For beneficiaries of an estate the terms “bequest”, “devise” and “legacy” used in a testamentary document can be confusing. In this article, I discuss the differences between the three terms and seek to set out some of the issues that can arise in relation to administration of estates in relation to the various different types of gift.
What is a bequest, devise or legacy?
- A bequest – is a gift of personal property other than land, such as an item of jewellery or a car.
- A devise – is a gift of real property, such as a house.
- A legacy – confusingly this is also a gift of personal property but is more widely used to cover all types of gifts, including property, personal items and cash.
There are also different types of legacies.
What types of legacy are there?
- A pecuniary legacy – is a fixed sum left to specific individuals or charities.
- A specific legacy – is when specific personal possessions (for example property or a specific bank account or investment) is gifted to specific individuals or charities.
- A residual legacy – this consists of any assets left after the payment of pecuniary and specific legacies and estate liabilities (e.g. funeral expenses, inheritance tax etc.) which is gifted to specific individuals or charities.
How is the estate administered?
When an estate is administered liabilities are usually paid from the residuary estate. If there are not enough funds to clear all liabilities then money is taken from the pecuniary legacies, which might mean that beneficiaries do not receive the total amount that the testator had intended on them receiving. If there are still not enough funds then assets will need to be used from the specific legacies to discharge the liabilities.
The importance of understanding how your will will operate in practice?
A will is a “living” document and it is important that you regularly review the same to make sure gifts are kept up to date to avoid items no longer in your possession at the time of your death being “gifted” in your will.
Testators should also understand the consequences of gifting various items. For example, it may be that a property which you have gifted remains subject to a mortgage at the time of your death. Consideration will therefore need to be given as to how that mortgage is to be discharged. Gifts may also be subject to inheritance tax with beneficiaries potentially being liable for any tax attributable to that asset.
Careful consideration should also be given to the way in which a gift is described in the will, particularly concerning specific legacies. For example, a will which provides for a specific legacy of “all my shares in ABC Limited” might have been 10,000 shares at the time of execution of the will but only 10 at the date of death, in which case this is all the beneficiary will receive as the wording is general in nature.
Drafting the wording of the will so that the asset is clearly identifiable will assist as this is then what the beneficiary will receive. For example, the will might say “I leave any car that I own at the date of my death” to a beneficiary. The beneficiary will then inherit whatever car the testator owned at the date of his death even if this was a significantly more valuable car than he owned at the time of execution of the will.
However, this can also cause additional difficulties if the testator does not own such an item at the date of his death. For example, if the will were to say “I give a Rolls Royce” to a beneficiary, then even if the testator did not own such a vehicle, the executors would need to buy one from the estate funds to fulfil the legacy.
Lastly, when making a will it is important that clear instructions are given to your solicitor as to your wishes so they have a clear paper trail of your instructions in an attempt to avoid any disputes if someone disagrees with the contents of your will and seeks to challenge it following your death.