AA Legal Documents

Gifts and beneficiaries

Contents

Types of gift

In Wills, you are generally able to make three different types of gift - specific, pecuniary (i.e. related to money) and residuary. These types of gift are described below:

Specific

A specific gift is a gift of a particular item, or group of items of property. For example, you may leave a piece of jewellery or all of your jewellery to a friend or relative.

The item or items may or may not be owned by the person making a Will when the Will is made.

Where the gift is of specific property that the testator owns when he or she makes their Will and the testator disposes of that property during his or her lifetime, the gift will fail. This is because only that specific thing can be gifted. This is known as 'ademption' and the gift is said to be 'adeemed'. For example, the gift in the clause 'My yacht to my friend Natasha.' in the Will of a testator who sold the yacht a few months prior to his death for £30,000 is said to have been adeemed. Unlucky Natasha cannot claim the £30,000.

Where the gift is of property that the testator did not own at the time the Will was made, it may not be adeemed. Unless the testator merely made a mistake in attempting to bequeath something that the testator thought that he did own, the property that is the subject of the gift may need to be provided out of the testator's general estate; for example, if a testator makes a gift of 4,000 shares in a quoted company in the knowledge that he did not own these, the executors of the estate will need to use money in the estate to purchase such shares, or sell other assets in the estate to raise money for this purpose. The onus of proving that the testator knew that he did not own the asset at the time he made the will is on the legatee (the recipient of the intended gift). There is no automatic presumption that such was the case. Because of that, this is a fairly unusual complication.

The gift, however, even though it is not adeemed, may fail - for example, if (using the above example) the quoted company has ceased to exist by the time of the testator's death.

Pecuniary

A pecuniary gift is simply a gift of money.

Residuary

A residuary gift is a gift of what is left (known as the residue) of your property when you die after payment of debts, expenses and gifts of a specific or pecuniary nature as described above. If no other gifts are made, a gift of everything that is left in the estate, after payment of debts and expenses is a residuary gift. Normally, it is provided that all the debts, expenses and other gifts are to be paid out of the residue before it is distributed.

Beneficiaries

'Beneficiary' is the term used to describe a person to whom you have left a gift in your Will. There are some specific rules for certain beneficiaries which are described below:

Claims against estates

A deceased's spouse or civil partner has legal rights to his or her estate as do the deceased's children, now including adopted children (for Wills executed after 10 September 1964) and illegitimate children (for Wills executed after 8 December 1986), but not step-children. In the case of illegitimate children, different rules may apply if the Will was executed before 25 November 1968 and different rules again if it was executed between that date and 8 December 1986. In these cases, legal advice should be sought.

When making a Will, these legal rights should always be borne in mind, although there is no requirement that any provision is made in the Will for any of these people. If no provision is made, however, legal rights can be claimed after the testator's death by the omitted individuals. Claims can be lodged for up to 20 years after death (or longer if the claimant was under the age of 18 at the date of the testator's death). For Wills executed after 10 September 1964, claiming legal rights will imply forfeiture of any benefit provided for the claimant in the Will. For example, if a testator leaves his son £1,000 in the Will and the son claims his legal rights, the legacy of £1,000 is forfeited. What happens to the legacy at that point will depend upon the terms of the Will, but in many cases, it will fall into residue. If a legal rights claim is made, it is important that appropriate legal advice is sought as early as possible.

For the purposes of calculating legal rights, Scots law recognises a distinction between different types of assets, heritable and moveable. Although there are a number of anomalies and the issue is complex, generally heritable assets are houses, land, etc. and moveable assets are things like bank accounts, stocks and shares, furniture and personal effects, motor cars, cash and investments. The proceeds of life policies are generally moveable, unless the policy has been formally assigned to a lender in security for a heritable debt due by the deceased (like a loan secured on a house), in which circumstances, the proceeds of the life policy may be treated as partly heritable and partly moveable for the purposes of succession.

A legal rights claim only lies against the net moveable estate i.e. after payment of certain debts. Before valuing the legal rights, there has to be deducted from the moveable estate the funeral expenses, the Inheritance Tax appropriate to that portion of the estate and the expenses of winding up the estate up to the point of obtaining Confirmation. Interest runs on legal rights from the date of death until payment.

Where a deceased left a spouse or civil partner and children, the legal rights fund for the spouse or civil partner is one third of the net moveable estate and the legal rights fund for the children is one third of the net moveable estate. For example, if a deceased man leaves a widow and three children, and makes no provision for any of these in his Will, the widow is entitled to claim one third of his net moveable estate and each of the children is entitled to claim a one ninth share of his net moveable estate each.

Where a deceased leaves either a spouse or civil partner and no children on the one hand, or children, but no spouse or civil partner on the other hand, the legal rights fund increases to one half of the net moveable estate. For example, if the deceased leaves a widow but no children, the widow is entitled to claim one half of the net moveable estate. Likewise, if the deceased leaves four children, but no spouse or civil partner, the four children are each entitled to claim a one eighth share of the net moveable estate.

Legal rights are treated like other debts due by the estate and, if claimed, must be paid out by the executors.

Note that the foregoing explanation of legal rights applies where somebody left a Will. For somebody who leaves no Will, a spouse or civil partner and children have these legal rights but there are also other rules on intestacy which may apply (See 'Dying without a Will').

Gifts to children

Children who are under the age of 16 are deemed to lack legal capacity to receive a gift.

Where a gift in your Will is going to a child under 16 (which may be a child of a deceased beneficiary), you can give your executors and trustees the option to make the gift to the child's parent or guardian. This does leave the risk that the child will never know about or benefit from the gift (because their parent or guardian will use it up), but it is also possible that the parent or guardian can use the gift for the benefit of the child immediately.

If you are leaving the residue of your estate to your children, you may specify an age between 18 and 25 when they become entitled to their gift. There are some tax implications if you decide not to give your children the residue at age 18.

Note that a child may afterwards apply to a court to set aside a transaction he or she entered into between 16 and 18 on the basis that unfair advantage has been taken of them, so it is generally also not a good idea to pay over a significant inheritance to somebody under 18 without taking legal advice.

Beneficiaries who die before you

If you leave a gift of money or a specific item to someone who dies before you, the gift will generally instead form part of the residue of your estate. If the gift is to a child or nephew or niece and you have not provided in your will that it will pass instead to their descendants, there are some circumstances in which these descendants might have a claim to the gift if it can be implied that this was a possibility that you had not considered. If such a situation arises, you should seek legal advice.

If a gift to a residuary beneficiary fails and you have not provided for an alternative recipient, the rules of intestacy will determine how that gift is dealt with (see 'Dying without a Will').

The rules of intestacy can have undesirable consequences because the gift might be dealt with in a way that you wouldn't have approved of. There are a number of ways of ensuring you control what happens to your gift. For example, you would be wise to provide in your Will that in instances where this might happen, the gift goes, in equal shares or whatever proportion you choose, to any children the beneficiary has, or to an alternate beneficiary that you have selected.

Gifts to charities

There are so many charities that raise money for a variety of good causes, and they rely on the generosity of the public to continue the valuable work they carry out. Whilst you will naturally want to make adequate provision in your Will for your family and friends, you may want to consider a gift to a favourite charity as well.

Gifts to UK registered charities in your Will are tax exempt, and therefore do not reduce your Inheritance Tax allowance. Making a gift is simple. Just get the name, address and registered number of any charities you wish to give to and decide what gift(s) you wish to make. You can make a gift of money, specific items, or include them as a residuary (or ultimate residuary) beneficiary. If you wish the gift to be used for any specific purpose, this can be stated in a letter of wishes.