Legacies and Wills – what are the risks?

Many of us like to include legacies in our Wills whether to family, friends, executors and /or to charities.

Legacies can be general (often fixed sums of money) or specific (particular assets you own such as a house, items of jewellery or a share in a business.) On the face of it, including a legacy in a Will seems very straightforward. However, there are numerous issues which should be considered, some of which could result in beneficiaries losing out or even unintended inheritance tax consequences!

Some areas to consider are as follows:

1. Fluctuating asset values. In the context of property and investments, values can fluctuate dramatically. The values might be significantly higher or lower at your death as compared to when you made your Will. If the same beneficiary inherits your entire estate, this isn’t an issue. However, where you are leaving different items to different beneficiaries e.g a house to one child and your cash to the other, this might not achieve the result you had intended in monetary terms and may lead to disappointment amongst the beneficiaries.

2. Priority of gifts. Legacies take priority in a Will and are paid out before the remainder of an estate is distributed. You might include a legacy in your Will of say £100,000 to your grandson, on the basis that you were worth £500,000 when making your Will and that your daughter would receive the remainder of your estate (say £400,000.) However, if your net worth was only £150,000 by the time of your death, would you still wish for your grandson to receive £100,000 if your daughter was to receive only £50,000 as a result? This would happen without a carefully drafted Will. Circumstances do change over the years. Sadly, for many of us, our estates may decrease in value to fund the cost of our care in later life.

3. Abatement. Following on from point 2 above, in some cases the value of cash legacies in a Will exceeds the total cash in the estate. The end result is that the residuary beneficiaries take nothing. Using the example from point 2, if the estate was only worth £50,000 by the time of death, the grandson would receive £50,000 and the daughter would receive nothing. If the Will had included a cash legacy of £400,000 to the daughter and a cash legacy of £100,000 to the grandson, the £50,000 would be distributed on a pro rata basis (£40,000 to the daughter and £10,000 for the grandson.). The results can therefore differ dramatically: wording is key. There are further rules on the order of abatement (reduction) where there are different categories of legacies in a Will, e.g. specific and general.

4. Ademption. Have you considered what would happen if the item gifted in your Will isn’t owned by you at the time of your death? Would you like to include a substitutional gift of a replacement property or a cash gift instead? Without express wording, this may not happen. When gifting a property, specific provision may be needed to specify what happens if you died after agreeing to sell the property but before completion of the sale takes place.

5. Lapse. When you make your Will, careful consideration should be given as to what should happen if the beneficiary of the legacy dies before you. It is always possible to name a substitute beneficiary to receive a particular bequest.

6. Definitions. Clarity is essential if you are distributing different assets to different beneficiaries. If you would like a particular individual to receive your diamond ring but you own more than one ring containing diamonds, which one are you referring to? Consideration should always be given to such matters to avoid disappointment and/or disputes following your death.

7. Assets subject to mortgage. With property, the default position is that the gift is subject to mortgage unless specified otherwise. However, it is always recommended that you set out your wishes so that the beneficiary knows what you had intended.

8. Assets which cannot be gifted. Sometimes, the assets you own are subject to provisions in accompanying deeds/documents which restrict your ability to give them away on death. In some cases, joint assets pass automatically by survivorship to the surviving account holder and not to the person(s) named in your Will. With business assets such as a share of a partnership or company shares, there are often additional agreements which can limit the available options for gifting them on death.

9. Inheritance tax. It is important to consider and specify in the Will whether or not each specific legacy is free of Inheritance Tax or subject to Tax. There can be complex rules with Inheritance Tax where there are beneficiaries who are surviving spouses of the deceased and/or charities inheriting alongside others who are non-spouses/non-charities.

When you instruct a legal expert at Ware & Kay, we would consider the issues above to the extent to which they could apply to you. We would have in depth discussions with you to determine your precise wishes and to ensure you have a well thought out Will. This helps to prevent any unintended consequences in the future which would otherwise cause distress/disappointment to your intended beneficiaries. 

It is of course possible to make a Will without instructing a legal expert. However, as you will see from reading this article, things are not always as straightforward as they may seem!

If you would like more information please call one of our expert Solicitors on York 01904 716000, Wetherby 01937 583210 or Malton 01653 692247 or complete our online contact form.

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