Administration of estates - Distribution of specific and pec...

Learning Outcomes

By studying this topic, you will be able to accurately distinguish specific, general, pecuniary, demonstrative, and residuary legacies within a will, and explain the characteristic features and practical consequences of each. You will understand the doctrine of ademption—how and when specific gifts fail—and the key exceptions to ademption, particularly in the context of modern estate administration. You will be able to explain the process of abatement, including the statutory and equitable order in which debts, expenses, and different categories of legacy abate when an estate is insufficient. You will explore how inheritance tax and other taxes interact with and burden legacies, considering the effect of statutory defaults and specific will wording. Furthermore, you will be well-versed in:

• Correctly classifying testamentary gifts and identifying the practical consequences for beneficiaries, including in complex or ambiguous cases.
• Explaining when and why a legacy or devise fails, and the remedial options available (such as substitution, marshalling, or post-death variation or disclaimer).
• Applying the statutory framework for the order of payment of debts, funeral expenses, and charges in both solvent and insolvent estates, and safeguarding the personal representatives’ position in contentious or uncertain circumstances.
• Implementing the practical requirements for vesting different types of legacies, including the mechanics and evidentiary requirements for assent, delivery, stock transfer, and collection of receipts—especially those relating to minors or incapable beneficiaries.
• Advising on the powers and duties of personal representatives under the relevant statutes, and the personal and professional risks and liabilities they must avoid, including in relation to early or negligent distribution, or dealing with missing beneficiaries or creditors.
• Examining the treatment of charges and tax on legacies, such as the distinction between “free of” and “subject to” tax or mortgage wording, and the interaction with statutory rules on liabilities attaching to gifted property.
• Identifying and managing issues arising from estate shortfalls, unequal burden of tax or costs, or changing values of estate assets.
• Understanding and applying the law on post-death variations and disclaimers, executor’s powers of appropriation, and protecting the personal representatives from personal liability post-distribution.

SQE1 Syllabus

• The distinction and definition of specific, general, pecuniary, demonstrative, and residuary legacies and devises in testamentary instruments.
• The doctrine of ademption: the circumstances in which a specific gift fails, key exceptions (including disposals by attorneys or statutory changes of asset character), and the consequence for affected beneficiaries.
• Rules and practical operation of abatement: the equitable and statutory order of payment of debts and reduction of gifts if the estate is not sufficient to meet all liabilities and legacies.
• Statutory and practical order for payment of funeral expenses, administration expenses, secured and unsecured debts, including the effect of insolvency on estate distribution.
• The burden of inheritance tax and secured liabilities on gifts and legacies: when these fall on residue or the specific legacy/devise; the impact of express words such as “free of tax” or “subject to mortgage.”
• The executor’s duty of ascertainment and collection of assets, and the process of vesting gifts in beneficiaries, including the mechanics of assent, delivery, stock transfer, and dealing with corporate or land assets.
• The doctrine and mechanics of marshalling and appropriation: equitable adjustment to compensate beneficiaries where rules on burden or fund usage are not followed by the personal representatives.
• Administration in the presence of minors, incapable beneficiaries, untraceable or missing parties, and the available routes for personal representatives to obtain protection against liability.
• Practicalities of receipts for legacies, especially pecuniary gifts to minors or charities, and the associated statutory or best practice requirements.
• Powers and duties of personal representatives in relation to investment, advancement, and maintenance under the Trustee Act 1925 and Trustee Act 2000 as applied to the context of estate administration.
• The impact and operation of post-death variations and disclaimers in estate administration and tax, including the “reading back” provisions for inheritance tax and capital gains tax.

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

On the death of a person who leaves a will, the personal representatives (PRs)—usually executors—must administer the estate in accordance with the testator’s instructions and legal rules. The process of estate administration involves collecting assets, paying debts and taxes, and distributing the remaining assets to beneficiaries. Central challenges for PRs include distinguishing the types of gifts in the will, understanding the order in which payments and legacies must be made, and dealing with the practicalities and risks associated with distribution—including distributions to minors, dealing with inadequate estate assets, and ensuring personal protection for the PRs.

