Order of application of assets to debts and abatement of pecuniary legacies (AEA 1925 Sch.1 Pt II)
Ngozi died in 2026, domiciled in England, leaving a valid will which gives: (1) 'my car' to her friend Asha; (2) £30,000 to her brother Ben; (3) £10,000 to her cousin Chloe; and (4) the residue of her estate to her neighbour Dev. The will says nothing about how debts are to be paid. Her estate consists of the car, worth £10,000, and money in the bank of £40,000. Her funeral, testamentary and administration expenses and debts total £20,000. The estate is solvent. Ignore inheritance tax.
Which of the following best describes how the estate will be distributed?
Choose one answer to see the reasoning.
Worked answer
Correct answer C: Asha takes the car, Ben takes £15,000 and Chloe takes £5,000; Dev takes nothing.
THE RULE TO REMEMBER
Unless the will says otherwise, debts of a solvent estate fall first on undisposed property, then residue, then the fund for pecuniary legacies (which abate rateably), and only then on specific gifts.
Order of application of assets to debts and abatement of pecuniary legacies (AEA 1925 Sch.1 Pt II)
Section 34(3) and Part II of Schedule 1 to the Administration of Estates Act 1925 set the order in which a solvent estate's assets are applied to pay debts and expenses, unless the will provides otherwise. There is no undisposed-of property (paragraph 1). Next comes residuary property, 'subject to the retention ... of a fund sufficient to meet any pecuniary legacies' (paragraph 2). The only non-specific asset is the £40,000 cash, all of which is needed to meet the £40,000 of pecuniary legacies, so nothing is available from residue and Dev takes nothing. The debts then fall on 'the fund, if any, retained to meet pecuniary legacies' (paragraph 5), before property specifically bequeathed (paragraph 6). Paying the £20,000 from the £40,000 fund leaves £20,000 for legacies totalling £40,000, so they abate rateably by half: Ben receives £15,000 and Chloe £5,000. The specific gift of the car is untouched and passes to Asha.
Why A is wrong: Specific gifts are used for debts only after the fund retained for pecuniary legacies, so the pecuniary legacies abate before the car is touched.
Why B is wrong: General legacies abate proportionately to their amounts, not equally.
Why D is wrong: Specific gifts abate only after residue and the pecuniary legacy fund are exhausted (paragraph 6); here those suffice.
Why E is wrong: A residuary beneficiary takes only what is left; there is no personal liability, and there is no residue left after providing for the pecuniary legacies.
A little more practice done.
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