Legacies
| Author | Lesley King/Peter Gausden |
| Pages | 133-152 |
This chapter considers how a will can make provision for gifts of assets other than land (known as ‘personalty’) which are not part of a residuary gift. However, many of the issues covered in this chapter can also apply to gifts of land covered in Chapter 14 and gifts of residue in Chapter 15.
13.1 A word on terminology
Historically, ‘legacy’ or ‘bequest’ was used to denote a gift of personalty, whilst a gift of land was referred to as a ‘devise’. Similarly, the recipients were referred to as ‘legatees’ or ‘devisees’. These days, as part of the move towards the use of plain English in legal documents, many draftsmen prefer to express legacies, bequests and devises as simply ‘gifts’ in favour of ‘beneficiaries’, irrespective of the subject matter.
Since 1925, the distinctions between gifts of personalty and realty have largely disappeared for all practical purposes but the use of the old terminology has not been lost entirely. For example, sections 62–64 of the Taxation of Chargeable Gains Act 1992 refer to ‘legatee’, and rule 20 of the NCPR 1987 refers to a ‘legatee or devisee’.
Technically, a person taking assets as ‘legatee’ or ‘devisee’ can be someone doing so as a trustee for someone else rather than as a beneficiary in their own right.
In this chapter, we use the words ‘legacy’ or ‘gift’ and unless the recipient is to hold on trust, we use the word ‘beneficiary’.
13.2 Types of non-residuary legacy
A non-residuary legacy may be classified as specific, general or demonstrative. Any such legacy may also be pecuniary in nature. The classification is not merely relevant for academic purposes, it can also have important practical consequences both for the person drafting a will and also for those administering the will after the testator’s death.
134 Wills: A Practical Guide
13.2.1 Specific legacy
This is a gift of a particular item of property distinguished in the will from any other property of the same kind owned by the deceased.
EXAMPLES
I give to Freda my 100 shares in ABC plc.
I give to Charlie the gold watch my mother gave me.
A legacy is not specific just because the testator happens to own an item of property which exactly matches the description; there must be words used in the will which distinguish the property in question from similar property. This may be signified by the use of a possessive word such as ‘my’ but the item does not necessarily need to exist at the date the will is made. A legacy of ‘the car which I own at the date of my death’ is a specific legacy even though the car in question may not have been owned by the testator at the date of the will.
A specific legacy will fail if the specific subject matter does not exist as part of the testator’s estate at death. In such a case it is said to have adeemed (see para 8.3). However, a specific legacy will rank after a general legacy for the purposes of abatement and so the property given will be at less risk from having to be used to pay the deceased’s debts (see para 8.11).
13.2.2 General legacy
This is a legacy of property not distinguished in the will from property of a similar kind.
EXAMPLE
I give to Freda 100 shares in ABC plc.
Contrast the specific legacy in para 13.2.1 which uses ‘my’.
A general legacy is often pecuniary in nature.
EXAMPLE
I give £100 to Michael.
If the testator does not own property answering the description at the date of death, the legacy is not adeemed and the PRs must purchase property of the appropriate description with the estate funds or offer the equivalent cash sum to the beneficiary. If there is insufficient cash in the estate already to fund a general legacy, the PRs must sell estate assets which are not themselves the subject of a specific legacy.
General legacies abate before specific legacies if there are insufficient assets in the estate to fund the payment of debts (see para 8.11).
13.2.3 Demonstrative legacy
This is ‘in its nature a general legacy but there is a particular fund pointed out to satisfy it’ (see Ashburner v Macguire [1786] 2 Bro CC 108).
EXAMPLE
I give £500 to Alex payable out of my Lloyds Classic Bank Account.
Demonstrative legacies can never adeem because to the extent the particular fund does not exist as part of the testator’s estate at death, the legacy is still payable, albeit as a normal general legacy. In that sense they are equated with general legacies because if there is not enough in the designated fund, the balance is paid out of the testator’s residue.
However, they rank as specific legacies for abatement purposes (see para 8.11) and so will not fail for that reason to the extent the specified fund exists to provide for the legacy.
In practice, there is often no compelling reason to advise in favour of a demonstrative legacy as opposed to a general one. However, demonstrative legacies are frequently encountered in homemade wills because testators often think they must specify the account or fund from which a gift of money is to be paid.