In practice, correctly classifying testamentary gifts is essential, as this determines the risks faced by each beneficiary—especially in cases of asset shortfall, asset substitution or mis-description, ademption, or abatement. The law sets out detailed rules for the treatment of specific and pecuniary legacies (as well as general, demonstrative, and residuary legacies), the burden of tax and charges, and the procedures for safely transferring and vesting gifts. Where legacies fail to take effect (by ademption, abatement, lapse, or other technical rule), there are wider consequences which PRs must handle with care, particularly as errors can lead to personal liability.

Key Term: personal representatives (PRs)
Persons (executors or administrators) who are responsible for the management and distribution of the deceased’s estate, either under a will or by law.

This article explores all the key principles necessary for SQE1 preparation—including practical and statutory rules—focusing on the proper distribution of specific and pecuniary legacies, the operation and application of ademption and abatement, the burden and mechanics of tax and charges, and the order of payment of debts and legacies. The article further considers receipt and vesting requirements, handling of insufficient assets, payment mechanics, and the administrative powers and protections available to the PRs.

Classification of Legacies

A well-drafted will typically contains several types of gifts, each with different legal characteristics and practical consequences. The wording used in the will is fundamental—both for correctly classifying the legacy and for understanding its fate if the estate proves deficient, the asset is no longer owned at death, or where liabilities and taxes intervene.

Key Term: specific legacy

A gift of a distinct, identifiable asset owned by the testator at death, clearly separated from the rest of their estate, e.g., "my signed first edition of The Hobbit to my nephew Patrick".

Key Term: general legacy

A gift of property described generically, rather than as a particular asset owned by the testator. It is not limited to any particular item and can be satisfied from any estate property matching the description, e.g., "a diamond ring to my niece Isabel".

Key Term: pecuniary legacy

A gift of a sum of money—e.g., "£10,000 to my goddaughter Lucinda"—which does not specify a particular fund or asset from which it is to be paid. Pecuniary legacies are most often general unless worded otherwise.

Key Term: demonstrative legacy

A gift of a sum of money to be paid primarily out of a particular specified fund, with any shortfall to be made up from the general estate, e.g., "£3,000 to be paid from my account at Northern Bank Plc".

Key Term: residuary legacy

A gift of the residue (the remainder of the estate) after all other debts, expenses, and specified legacies and devises have been paid or satisfied. E.g., "the rest of my estate to my daughter Sara".

When classifying gifts, consider both the subject matter and the wording used. The use of the testator’s pronoun “my” (as in “my gold watch”) and the narrow description typically signals a specific legacy, while less precise or more generic description suggests a general (and often pecuniary) legacy. Make sure to note the difference: a gift of “a watch” is a general legacy, but “my Cartier watch” is specific.

Exam Warning Always classify the gift first—it determines risk of ademption, abatement, burden of liabilities, and tax treatment. Misclassification can have severe practical consequences.

Specific legacies are generally entitled to the asset in the precise form described (or not at all if the asset has ceased to exist or belong to the estate at death), whereas general and pecuniary legacies can be satisfied from any suitable property or funds forming part of the estate. Demonstrative legacies combine features of both: they are general as to the size of payment, but specific about the intended source fund.

Further Notes on Classification

A subtle but common class is the demonstrative legacy: if a will leaves “£2,000 from my Santander ISA to Alan”, this is demonstrative—if the fund exists at death, it pays out first from there; if not, the legacy is met from the general estate. If a fund is entirely exhausted before death, only the general estate is liable. If the fund exists but is inadequate, the beneficiary receives the balance from other assets if possible.

Another common point arises with devises of land:

Key Term: devise
A gift of real estate in a will, which may be specific (e.g., “my house at 52 Elm Street”) or residuary (“the remainder of my real estate to Robert”).

The distinction between legacy and devise is primarily historical but is sometimes still relevant in technical contexts.

Distribution of Specific Legacies

Specific legacies succeed if (and only if) the particular asset or property remains part of the estate at the testator’s death and can be identified as matching the description in the will.

The distribution process requires PRs to vest title in the beneficiary by the appropriate means:

• For chattels (personal possessions): delivery to the beneficiary, customarily in exchange for a signed receipt. The PRs should cancel insurance on the chattel upon delivery as the risk passes immediately.
• For shares or securities: the PRs must effect a transfer by executing a stock transfer form, delivering the share certificate (if required), and providing a copy of the grant of probate or representation to the company’s registrar. Certain shares may also require registration in the beneficiary’s name.
• For land: a written assent must be executed by the PRs in favour of the beneficiary, identifying the property and the beneficiary. The beneficiary should then ensure registration at HM Land Registry in their own name, and should arrange for insurance to be transferred or renewed as appropriate.

