Learning Outcomes
After studying this article, you will be able to explain the legal rules for distributing specific and pecuniary legacies in estate administration, including the effect of ademption and abatement, the order of payment of debts and legacies, and how tax and insufficient assets impact beneficiaries. You will be able to apply these principles to SQE1-style scenarios and identify common pitfalls.
SQE1 Syllabus
For SQE1, you are required to understand the practical and statutory rules governing the distribution of legacies in estate administration. In your revision, focus on:
- the distinction between specific and pecuniary legacies and their treatment on death
- the doctrine of ademption and when a specific gift fails
- the rules of abatement and the order in which legacies are reduced if the estate is insufficient
- the statutory order for payment of debts and legacies
- the impact of inheritance tax and other liabilities on the distribution of legacies
- how executors must approach the distribution of assets, including the effect of insufficient funds and the executor’s year
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.
- What is the difference between a specific legacy and a pecuniary legacy?
- What happens if a specific item left in a will is not owned by the testator at death?
- If an estate is insufficient to pay all legacies, in what order are they abated?
- 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.
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.
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).
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.
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.
Key Term: executor’s year The period of 12 months from death during which executors are not required to distribute legacies.
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.
Worked Example 1.2
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.
Order of Abatement
The usual order is:
- Property not disposed of by the will (partial intestacy)
- Residuary estate
- General pecuniary legacies
- Demonstrative legacies (from the general estate, if the specified fund is insufficient)
- 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 1.3
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: The £5,000 demonstrative legacy is paid first from the savings account (if available). The general legacy to A and the balance of B’s demonstrative legacy abate proportionally. The specific legacy to C is paid last and only abates if the estate is still insufficient.
Order of Payment: Debts and Legacies
Executors must pay debts and expenses before distributing legacies. The order is set by statute.
Key Term: statutory order of payment The legal order in which debts, expenses, and legacies must be paid from the estate.
Statutory Order
- Funeral, testamentary, and administration expenses
- Secured debts (e.g., mortgages)
- Preferential debts (e.g., certain taxes)
- Unsecured debts
- Legacies (in the order of abatement above)
Executors must not pay legacies until all debts and expenses are settled or sufficient funds are retained.
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.
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.
Worked Example 1.4
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.
Practical Steps for Executors
Executors must:
- Obtain a grant of probate before distributing assets.
- Identify and value all assets and liabilities.
- Pay debts and taxes in the statutory order.
- Distribute legacies according to the will and the law.
- Retain funds for any outstanding claims or taxes.
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.
- The rules of abatement and the order in which legacies are reduced if the estate is insufficient.
- The statutory order for payment of debts and legacies.
- The effect of inheritance tax and the burden of tax on legacies.
- 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
