Probate – When do Executors pay Legacies?
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Cash Legacies are fixed sums of money paid under the terms of a will.
The administration of an estate can be a complicated and time-consuming process. Executors are unlikely to be able to pay cash legacies for some months after the date of death – even in the most simple of cases. Here we explain why things take time.
What is a Cash Legacy?
A cash legacy is a fixed sum paid under the terms of a will. They tend to be used as ‘token gestures’ rather than to deal with the bulk of the estate (known as the residuary estate). They will be fixed amounts (unlike the residuary estate which is carved up into percentage shares).
What does a Cash Legacy look like in a Will?
A cash legacy will look something like this:
“I GIVE £1,000 (one thousand pounds) to my friend JOE BLOGS of 1 The Street Town TN1 2ST
Do you pay Inheritance Tax (IHT) on Cash Legacies?
There is a general assumption that cash legacies will be free of IHT. If in doubt, you can clarify this by stating something like:
“I GIVE free of tax £1,000 (one thousand pounds) to my friend JOE BLOGS of 1 The Street Town TN1 2ST
If any cash legacies you leave in your will are to exempt beneficiaries (eg a charity) then they will be free of tax come what may.
What needs to be done before Cash Legacies can be paid?
Obviously, money needs to be released from the estate! And so, the normal processes to do that will need to have been followed ie
- Gathered probate values
- Paid IHT (if any falls due)
- Apply for Probate
- Release cash assets
By definition, it is only once the executors have released cash from bank accounts etc that they will have the ability to settle any legacies. This is likely to take several months after the date of death even in the most straightforward of circumstances.
Will the Executors definitely pay Cash Legacies as soon as Assets are released?
Almost certainly, yes. But, there are circumstances in which they may not be able to.
Firstly, there is often two ‘tranches’ of money released once the grant of probate is received. The first will be cash assets – bank accounts, shares, investments and so on. The second tranche is often when the sale of the house happens. It is sometimes the case that the cash assets will not cover the legacies due, or for some other reason the executors need to hang on to the cash to cover liabilities (eg further IHT instalments).
Are Cash Legacies paid before Residuary Estate?
Usually yes, you would expect cash legacies to be paid before residuary estate distributions are made. This is because they are definable amounts. What will often happen once the case assets are released is that the executors will pay any fixed cash legacies, and make interim distributions to the residuary beneficiaries at the same time.
What if there is not enough money to pay Cash Legacies?
The payments of an estate fall to be paid in the following chronological order:
- Liabilities – estate debts, funeral costs, and so on
- Cash Legacies – fixed cash gifts
- Residuary estate
So, if there is not enough to even cover the liabilities the estate is deemed insolvent. What will generally happen is the creditors will be asked to accept the proportion of what money is available against the value of what they are owed (v the total amount owed to all creditors). The cash legatees and residuary beneficiaries would receive nothing.
If there is a balance to pay toward legacies (but not pay them all in full), then similarly, whatever is left (after paying all of the liabilities) will be subject to abatement giving the cash legatees a proportionally reduced legacy. The residuary beneficiaries would receive nothing.
A Legacy to a minor may need to be held by executors until they reach 18 years.
What if the Executors won’t pay the Cash Legacies?
If you have appointed lay executors (friends or family members) it is very difficult to force them to do anything – other than applying to the court which is very time consuming and expensive. If however you have appointed professional executors (solicitors) your beneficiaries will have all of the protection that goes with the regulation of that including access to formal complaints processes as required by our Regulator (the SRA), right through to access to the Legal Ombudsman if your complaints remain unresolved. This is one of a number of reasons to consider using a professional executor.
What if the Cash Legatees are under 18?
If any of the cash legatees are under 18, your executors will have to hold the money until they are. This is called a ‘bare trust’. Alternatively, they might consider paying it to the minor’s parent of guardian. When you make a will, if you are leaving cash legacies to minors, and you would be happy for the money to be paid to their parents, it is worth confirming this in the will – ie making it clear that your executors are permitted to do that. The reason for covering this off comes back to the fact that executors carry a personal responsibility for all payments made under an estate. So for example, if they paid a minor’s legacy to their parent, and that parent then blew it on themselves, the minor could sue the executor to pay it personally a second time! If however, the will clarifies that the testator permitted a parent to receive the money on behalf of the minor, it should relieve the executors of any such problem (however unlikely that problem arising might be)!
Where will it be recorded what Legacies have been paid?
The executors will detail the legacies paid in the distribution account section of the estate accounts.
What if a Legatee dies before the Testator?
If a cash legatee dies before the testator (the person who made the will that included the cash legacy) then the gift will simply fail. It will NOT become payable to the legatees estate.
What if the Legatee dies after the Testator but before they are paid?
If the legatee dies themselves, but after the date of the death of the testator, then it would in those circumstances become payable to the estate of the legatee. This is because there is an assumption that the contingent event to entitlement to the legacy is that the legatee is alive at the date of death of the testator (not that they will be alive when the legacies get paid).
Need help with Cash Legacies?
We very much hope that this article, and the plethora of other content on our site has given you the answers you were looking for! If it hasn’t – do reach out, we’d love to hear from you. Our expert probate solicitors can help with all of your executor or beneficiary queries surrounding the administration of estates. You can leave a message below, email us, or call.
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