  Key Term: assent
  A written instrument by which PRs transfer ("vest") legal title in land or other property to a beneficiary. Once given, assent ‘relates back’ to the deceased’s death, unless revoked for good cause (such as a mistake as to entitlement).

Any costs associated with such a transfer, unless otherwise provided in the will, are borne by the beneficiary.

Ademption

Ademption is the failure of a specific legacy because the item or asset is no longer part of the testator’s estate at death—usually because it has been sold, transferred, given away, lost, or destroyed, or because its essential character has been altered.

Key Term: ademption
The doctrine by which a specific legacy is rendered ineffective if the specifically gifted property is not owned by the testator at death; the intended recipient receives nothing in place of the now-missing asset.

It is critical to appreciate that the principle applies only to specific legacies—and not to general or demonstrative legacies, which are generally paid from the estate in any event. If, for example, a testator gives “my gold pocket watch to Leo”, but the watch has been sold or lost prior to death, the gift fails; there is no claim to an equivalent watch nor to cash in substitution unless the will specifies otherwise.

Timing is essential: if the asset was present at death but destroyed or lost in the short period after, any insurance proceeds (if payable) may be claimed by the beneficiary, as the gift was not adeemed at death.

Worked Example 1.1

A testator leaves “my 2016 BMW 5 series to Anna” in their will. Before their death, the car is written off in an accident and they do not purchase a replacement. What does Anna receive?

Answer:
Anna receives nothing; the specific legacy is adeemed. The particular car is no longer in the estate at death.

A related complexity arises when the testator gives “my house at 22 Oak Lane”, but has sold it and bought 14 Rose Drive before death. Unless the will’s wording (or s.24 Wills Act 1837) saves the legacy by specifying the “property which at my death constitutes my principal residence”, ademption usually applies.

Exceptions to Ademption

Ademption operates strictly, but several important exceptions and qualifications exist:

• Where the disposition of the asset prior to death is made by an attorney under an enduring or lasting power of attorney after the testator has lost capacity: in certain circumstances, the beneficiary may be entitled to trace the value of the item, depending on the nature and circumstances of the disposal under the Mental Capacity Act 2005 and case law.
• Where the asset has only changed in form without its essential nature being lost (e.g., as a result of company takeovers, mergers, or compulsory spearings such as share exchanges or redenomination): the beneficiary often takes the new shares or equivalent property.
• Where a fund or asset is moved or amalgamated without substantive change (e.g., funds transferred on bank closure, or certificates reissued): the court may allow the gift to survive if the “substance” is unchanged.
• Where the will refers to the property in a way that “speaks from death” (s.24 Wills Act 1837) and the wording fits something acquired as a replacement or substitute: e.g., “the residence I own at my death”.

  Exam Warning Always scrutinise whether an asset "essentially survives" despite a mere change in name or legal wrapper. A specific legacy is more likely to adeem if the asset was replaced by something fundamentally different, but may "follow" a substitute if only its form is altered.

Worked Example 1.2

A testator leaves “the property which at my death constitutes my main residence to Jasmine”. The testator sold Elm House and, prior to death, bought Beech Lodge, which was their main home at death. The will is silent on inheritance tax and the property is subject to a mortgage of £50,000 at death.

Answer:
Jasmine takes Beech Lodge, not Elm House—the gift is not adeemed due to the generic description, which “speaks from death.” By default, inheritance tax attributable to the devise is paid from residue, and the property passes subject to any outstanding mortgage unless the will directs it is given “free of mortgage.”

If the asset’s disposal was involuntary (such as a compulsory purchase of land or destruction by fire), the beneficiary may be entitled to the insurance or compensation proceeds; otherwise, strict ademption prevails.

Unusual Cases and Recent Practice

It is possible for a will drafter to avoid the risks of ademption by using careful wording—e.g., “any motor vehicle I own at death to Jonathan” gives Jonathan the benefit of whatever car is owned at the time, not merely a car owned at the date of the will. Conversely, highly specific wordings (“my red 2015 Volkswagen Registration AB12 XYZ”) increase the chance of ademption unless the testator continues to own that precise item.

