I am hoping that someone may be able to assist with the below.
I am instructed to act in the administration of an estate where the Will makes specific gifts of several items of jewellery and the deceased’s share of the property she lived in, pecuniary legacies and a gift of residue.
There is also a Personal Chattels Memorandum which addresses the inheritance of some further items of jewellery.
The only assets that the deceased owned solely or as tenants in common were items of jewellery (some of which were disposed of by the specific legacies in the Will and via the PCM as above) and the share of the property.
There was a joint bank account which will pass by survivorship to the spouse and there is likely to be some household contents that will also pass by survivorship to the spouse.
There may therefore be very limited residue (items of jewellery not included in the Will or PCM) and there are no liquid funds from which the legal costs/estate expenses and the pecuniary legacies can be settled.
Am I therefore correct in thinking that neither the pecuniary legatees nor the residuary legatees will inherit anything from the estate and that the legal costs/estate expenses will be settled from the value of any jewellery not disposed of by the Will or PCM and the specific legacy of the property? I assume that the wishes set out in the PCM are not disregarded…
I will not be involved in the distribution of the estate, but I understand that the costs need to be borne proportionately by the various specific legatees (i.e. the legacies abate) and those receiving the deceased’s share of the property could not simply elect to cover the costs from the sale of the same leaving the specific legacies of jewellery intact?
All specific legacies will abate in the same proportion, whether of land, shares or personal chattels (such as jewellery). The beneficiaries will generally be able to obtain the specifically bequeathed items if they pay their share of the shortfall to the personal representative(s) – although the items should not usually be handed over or transferred before the shortfall in the estate has been identified and funds introduced to clear the deficiency in respect of the individual beneficiary’s entitlement.
If the estate is insufficient to enable the specific legacies to be satisfied in full, then both cash (general) legacies and residue will already have abated in full.
Unless the Personal Chattels Memorandum deals with specifically bequeathed items (which can include a specific legacy of the chattels generally), it has no standing as the chattels to which it refers would be within the residuary estate which has abated in full.
Should the beneficiaries entitled to the share of the property so wish, there is no reason why they could not relieve the other legatees of the need to put monies into the estate to cover their share of the shortfall within the estate. Depending upon the extent of the shortfall, it may be appropriate to consider setting such arrangement out in a variation effective under s.142 IHTA 1984.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Coming back to this, if the legatees of the deceased’s share in the property relieve the legatees of the deceased’s jewellery of the need to make up the shortfall, would there be any consequences in terms of gifts being made?
It seems that they would be making a gesture which has monetary implications so there should be some consequence…?
Yes, by relieving the other beneficiaries of making up their share of the shortfall, the property beneficiaries will be making gifts to those persons. Whilst this could be covered by a deed of variation, how much is involved for each individual beneficiary?
If the amount of the shortfall in respect of any individual paid by each property beneficiary is under £250, there might be no tax consequences as such gifts may be exempt under the small gifts exemption (s.20 IHTA 1984).
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
