We make wills to ensure our loved ones receive the inheritance we want them to after we die. In most cases wills drafted with care by an experienced wills and probate solicitor achieve this aim. But what happens if you leave insufficient assets in your estate to satisfy all of the gifts and legacies you’ve included in your will? Who gets what? And which beneficiaries lose out?
At Gamlins LLP we have offices across North Wales, so we are able to find you a local solicitor that can provide sensitive and personalised advice on all aspects of wills and probate, including guidance on how the different kinds of legacies you can include and how they may be treated if there are insufficient funds to carry out your wishes precisely . Call us on 01492 860420 or contact the team online.
Remember – debts always take priority
When someone dies in Wales, the executors of the will (or the administrators if there’s no will) are legally required to establish the debts and liabilities of the estate. These include money owed by the deceased to creditors as well as testamentary, funeral and other expenses, including inheritance tax. Once established, the debts and liabilities must be paid – before the beneficiaries receive anything. If, when the debts have been discharged, there is not enough left in the estate pot to pay all the beneficiaries in full then the rules of ‘abatement’ are triggered. We explain these below.
Note if the estate has insufficient funds to pay debts in full it is said to be insolvent and different rules apply. Creditors are paid in a strict order of priority similar to the procedure for bankruptcy,
What is abatement?
Abatement (or reduction) kicks in when the value of the estate is less than the amount of debts and legacies combined. The fact that debts are paid first means that beneficiaries will have to accept a reduction in what they were left under the will. Because of the way the abatement rules operate in practice, some beneficiaries will receive nothing or considerably less than they would have done if there had been sufficient assets.
Gifts in a will generally fall into three categories:
- Specific Legacies of specified assets owned by the deceased
- General Legacies of money or other property
- Residuary gifts comprising what remains after payment of legacies and debts
When abatement of assets becomes necessary, legacies are distributed in the following order:
- Specific
- General
- Residuary
In effect this means that the residue is abated or reduced first to ensure general and specific legacies are satisfied. If specific and general legacies can’t be paid in full from residue the residuary beneficiaries receive nothing. So residuary beneficiaries lose out first in the process of abatement.
Once the residue has been used up then general legacies are reduced proportionally so that specific legacies are paid.
If necessary, specific legacies will be abated or reduced. The nature of specific legacies – jewellery, paintings, cars for example means that precious items, often with great sentimental value may have to be sold. A practical way around this is for the recipient of a specific legacy to make up any difference in their entitlement and the value of the legacy so that they retain the asset without it having to be sold.
The rules on abatement can overridden expressly by the testator if they include a provision that certain legacies are to be paid in priority to others.
Comment
The rules on abatement are complex and can have unwelcome and unintended consequences. This underscores the importance of regularly reviewing your will to ensure that those beneficiaries you most want to benefit are as far as possible protected if your estate becomes subject to the rules on abatement.
Contact Us
Gamlins Solicitors LLP has a network of offices across North Wales, and we can arrange an in-person appointment at the office that’s most convenient for you or a remote appointment if you prefer. Please call us on 01492 860420 or contact the team online