Ambiguous drafting is to be avoided. If there is any doubt as to whether a change in the asset is substantive or nominal, courts will consider the intention and the scope of the wording, but default to ademption.

Key Term: general legacy
A gift made by will of a type of property described in general terms, capable of being satisfied from any property of that type in the estate, e.g. “a diamond ring” or “£3,000”. Key Term: residuary legacy
A gift of all the remainder of a deceased’s estate after paying debts, expenses, and any specific, general or demonstrative legacies.

Distribution of Pecuniary Legacies

A pecuniary legacy is a gift of money—not tied to a specific asset unless drafted as demonstrative. It is most often paid out of residue, unless the will directs otherwise. Pecuniary legacies are paid only after debts, funeral and administration expenses, and taxes (including inheritance tax) have been paid, and may rank behind specific or demonstrative legacies in the order of abatement.

For practical purposes, the PRs must ensure they retain sufficient assets to cover all liabilities and do not pay pecuniary legacies prematurely, which would expose them to personal liability if insufficient funds remain for debts or taxes.

Interest on Pecuniary Legacies

If a pecuniary legacy is not paid within the “executor’s year”—the period of twelve months from the date of death—the beneficiary is usually entitled to simple interest from the end of that period until payment, unless the will specifies otherwise or a different rate or method of payment of interest.

The legal rate of legacy interest is subject to change, but PRs should check the rate applicable at the relevant time or follow court guidance. Note that legacies left to minors, or under contingent conditions, may have interest accruing from when the beneficiary would become entitled if not for the condition (e.g., turning 18).

Key Term: executor’s year
The twelve-month period after the testator’s death during which executors are not obliged to pay pecuniary legacies; after this, interest is typically payable on outstanding sums.

In practice, only out-of-pocket administration matters (e.g., waiting for a grant of probate, assessing debts or liabilities) justify delay beyond the executor’s year. If the PRs pay some legatees but not others within the year, interest on the later paid legacies may run from the end of the executor’s year, although the courts will consider the reasonableness of the delay.

Receipts for Pecuniary Legacies

For adults, a standard signed receipt will suffice. However, if a beneficiary is under 18 (a minor), special rules apply, as minors cannot generally give a valid discharge. PRs may:

• Retain the funds until the beneficiary comes of age.
• Pay the money to the beneficiary’s parent or guardian, if the will so permits.
• Appoint trustees or use a statutory trust to hold the legacy for the minor.
• Pay the legacy into court.

These options safeguard the PRs but may also affect the beneficiary’s taxation position.

Key Term: burden of tax
The liability for inheritance tax or other taxes in relation to a gift; unless otherwise directed by the will, pecuniary legacies are paid free of tax, with tax borne out of residue.

Appropriation to Satisfy Cash Gifts

Where a will or the law allows, PRs may use a particular estate asset to satisfy a cash legacy, rather than paying in cash. This is known as appropriation.

Key Term: appropriation
The allocation by the PRs of an asset to meet a beneficiary’s entitlement under the will or intestacy, such as applying a property or shares towards a pecuniary legacy, provided the value is correct and no beneficiary is prejudiced.

Appropriation requires the asset’s fair market value to match (or account for any difference from) the amount of the legacy. All beneficiaries with relevant interests, including those with prior life interests, must generally consent, unless the will expressly dispenses with this.

A properly documented appropriation—showing valuations and consents—protects the PRs from later challenge.

Worked Example 1.3

A will gives “£9,000 to Liam”, “£4,000 from my Nationwide account to Milly”, and “my diamond brooch” to Jade. The estate, after paying debts and expenses, has £10,000 in cash, the Nationwide account contains £2,000, and the brooch is present. How should the legacies be paid?

Answer:
Milly is entitled to £2,000 from the Nationwide account (as far as the fund exists), with the remaining £2,000 payable out of the general estate if sufficient funds remain after other priorities. Jade takes the diamond brooch (a specific legacy). Liam’s general pecuniary legacy of £9,000 (and any shortfall to Milly) can only be paid after satisfaction of the specific and demonstrative legacies and subject to available estate funds. If insufficient funds exist, these general legacies abate proportionally.

