different rate. For contingent gifts to minors, trustees’ statutory powers over income (Trustee Act 1925 s31, as amended) may permit application of income before vesting.

### **Worked Example 1.2**

T dies on 1 March 2024 leaving £20,000 to F absolutely, residue to R. The estate is complex and the legacy is paid on 1 September 2025. Is interest payable?

> **Answer:** Yes. Interest runs from the end of the executor’s year (1 March 2025) to payment (1 September 2025), at the applicable rate, unless the will states otherwise.

## Demonstrative Legacies

A demonstrative legacy is a gift of money to be paid primarily from a particular fund. If the fund is insufficient, the balance is paid from the general estate.

Demonstrative legacies are treated as specific to the extent the named fund exists at death and sufficient to meet them; beyond that, they are treated as general. On abatement, they abate as general legacies to the extent they cannot be satisfied from the specified fund.

### **Worked Example 1.3**

A will leaves “£3,000 from my account at ABC Bank to Priya”. At death, the account contains £1,000. What does Priya receive?

> **Answer:** Priya receives £1,000 from the ABC Bank account and £2,000 from the general estate, if available.

## Abatement of Legacies

If the estate is insufficient to pay all debts, expenses, and legacies, gifts are reduced (“abated”) in a set order.

> **Key Term: abatement**
> The reduction of legacies when the estate is insufficient to pay all debts and gifts in full.

Abatement is rateable within each class (unless a contrary intention appears). A demonstrative legacy satisfied from its specified fund does not abate to that extent.

### Order of Abatement

The usual order is:

- property not disposed of by the will (partial intestacy)
- residuary estate
- general pecuniary legacies
- demonstrative legacies (to the extent payable from the general estate)
- specific legacies and devises

Specific legacies are the last to abate. Demonstrative legacies abate as general legacies if the specified fund is insufficient.

### **Worked Example 1.4**

A will leaves £10,000 to A (general legacy), £5,000 from a savings account to B (demonstrative), and “my car” to C (specific). The estate has only £12,000 after debts. How are the legacies paid?

> **Answer:** First, the £5,000 demonstrative legacy is met from the named savings account (if available). The general legacy to A and any balance of B’s demonstrative legacy payable from general estate abate proportionally. The specific legacy to C abates last, only if the estate remains insufficient thereafter.

### Marshalling

> **Key Term: marshalling**
> An equitable doctrine allowing a beneficiary whose gift has been used to discharge a debt to be compensated from other funds (typically residue) that ought, as between beneficiaries, to have borne that debt.

Marshalling applies where personal representatives use a fund that, as between beneficiaries, is not liable for a debt (e.g., a specific legacy) even though, as against creditors, they are entitled to do so. The specific legatee can be “marshalled” into residue to make good the loss, if available.

### **Worked Example 1.5**

D dies with a house (specifically devised to H) subject to a mortgage, and residue to R. The mortgagee is paid from general estate cash by the PRs. Who ultimately bears the mortgage?

> **Answer:** As between beneficiaries, the charge follows the property (AEA 1925 s35), so the house should bear the mortgage. The use of residue cash to redeem the loan is adjusted by marshalling: the residuary entitlement is replenished from H’s share to reflect that the mortgage burden falls on the house unless the will directs “free of mortgage”.

## Order of Payment: Debts and Legacies

Executors must pay expenses and debts before distributing legacies. The order is set by statute and common law.

> **Key Term: statutory order of payment**
> The legal order in which expenses, debts, and legacies must be paid from the estate.

### Statutory Order (solvent estates)

- funeral, testamentary, and administration expenses
- secured debts (e.g., mortgages) to the extent of the security
- preferential debts (e.g., certain employee wages within limits)
- ordinary unsecured debts (including most taxes)
- interest on unsecured debts
- legacies (in the abatement order above)

Executors must not pay legacies until all prior items are settled or sufficient funds are retained. If an estate is insolvent, different mandatory rules for unsecured creditors apply; beneficiaries receive nothing.

### **Revision Tip**

> Always check for outstanding debts and taxes before distributing any legacies. Executors who pay legacies too soon may be personally liable if later debts are discovered.

### **Worked Example 1.6**

An estate has £8,000 after funeral and administration expenses. There are unpaid employee wages of £1,600 (all within the statutory cap), HMRC income tax of £7,000, and an unsecured credit card debt of £2,000. How are the unsecured debts paid?

