Wills and Estate Planning - Residuary Gifts

September 2009

Once debts are discharged, administration expenses (including all taxation liabilities) cleared and any legacies bequeathed are paid, the remainder is termed the “residuary estate”. If no provision is incorporated, then any remaining property not disposed of would pass under the intestacy rules which is not to be favoured being a rigid and inflexible devolution set out by statute. (In practical terms the “residue” is effectively everything that is remaining in the estate available for distribution).
 
It is important, therefore that the Will deals properly with the residue and, broadly, can either provide for gifts to pass either absolutely to (adult) beneficiaries or charitable institutions; or alternatively subject to the terms of a prior trust. (The trust situation will be covered next month.)
 
It is essential for the correct questions to be asked of the testator as to who should benefit and in what shares etc.; and concurrently for the testator to be reasonably clear with his/her thought process before the Will draftsman arrives to take instructions. As with the military careful planning always pays dividends!
 
Unintended consequences can otherwise occur; after the testator’s death and the Will being acted upon (following probate), the absence of the testator available for consultation will give rise, invariably, to much family wrangling and legal interpretation which will have to be paid for!

The following are examples of commonly found pitfalls to avoid:

  • Gifts in substitution - where residue is given “in equal shares”, and any intended beneficiaries have predeceased; the testator should leave direction whether the surviving beneficiaries should then take the lapsed share/s. Alternatively, should the children (of the deceased beneficiary) inherit that share that has “lapsed”. (Where children of the testator are concerned there are special rules – see below).

  • Where there is a class gift to children of a testator, statute has intervened to invoke automatic substitutional gifts unless words to a contrary intention are included in the Will. Thus if a child of the testator has predeceased, leaving a child or children who have survived, such a child or children will take equally the share that their deceased parent would have taken. 

  • Gifts to a class of beneficiaries - the testator should be advised as to the effect of what are termed the “class closing” rules and they could artificially exclude certain unborn persons:

    For example, a gift “to my grandchildren” – this operates as an immediate gift – the class closing rules apply and their effect being the class closes at the date of the testator’s death to include only those living (or what is termed ”en ventre sa mere”) at that date. This is likely to accord with the wishes of most testators; although it will exclude later born grandchildren, it will allow early distribution.

  • Compare the above to the alternative situation where a gift is expressed to be deferred or contingent –for example “to those of my grandchildren who reach 18”. The effect of the class closing rules is that such a class will remain open until the first class member (grandchild) fulfils the contingency – e.g. attains 18 years. The practical effect is that such a class of grandchildren remains open to include any grandchildren born after the date of the testator’s death and before the date the first grandchild to reach 18 years.

  • It is wise, therefore to establish precisely the wishes of the testator when drafting the Will- are later (potential) grandchildren to be included or limited to just those “living at my death”? These are simple questions, but if not asked, the Will draftsman can end up with disgruntled daughters of the testator whose later born children will not benefit! (It is likely that sons will share the same view but, from the author’s experience, daughters do become especially upset in these circumstances!)

  • Any reference to a class of relatives is construed as the testator’s blood relatives only and not to relatives by marriage. Thus a gift to benefit a testator’s “nephews and nieces” will exclude his spouses nephews and nieces unless qualifying words are included. Reference to a class of relatives will include adopted children but not step children who have not been adopted. (The fact that a person’s parents were not married to each other at the time of his birth is irrelevant for qualifying under succession to property, unless words showing a contrary intention are expressed in the Will).

  • The Will should always make clear what happens to a member of a class of beneficiaries who predeceases. A class gift (e.g. “to my nieces”) is construed as a gift to those nieces who have survived the testator.

Next month: Substitutional gifts continued – the effect upon divorce of a spouse; charitable residuary gifts; and trust situations.

Andrew Murdoch
(ACIB, AIFP, Dip PFS, TEP, Solicitor)

 
The content of this article is only intended as information and should not be considered as legal advice. Andrew Murdoch cannot be held liable for any loss caused by any act or omission as a result of information in this article.