Demonstrative Legacies

A demonstrative legacy is always a monetary gift, usually with reference to a particular fund or account, but intended to be met from the general estate to the extent the fund is insufficient.

If the specified fund still exists and is adequate, the demonstrative legatee is entitled to the full sum from that source; if the fund does not exist (e.g., closed bank account), or is insufficient, the legacy is met from whatever estate assets are available, ranking as a general legacy for any shortfall.

Key Term: demonstrative legacy
A bequest of a sum of money to be paid in the first instance out of a particular asset or fund, but not wholly limited to that asset if funds are insufficient.

In abatement, demonstrative legacies abate as specific legacies as far as the identified fund is sufficient, and as general legacies for the balance.

Worked Example 1.4

A will gives “£4,000, to be paid from my Barclays ISA to Freddie”. At death, the ISA holds only £1,000. The rest of the estate (after debts and costs) amounts to £2,000, and there is also a specific gift of a painting to another beneficiary. What does Freddie receive?

Answer:
Freddie receives £1,000 from the ISA (as far as it exists). The remaining £3,000 is paid from general estate funds if available. If only £2,000 is left, he takes £2,000 more (making a total of £3,000) and the demonstrative legacy abates accordingly; he cannot claim against the painting, which is a specific legacy and only abates if all other assets are exhausted. Exam Warning Incorrectly characterising a demonstrative legacy as “specific” or “general” can lead to the wrong outcome, particularly in cases of abatement or asset shortfall.

Abatement of Legacies

Where the estate cannot meet all debts, expenses, and legacies in full, the doctrine of abatement determines the order and proportion in which assets or gifts are reduced.

Key Term: abatement
The process by which the amount available for payment of debts, expenses, and legacies is insufficient and the various gifts abate (are proportionately reduced or extinguished) in the order established by law (or the will if otherwise directed).

The rules of abatement are a practical method of distributing risk among beneficiaries according to the presumed intentions of the testator and established legal priorities.

Order of Abatement

Unless the will specifies otherwise, the usual equitable order is:

• Any property or funds not disposed of by the will (i.e., partial intestacy)
• Residue of the estate (unless specifically charged or directed otherwise in the will)
• General pecuniary legacies (including annuities)
• Demonstrative legacies, not satisfied from the identified fund
• Specific legacies and devises (including demonstrative legacies as far as the specific fund exists)

Within each class, gifts abate rateably unless the will expresses a contrary intention or priority. That is, if only part of the general pecuniary legacies can be paid, all legatees in that class are paid the same proportion of their entitlement.

Abatement applies equally to intestate distribution: if the estate is too small, the statutory order for payment of debts (see below) must be followed and no distribution made to beneficiaries until all debts, taxes, and expenses are paid or provided for.

Key Term: marshalling
An equitable doctrine permitting an affected or disappointed beneficiary to be compensated from residue if the PRs satisfy a debt from a fund which, as between beneficiaries, was not intended to bear that burden.

Worked Example 1.5

A will gives “my collection of gold coins to Emily” (specific), “£15,000 to Sunil” (pecuniary), and residue to the deceased’s niece. Debts and funeral expenses total £17,000. The estate comprises the gold coins (worth £12,000) and £10,000 in cash. What is the order of abatement and who takes what?

Answer:
Debts and funeral expenses must be paid first, exhausting the £10,000 cash and requiring £7,000 from other assets. The general pecuniary legacy to Sunil abates entirely—paid only after debts. The remaining £7,000 due is taken from the value of the specific legacy (the gold coins), abating that legacy accordingly (unless the residue or other assets are specifically charged before the specific gift, which is unusual). If the PRs mistakenly use the specific asset to pay debts out of order, Emily (the specific legatee) may be entitled to marshalling against residue.

Worked Example 1.6

A will gives: “£5,000 from my building society savings to Rina” (demonstrative), and residue to a registered charity. At death, the building society account holds £2,000 and the estate (after debts and expenses) has £2,500 in other assets.

Answer:
Rina receives £2,000 from the building society savings (the identified fund). The £3,000 shortfall is paid from the residue, if available (which would otherwise go to the charity), with both abating rateably if insufficient. For inheritance tax, since residue is charitable, the payment to Rina may reduce available charity relief.

