Payment of Legacies Under a Will
When a person (the Testator) makes a Will, there are many ways they can leave their estate to the people they want to benefit. The Testator can pass their residuary estate, which is all of their assets at the time of their death less any debts and liabilities, to the beneficiaries entirely.
Alternatively, another option could be to leave cash gifts (legacies) to chosen beneficiaries before detailing where they want to leave the remainder of their estate. When a legacy is included in a Will, the beneficiary could be a charity, family member or friend and legacies are paid in priority to the residuary estate. Therefore, a beneficiary of a specific cash legacy under a Will could end up receiving more than a beneficiary of the residuary estate if the assets within the estate have depleted significantly over the Testator’s lifetime.
The period from the date of the Testator’s death up until the first anniversary of the death is known as the ‘Executor’s year’. Cash legacies are typically paid within the Executor’s year, as payment of a cash legacy outside of the Executor’s year attracts interest at a rate dictated by the Court Funds Office, and the beneficiary will receive the cash legacy plus interest. However, there is no actual obligation on the Executors to pay the legacy within the Executor’s year, as there could be many reasons why it would not be practical to make payment within the Executor’s year.
There have been a number of changes to the rate of interest set by the Court Funds Office recently, with four changes to the interest rate in 2022 alone, likely due to the changing Bank of England base rate. If a legacy is still outstanding after the Executor’s year, interest will need to be calculated from the first anniversary of the death right up to the date that payment is made. If the rate of interest payable on a legacy has changed from the point interest starts accruing, until the date the legacy is paid, the interest will need to be apportioned accordingly.
The Court Funds Office have recently published that the rate of interest on cash legacies payable outside of the Executor’s year has been increased to 1.688%, effective from 25 October 2022.
If you are the Executor of an estate where the Will contains one or more legacies and have any questions about the legacy interest rules, please contact Sophie Fenn, Senior Associate at The Wilkes Partnership at [email protected] or 0121 733 8000.