A cash legacy is a fixed cash sum that you can include in your will. It is a specified amount (rather than a percentage of the overall estate which is called a ‘share of residue’).
For example, a legacy might read something like:-
I GIVE £5,000 (five thousand pounds) to my cousin Billy Smith of 1 The High Street, Appletown, Countyshire
So, what things should you have in mind when or if you make a legacy gift in your will?
Do I have to include fixed legacies in my Will?
The simple answer to that question is NO! You do not have to include fixed legacies. Instead, you can simply deal with the estate as a whole. We call this the residuary estate. You can find out more about a residuary estate here.
How much should I make a legacy in my Will?
There are no rules on the amounts you should include. But, do be careful to ensure that your estate can comfortably pay all legacies (see below the order of priority of gifts in a will).
Whilst there are no hard and fast rules about the amount you should specify as a legacy, the general thinking is that they should be used for amounts that represent a ‘token’ amount as against the overall value of your estate.
If your estate runs out of money to pay legacies then your ‘residuary beneficiaries’ get nothing (as legacies take priority). This is the reason for legacies usually just being token amounts.
What order are gifts paid out under the terms of my Will?
There is an order in which amounts due under your will are paid out. That order is:-
- TESTMANTERY EXPENSES – eg funeral costs, executor expenses, and Inheritance Tax; then
- CASH LEGACIES – the fixed cash amounts we’re discussing here; then (finally)
- RESIDUE – this is ‘everything else’
This is highly significant! You should be very wary of leaving large sums as specific legacies gifts. As, if the value of your estate changes between making your will and dieing, you run the risk of your ‘residuary estate’ failing as they fixed legacies are paid our first.
As above, fixed cash legacies tend to be used as ‘token’ gifts, NOT as a means to pay out the bulk of your estate. This (paying out the bulk) is usually done within the residue of your estate and done as percentages of the whole. Find out more here about residuary estate.
A cash legacy is a fixed “money” gift that you leave in your will.
Can I leave a cash item as a legacy – eg a bank account?
Technically, yes you can leave (for example) a bank account as a gift. However, this is generally considered poor will drafting for the following reasons.
Certainty is the key to a well drafted will. And, ideally, a will remains as ‘future proof’ as possible after it is prepared. For many of us, our will is prepared many many years before we die! So, we want it to remain valid and cope with changes in our life and our financial circumstances.
The problem with leaving, for example a bank account, is that that account may not exist at the time at which we die. Or than bank may have changed its name, and so on. Your executors simply do not need added complications like that! So, our advice is to make sure that cash legacies are made as fixed amounts, NOT gifts of certain cash assets.
Will a legacy attract Inheritance Tax
Yes – if your estate is liable to IHT. But, you can specify in your will whether legacies are to be paid free of, or subject to IHT.
Your solicitor will talk to you about this if you decide to include legacies in your will.
What happens if I don’t include legacies in my will?
You do not HAVE to include legacies – in fact most people don’t. For most of us our will simply deals with the division of our overall estate as a whole or in percentage terms.
For advice on any of the subjects raised above please reach out to our expert team who will be happy to help with all of your queries regarding wills. You can call us on 03300 020 365, and email us at firstname.lastname@example.org.