Technical Points: Statutory Order and Priority

Statute (Administration of Estates Act 1925, First Schedule, Part II) sets a default order both for payment of debts and for abatement among gifts. While a will can express a contrary intention (giving priority to a particular gift or class of gifts), silence defaults to the statutory and equitable rules. Note that where the proceeds of a particular asset are directed toward payment of debts, or where the residue is expressly made subject to debts, this can rearrange the usual abatement priorities.

Order of Payment: Debts and Legacies

The PRs must pay debts and expenses before distributing any gifts or legacies. The statutory and equitable order of payment is fundamental to avoid personal liability, and to ensure fair treatment among beneficiaries and creditors.

Key Term: statutory order of payment
The prescribed legal order for satisfying the liabilities and obligations of a deceased’s estate, set out in statute and case law, with debts paid before legacies and gifts abatable in a defined sequence.

The usual statutory order is:

• Funeral, testamentary and administration expenses (including reasonable professional fees, taxes, court fees)
• Secured debts (payable primarily out of the charged property)
• Preferential debts (such as employees’ unpaid wages, up to statutory limits)
• Ordinary unsecured debts (including income tax, utility bills, unsecured loans)
• Interest on debts and late-paid expenses
• Deferred debts (including certain family loans)

Only once all liabilities are settled can legacies and residuary gifts be distributed. The PRs should never pay legacies before they are certain all debts (including contingent or unknown claims) and administration expenses are covered.

Where the estate is “insolvent”, i.e., liabilities exceed the assets, all creditors (within their class) must abate rateably, and no beneficiary is paid anything unless a surplus remains after all debts. If PRs pay beneficiaries before satisfying the debts in statutory order, they risk personal liability (subject to protection if they acted honestly and reasonably and without knowledge of further debts).

PRs may protect themselves against unknown or future claims by advertising for creditors under s.27 Trustee Act 1925, and waiting at least six months after grant of probate or administration before distributing assets.

Worked Example 1.7

A deceased’s estate, after valuation, has assets of £40,000. Funeral expenses are £6,000, administration expenses are £4,000, unsecured debts are £25,000, and specific legacies and residue are worth £10,000 and £5,000 respectively.

Answer:
The PRs first pay the funeral and administration expenses (£10,000 total), leaving £30,000. All unsecured debts are then paid (£25,000), leaving £5,000. Only then can any distribution to legatees or residuary beneficiaries occur. If legacies exceed the remaining £5,000, they abate in the prescribed order.

Tax and the Burden on Legacies

Specific, general, and pecuniary legacies may be affected by inheritance tax (IHT) and capital gains tax. The burden of tax hinges primarily on the wording of the will and the statutory defaults.

Key Term: burden of tax
The legal obligation for IHT, other estate taxes, or mortgage debt, whether falling on the recipient of a legacy/devise or on the residue, subject to direction in the will or statute.

Inheritance Tax

By default, IHT attributable to a specific legacy or devise is paid from residue. The beneficiary receives their gift “free of tax” unless the will states the gift is “subject to tax” or similar wording. Note that in the case of residue left to a charity (IHT-exempt), paying tax out of residue can reduce the relief available and diminish the value of the charity’s legacy.

For property charged with a mortgage or other security, s.35 Administration of Estates Act 1925 applies: unless the will provides otherwise (e.g., a direction that property is to be given “free of mortgage”), the recipient takes the specific asset “subject to” the mortgage, and residue is not used to pay down the charge.

Where costs (such as packing, delivery, transfer fees) are incurred in satisfying a specific legacy, these are borne by the beneficiary unless the will provides that the gift is “free of costs.”

Worked Example 1.5

A will gives “my house to Daisy”, which is subject to a mortgage of £70,000, and residue to Taylor. The estate attracts IHT, and the will is silent as to the burden of tax and the mortgage.

Answer:
Daisy receives the house but must take it subject to the outstanding mortgage—the legal default under s.35 AEA 1925. The IHT attributable to the house is borne by the residue (Taylor), unless the will directs otherwise. Exam Warning Use of phrases such as “free of tax,” “subject to tax,” or “free of mortgage” can have dramatic effects on who ultimately bears taxes and debts. Unless the will changes the default, the beneficiary of property takes it subject to any existing charge, and residue is used to pay IHT.

