In a solvent estate the duty of the PRs is to pay "funeral, testamentary and administration expenses, debts and liabilities payable thereout in the order mentioned in Part II of the First Schedule to this Act: s34(3) AEA 1925. [where any of these is charged on specific property that property is primarily liable to pay the debt secured on it : s35.The expenses you mention will not already be charged on any estate asset.]
Sch 1 works as follows:
1 There are 7 categories of assets and resort to them should be in numerical order. [ the testator can vary the order.] The first is rare so the second, residue, is the normal first resort, as you realise. The third, fourth and fifth categories are also rare so normally the next in line is the sixth: specific gifts. The remainder to the daughter’s right of occupation is not residue for this purpose even though understandably you describe it as such.
2 not stated is the equitable doctrine of marshalling which means that any one whose gift is reduced or eliminated has recourse to any property in an earlier category which for whatever reason has not been fully used. This will be otiose here if residue is fully used first as you anticipate.
Usually the legatee of a specific gift will undertake to pay the creditor and charge the gifted property on agreed terms but here the gift is not outright and the type of expense is such that the PRs need it to be actually paid promptly. The quirk in your case is that the specific gift is not even a life interest trust of liquid assets which otherwise could easily be used to fund the reimbursement.
The right of residence beneficiary or the remaindermen need to pay up, or the PRs personally if non-professionals, if needs be by borrowing, to avoid a sale of the property. This is plainly not what the testator envisaged and would be a disproportionate remedy, however legitimate. Reimbursement out of the trust asset when the remainder vests in possession can be agreed and an equitable charge taken over the trust fund. The daughter is the obvious candidate to pay because not only does she have a clear vested interest in preventing a sale but it may well be that her remainder share will be worth much more than the pecuniary legacy remainders whose beneficiaries may not get their money for a long time hence.
Jack Harper
| gill.collins
28 July |
Looking for some help.
We have a Will which leaves a specific gift of “all bank and savings accounts to my grandchildren”, then a right of occupation in a share of a property to daughter (ends when she vacates the property). At the end of the right of occupation, cash legacies are payable from this share and then residue to daughter.
The only cash assets are a small bank account and a small shareholding.
The shareholding will form part of the residuary estate (daughter is the res ben).
There is a memorial stone which needs to be paid for and then estate costs to include solicitors fee for estate admin and disbursements.
The shareholding will not cover all these costs.
We assume that the right of occupation is classed as a specific gift and in any event funds cannot be accessed from the property until this is sold
Our questions are:-
Does this mean that the estate costs - sol fees and disbursements should be paid firstly from the shareholding (as residue) and then from the bank accounts (specific gift).
If there are not sufficient funds from both the shareholding and bank accounts to cover all the fees - who is responsible for payment of the balance?
Any help would be greatly appreciated.
Thank you.
Gill Collins