13.2.4 Pecuniary legacy
In the sense that a ‘pecuniary legacy’ is a gift of money, it will usually be expressed as a general legacy as described in para 13.2.2 but it could take other forms. For example, a gift of money can be specific, as where a will gives ‘the £1,000 I keep in the top drawer of the desk in my study’, or it could be demonstrative as in ‘£1,000 out of my account at Barclays Bank’. If directed to be paid by instalments, it is usually called an annuity, for example, ‘£1,000 per annum to my wife’ for which a fund will usually be set aside from which each instalment is paid.
The term ‘pecuniary legacy’ is defined in section 55(1)(ix) of the AEA 1925 as including ‘an annuity, a general legacy, a demonstrative legacy so far as it is not discharged out of the designated property, and any other general direction by a testator for the payment of money, including all death duties free from which any devise, bequest, or payment is made to take effect’.
136 Wills: A Practical Guide
A will should make express provision stating expressly which property in the estate is to be used to pay pecuniary legacies as so defined. Failing to do so can lead to the imposition of the statutory rules contained in the AEA 1925 which are difficult to apply in some circumstances. This issue is considered further in Chapter 15.
13.3 Methods of making gifts
Whatever the type of gift, a testator has a number of choices about the terms of the gift.
13.3.1 Absolute or otherwise?
The simplest gift is one that is absolute, providing the beneficiary with an immediate vested entitlement on the testator’s death. However, a gift may be less than absolute if:
(a) the will imposes a condition or contingency which must first be satisfied. Typically this might be the attaining of an age or status, such as marriage, but it could be anything as long as it does not conflict with certain recognised restrictions (e.g. the condition must not be contrary to public policy) and is not inconsistent with other provisions in the will. If the condition or contingency is not fulfilled, the gift fails unless the testator has provided for the possibility by making a substitutional gift;
(b) the will creates one or more successive interests in the same property, as where the will gives a life interest to a particular individual (that is a current right to its income or enjoyment) either for life or a lesser period (such as until remarriage) before the property ultimately vests absolutely in one or more remainder beneficiaries.
If a less than absolute interest is created, the property must be held in trust by trustees until the interest becomes absolute when the property can then be vested in the beneficiary who is entitled.
13.3.2 Precatory trusts
A so-called ‘precatory trust’ arises if a testator makes an outright legacy to X, but also includes an unenforceable direction to X to further dispose of the property in favour of others. Often the direction is expressed as a ‘wish’, ‘hope’ or ‘desire’. Since no imperative fiduciary duty falls on X, as with a normal trust, X is free to ignore what the testator has said and is under only a moral obligation to dispose of the property in accordance with the testator’s direction.
Since the legacy is an absolute one, inheritance tax rules initially apply in the usual way. If the legacy is to the testator’s spouse or civil partner, it will be exempt; otherwise it may be chargeable depending on the rest of the estate. However, section 143 of the IHTA 1984 provides that if X transfers the property in compliance with the testator’s expressed wishes and within 2 years of the death, the IHTA 1984 has effect as if the property had been given directly to the transferee. Consequently, if X chooses to comply with the testator’s precatory direction within the time limit:
(a) it will not utilise X’s annual inheritance tax exemption;
(b) X will not make a potentially exempt transfer and so if X dies within 7 years of the transfer, it will not count towards X’s own cumulative total and there is no possibility of the transfer giving rise to a charge to inheritance tax for X;
(c) the spouse exemption may become available or be lost depending on the relationship between the eventual transferee and the testator.
EXAMPLE
Shirley’s will contains a legacy of her collection of jewellery to her daughter, Polly. Her will says:
… it is my hope that Polly will see fit to distribute it amongst my family in accordance with any note I may leave her before my death.
Within 2 years of Shirley’s death and in accordance with the note she left, Polly distributes some jewellery to Shirley’s grandchildren and gives the wedding ring to Shirley’s civil partner in accordance with a note left by Shirley. The rest she keeps for herself.
On Shirley’s death, all the jewellery is chargeable to inheritance tax since no exemption is available. The effect of section 143 of the IHTA 1984 is that no adjustment of the inheritance tax position is needed as...
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