Further Issues: Capital Gains Tax and Post-Death Variations

Transfers of assets or appropriations to satisfy legacies may also attract capital gains tax (CGT) implications. Generally, there is no CGT on transfers to UK-resident beneficiaries within two years of death, provided certain elections (such as s.62(4) Taxation of Chargeable Gains Act 1992) are made. PRs should be mindful of this when appropriating or transferring assets as opposed to cash.

Where a beneficiary does not wish to accept a legacy, they may disclaim it (in which case it falls into residue or is reallocated under substitution clauses), or redirect it by a post-death variation, which can be made effective for IHT and CGT if done within two years and in writing (s.142 Inheritance Tax Act 1984).

Practical Steps for Executors

Personal representatives (executors or administrators) are required to:

• Secure a grant of probate/administration before distributing estate assets or gifts (unless dealing with assets below the “small estates” threshold).
• Ascertain and value all estate assets and liabilities, including joint interests, outstanding debts, and contingent liabilities (such as potential claims against the estate).
• Pay all debts and expenses strictly in the statutory order, avoiding preference between creditors of the same class.
• Reserve or set aside sufficient assets to cover known or likely tax bills, contingent debts, or claims under the Inheritance (Provision for Family and Dependants) Act 1975.
• Only distribute legacies when satisfied that all debts, claims, and taxes can be met.
• Ensure the correct legal formalities are followed in vesting assets: delivery of chattels, written assent for land, execution of transfer forms for shares or securities.
• Obtain valid receipts or appropriate discharges (consents from parents, guardians, or the court for minors or incapable beneficiaries).
• Retain evidence of all distributions, consents, appropriations, and payments for their own protection.
• Consider giving statutory notices to creditors pursuant to s.27 Trustee Act 1925 and wait the specified period to protect themselves from unknown claimants.
• In cases of missing beneficiaries, consider payment into court, seeking a Benjamin order or other indemnity or insurance.

  Key Term: marshalling
  

Where PRs satisfy a debt from a fund not primarily liable as between beneficiaries, marshalling permits compensation of a disappointed beneficiary from another fund, typically residue.

Key Term: executor's year

PRs are not obliged to pay legacies during the first year after death, but unreasonable delay thereafter may result in interest being due on unpaid pecuniary legacies.

Key Term: appropriation

The PRs' discretionary power to allocate a specific asset to a beneficiary in or towards satisfaction of their entitlement in the estate, in substitution for a monetary sum, at current market value.

Key Term: assent

The formal act, usually in writing, by which PRs transfer legal title to land (or other assets) to the beneficiary or to trustees, completing the vesting of the gift or legacy.

PRs who act prematurely or negligently in distribution—even if acting innocently—may face substantial personal liability to creditors or disappointed beneficiaries. The statutory protections (advertisements, holding money back for possible claims, indemnities) are essential tools.

Key Point Checklist

This article has covered the following key knowledge points:

• The precise legal classification and practical implications of specific, general, pecuniary, demonstrative, and residuary legacies and devises.
• The strict doctrine of ademption, special exceptions (such as substitution by description or preservation of substance), and the importance of accurate will drafting to avoid inadvertent failure of gifts.
• The operation and order of abatement, with reference to statutory and equitable rules, and the treatment of demonstrative legacies as a hybrid case.
• The statutory order for payment of debts, taxes, and legacies, including the relative priorities of secured, preferential, and unsecured debts; and the consequences in both solvent and insolvent estates.
• How inheritance tax and liabilities attach by default or by will direction to various gifts—and the specific statutory rules governing mortgages, charges, and the burden of costs.
• Personal representatives’ core duties in distribution, the importance of valid receipts and vesting procedures, the executor’s year, interest on unpaid legacies, and the significant risks of negligent or premature distribution.
• The mechanics, rules, and best practices for appropriation, marshalling, and protection of the PRs (including s.27 notices and waiting periods).
• Practical issues and statutory protections for distributions to minors, missing, or unascertainable beneficiaries.
• The effect and procedures for post-death variations, disclaimers, and CGT and IHT consequences of such arrangements.

Key Terms and Concepts

• specific legacy
• general legacy
• pecuniary legacy
• demonstrative legacy
• residuary legacy
• devise
• ademption
• abatement
• statutory order of payment
• burden of tax
• executor’s year
• assent
• appropriation
• marshalling
• personal representatives (PRs)