One often comes across situations where where the residue is not sufficient to pay all of the estate expenses but the remaining assets are sufficient to pay the estate expenses. If this arises then, the estate is still solvent, and dealing with estate expenses in these cases are to follow set rules. Those rules are set out in Part II of the First Schedule of the Succession Act 1965. They can appear daunting at first blush and their application can seem complicated. However for the majority of cases, one can read Part II of the First Schedule as stating that if the residue has been utilised for testamentary and other estate debts and expenses the balance of the amount outstanding is

• first applied against “the fund, if any, retained to meet pecuniary legacies”

• secondly, any “property specifically devised or bequeathed, rateably according to value”.

The wording here may sound somewhat confusing, in that a will, will not generally set aside a sum or money to pay pecuniary legacies. However, that wording is treated as being understood to mean any pecuniary legacies referred to in the will. The logic being, that prior to calculating the residue, one must set aside from the residue monies to pay the legacies.

So examples are helpful in these cases.

Take the case of an estate where there are the following assets:-

House worth €150,000

Land worth €300,000

Balance of cash after payment of expenses €20,000.

The will states that the house goes to child Mary and land to brother Tom. In addition, the will provides for the following pecuniary legacies:-

€15,000 to son John

€20,000 to sister Susan

€5,000 to Trocaire

Residue to cousin Sheila.

In that case the balance of liability is divided pro-rata amongst the pecuniary legacies according to the following formula

Value of one pecuniary legacies divided by total value of legacies

So in this case, as the total value of the legacies are €40,000, then using the formula, the Trocaire bequest represents €5000/€40,000 of the total legacies, namely 12.5% or one eighth and so, that legacy must bear one-eighth of the expenses. Which is €2,500. Applying the same logic, for all the benefits, the pecuniary legacies are now:-

€7500 to John

€10,000 to Susan

€2500 to Trocaire

So the pecuniary legacies now reduced from €40,000 to €20,000 to meet the outstanding liability of €20,000.

If the outstanding liability was €100,000 after depletion of the residue, then the procedure would be as follows. The sum set aside for the pecuniary legacies would be used entirely to discharge the liability. Therefore, €40,000 set aside for pecuniary legacies would be used to discharge the liability. The liability would then stand at €60,000. None of the beneficiaries of the pecuniary legacies receive any funds, their pool being used to discharge the expenses.

The outstanding liability would then be allocated pro-rata between the remaining bequests. In this case, the remaining bequests are the two real property assets. Using the same formula, one divides the liability pro-rata amongst the value of the remaining assets. The house represents one third in value of the remaining assets (ie €150,000/€450,000). Therefore Mary as beneficiary of the house is obliged to pay one third of the outstanding balance of liability, namely one third of €60,000 being €20,000 and Tom is liable for two-thirds of the liability namely €40,000. These liabilities must be discharged prior to the distribution of assets to Mary and Tom. However, the sums owing reduce the value of the inheritance received by Mary and Tom for CAT purposes.

Hopefully, this helps and if you have any queries on probate, will drafting, tax or capacity issues, please do not hesitate to reach out to ckelly@hcalaw.ie or via the website.