I am dealing with an estate of a widow which comprises a house but no cash. The house is the subject of a specific gift in the deceased’s Will which states, “I give to my son [A] subject to tax all my share and interest in my property situate and known as [X] together with the contents thereof”.
When the deceased’s husband died several years ago, his Will contained a nil rate band discretionary trust. The trustees loaned assets to the value of the nil rate band to the widow subject to a promissory note allowing the debt to be repaid on the widow’s death. Because there are no assets in the widow’s residuary estate, there is no way of repaying the loan to the trustees of the husband’s NRBDT without recourse to the house, which is the subject of the specific gift.
The clause in the deceased’s Will makes no reference to the net proceeds of sale. Does the gift therefore fail, allowing the house to fall into residue? If the gift of the property automatically attaches to the net proceeds of sale, then presumably we could sell the house and pass the balance of cash to the specific legatee. If there is no automatic attachment at law to the net proceeds of sale, then does that mean the gift fails altogether?
To the extent that there are assets within the estate, the creditors of the estate, such as the trustees holding the promissory note, are entitled to be paid.
The situation is no different where the debt is a promissory note or a bank loan.
The gifts under the will abate in a set order, generally residue first, then general legacies/devises and then specific legacies/devises. It is possible to vary the order by specifically directing the payment of debts out of certain assets although, once such assets are used up, the general order of abatement will apply.
In the situation in question, as the promissory note is not charged on any part of the estate, once residue is used up to satisfy the debts of the estate, and any generally legacies have similarly abated in full, the executors will have recourse to the value of the property to satisfy the balance of the debts. The devisee of the property will then be entitled to whatever is left. Having said that, it is open to the devisee to introduce monies into the estate to satisfy the unpaid debts of the estate, plus the costs of administration, etc., so as to enable the property to be transferred to them rather than sold. However, this may have SDLT implications.
If the devisee is also a beneficiary of the NRB discretionary trust, might the trustees thereof be mindful to make an appointment to him that would effectively avoid the need for a sale or for the devisee to introduce monies into the estate?