> **Answer:** Preferential debts (wages) are paid first in full (£1,600). The balance (£6,400) is shared rateably among ordinary unsecured creditors (HMRC and the credit card). HMRC receives £6,400 × (7,000/9,000) and the card issuer £6,400 × (2,000/9,000).

## Tax and the Burden on Legacies

Inheritance tax (IHT) and other taxes may reduce the funds available for legacies.

> **Key Term: burden of tax**
> The person or fund from which tax on a legacy is paid.

If the will is silent, IHT on specific legacies is usually paid from residue. If residue is insufficient, specific legacies may be reduced (subject to abatement). A gift of property “free of tax” confirms the general rule that residue bears the tax attributable to that gift.

Mortgages on gifted property are treated differently. Under the Administration of Estates Act 1925 s35, a gift of mortgaged property carries the charge unless the will contains a contrary direction (e.g., “free of mortgage”), in which case residue bears the burden of redeeming the loan.

### **Worked Example 1.7**

A will leaves “my house to D” and residue to E. The estate is subject to IHT, but the will does not say who pays the tax. Who bears the tax on the house?

> **Answer:** The IHT on the house is paid from residue. If residue is insufficient, D’s gift may be reduced to pay the tax.

### **Worked Example 1.8**

A will leaves “my flat to L” and residue to M. The flat has a £60,000 mortgage. The will is silent on the mortgage. Who bears it?

> **Answer:** L takes the flat subject to the mortgage (AEA 1925 s35). If the will had said “my flat to L free of mortgage”, residue would have borne the cost of redeeming the charge.

## Appropriation of Assets to Satisfy Legacies

Executors can, with proper safeguards, satisfy pecuniary legacies by appropriating assets instead of paying cash. This can be tax‑efficient or meet beneficiary preferences.

> **Key Term: appropriation**
> Allocation of a particular estate asset in or towards satisfaction of a beneficiary’s share or legacy in place of cash, typically at a fair value, subject to statutory and equitable safeguards.

Appropriation must be fair as between beneficiaries and is usually effected at market value. It can be used to deliver listed shares or other assets to a legatee of money, avoiding a sale. Appropriation does not change the order of payment; the estate must still retain sufficient funds for expenses and debts.

### **Worked Example 1.9**

The will gives J a pecuniary legacy of £15,000. The estate holds 3,000 listed shares worth £5 each. J and the PRs agree to satisfy the legacy by transferring 3,000 shares. Is this permissible?

> **Answer:** Yes, by appropriation at fair value, assuming the estate retains or sets aside enough to meet expenses and debts and the appropriation treats the residuary beneficiary fairly.

## Practical Steps for Executors

Executors must:

- obtain a grant of probate before distributing assets (save for limited exceptions)
- identify and value all assets and liabilities; check for secured debts and contingent claims
- pay expenses and debts in the statutory order; retain funds for any outstanding liabilities and six months from grant for possible I(PFD) 1975 claims
- distribute legacies according to the will and the law; ensure rateable abatement within classes if required
- consider whether any appropriation is suitable and fair as between beneficiaries
- protect themselves by placing Trustee Act 1925 s27 notices, making bankruptcy searches against beneficiaries, and retaining appropriate reserves

Receipts should be obtained from adult beneficiaries. Minors cannot give a good receipt unless the will so provides; alternatives include holding until 18, appointing trustees to receive, or paying into court. Statutory interest on pecuniary legacies should be budgeted for if payment will be after the executor’s year.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- The difference between specific, pecuniary, demonstrative, and residuary legacies.
- The doctrine of ademption and when a specific gift fails or does not fail due to a change in name or form.
- The rules of abatement, including proportional abatement within classes and treatment of demonstrative legacies.
- The statutory order for payment of expenses and debts, and consequences in insolvent estates.
- Who bears IHT and mortgage burdens; the effect of “free of tax” and “free of mortgage” wording (AEA 1925 s35).
- Interest on pecuniary legacies and the executor’s year.
- Appropriation of assets in satisfaction of legacies and the doctrine of marshalling.
- The executor’s duties in distributing legacies and the risks of early payment.

## **Key Terms and Concepts**

- specific legacy
- pecuniary legacy
- demonstrative legacy
- residuary legacy
- ademption
- executor’s year
- abatement
- statutory order of payment
- burden of tax
- marshalling
- appropriation


Administration of estates - Distribution of specific and pecuniary legacies