Specific Pecuniary Legacies: Understanding it’s Strengths and Weaknesses

Co-Authored by Daniel De Maria

KEY TAKEAWAYS:

• A specific pecuniary gift is a type of legacy which gives a particular sum of money to a desired beneficiary

• These types of gifts are fixed into your Will meaning they will come from your estate before accounting for liabilities or residual beneficiaries

• If an estate does not have sufficient funds then gifts can be abated (reduced) or adeemed (fail)

• It is important to seek legal advice to ascertain your estate planning to make sure your estate planning carries through

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One of the most common ways in which someone can provide for a loved one in a Will is by leaving them a specific gift, such as a particular sum of money. These financial legacies are known as specific pecuniary gifts.

For many testators, leaving the sum of $10,000, $50,000 or even $100,000 to a specific beneficiary may seem relatively straightforward. However, it is vital to understand that these pecuniary gifts do not operate in isolation and can have significant impacts on the remaining beneficiaries of your estate.

What is a Specific Pecuniary Gift?

A specific pecuniary gift is a gift under a Will of a particular sum of money, such as:

• The sum of $50,000.00 to my daughter, Sarah;

• The sum of $100,000.00 to RSPCA; and

• The sum of $50 to my estranged son, Gavin.

These gifts are generally intended to provide the beneficiary with a fixed sum of money from an estate and is different from a residuary gift. A residuary beneficiary receives what remains of the estate after payment of liabilities, administration expenses, taxes and any other gifts under the Will. For example, if an estate is worth $1,000,000 and the Will provides for $200,000 in pecuniary gifts, the residual beneficiaries will not simply divide the original $1,000,000 between themselves. The pecuniary gifts and the costs and liabilities of administering the estate must first be accounted for.

 

How Multiple Pecuniary Gifts Can Affect the Residue? 

Consider an estate with an asset pool of $600,000, which provides for the following gifts:

• $100,000 to Kelly;

• $100,000 to Sam;

• $50,000 to James; and

• $50,000 to Cancer Council.

This represents $300,000 in pecuniary gifts.

If the remaining estate is intended to pass equally between two residuary beneficiaries, they will not end up dividing $600,000 between them. Before considering the other expenses and liabilities of administration, only $300,000 remains after the pecuniary gifts. Each residuary beneficiary would therefore, in this example, receive $150,000 rather than $300,000 each. This illustrates an important principle: a specific pecuniary gift made to one beneficiary can have a direct financial impact on another.

 

The Residue Can Be Particularly Vulnerable

The residuary estate is often described as the “remainder” of an estate, but it is more than simply whatever assets are left over after distributing specific property. The residue may bear the impact of:

• Funeral and testamentary expenses;

• Debts and liabilities;

• Taxes and other costs;

• Legal and professional fees;

• Specific gifts; and

• Other payments or reimbursements required to administer the estate.

Consequently, a person who is intended to receive “the rest of my estate” may ultimately receive substantially less than the Will-maker anticipated.

This is particularly important where the Will-maker’s principal asset is a family home. An estate may be worth $1,000,000 on paper, but if much of that value is tied up in property and the Will contains significant cash gifts, the executor may need to consider how those gifts can be satisfied through the sale of this property.

 

What Happens if There is Not Enough Money For The Residue?

One of the risks of making substantial fixed-dollar gifts is that the value of an estate may change significantly between the date the Will is signed and the date of death.

A Will-maker might have $500,000 in savings and investments when their Will is prepared, however years later, their financial circumstances may be very different. They may have exhausted their savings, their investments may have been depreciated, debts may have accrued, or assets may have been transferred or sold.

If the estate cannot satisfy all the pecuniary gifts in full, gifts may need to be reduced or abated. For example, if a Will-maker leaves fixed-dollar gifts totalling $400,000 but, by the time of their death, only $300,000 is available to meet those gifts after payment of debts and expenses, the gifts may need to be reduced so that the available funds can be distributed in accordance with the terms of the Will.

This is why a Will should not be viewed as a document that is prepared once and then forgotten.

 

Regularly Reviewing Your Will is Essential

Specific pecuniary gifts can be an excellent way of providing for individuals or organisations. However, they should be considered in the context of the entire estate plan.

When circumstances change, Will-makers should consider whether their fixed-dollar gifts remain appropriate. For example, a $50,000 gift that represented 10% of an estate when the Will was prepared may represent a substantially larger proportion of the estate many years later. Inflation may also mean that the $50,000 has significantly less purchasing power by the time the gift is received.

A Will should therefore be reviewed following significant changes in circumstances, such as the acquisition or sale of major assets, changes in family circumstances, the death of a beneficiary, or the passing of time.

 

Conclusion

Specific pecuniary gifts can ensure particular people or organisations receive a defined amount from an estate. However, each gift reduces what remains for residuary beneficiaries, with debts and estate expenses further reducing the residue.

As an estate’s value and circumstances can change over time, a gift that was appropriate when the Will was made may later become disproportionate or difficult to satisfy.

Will-makers should regularly review their pecuniary gifts to ensure they remain practical, proportionate and consistent with their intentions.

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