Whether you are choosing the beneficiaries of your estate, or you have recently been made aware you are the beneficiary of a Will or intestate estate, it can be confusing to understand the different types of beneficiaries and how that affects what is being inherited and how it is distributed.
Who can be a beneficiary of a Will?
Anyone can be a beneficiary of a Will. This could be a family member, friend or even a charity or organisation.
There are multiple types of beneficiaries that can be named in a Will. The testator can be very specific with the distribution of their estate and name as many beneficiaries in as many ways as they want but at a minimum, they must name a residual beneficiary.
A surviving spouse or partner can be a beneficiary even if they are not named in the Will if they owned joint assets with the deceased. This is because the rule of survivorship takes precedent over the wishes in the Will or laws of intestacy. The rules of survivorship mean any joint-owned assets pass automatically to the surviving owner.
Who can be a beneficiary when there is no Will?
Only the next of kin according to the laws of intestacy can be a beneficiary of an estate when there is no Will. There is only one type of beneficiary of an intestate estate and that is a residual beneficiary.
What kind of Beneficiaries are there?
There are 2 main types of beneficiaries. Both types have more specific subsets of beneficiary within them.
- A residual beneficiary (sometimes referred to as primary beneficiary)
- A legacy beneficiary or pecuniary beneficiary.
What is a Residual Beneficiary?
A residual beneficiary receives a share or percentage of the residue of the estate. The residue is the part of the estate that is left after debts, liabilities and bequests have been paid. Before residual beneficiaries can get their share the estate’s expenses, debts, and any inheritance tax that’s due must be paid.
A will may also name a contingent beneficiary for the residue of their estate. This is someone who will only inherit under a specific set of circumstances. A contingent beneficiary is often named to prevent the estate from being inherited by someone that the testator did not intend.
When does a residual beneficiary receive their inheritance?
Residual beneficiaries are the last beneficiary to receive their inheritance. This means all other types of beneficiaries must receive their inheritance before the residual estate can be distributed to the residual beneficiary. If there is nothing left in the estate once everything else has been paid there will be nothing for the residual beneficiaries to inherit.
If there are still assets in the estate once everything has been accounted for, these assets will be split amongst the residual beneficiaries according to their entitlement as dictated in the Will. This may be equal shares or a specified percentage amount. The testator (the person whose will it is) can decide whatever percentage they want to give to whomever they choose.
What is a legacy beneficiary?
Legacy is used to refer to a gift of a specified cash amount. A beneficiary receiving a legacy is known as a pecuniary beneficiary. These legacies will be paid first before the other types of beneficiaries. A pecuniary legacy will be prioritised over a residual beneficiary but not over the estate’s expenses and liabilities.
What is a bequest in a Will?
A bequest is used to refer to a gift of personal property. The testator can leave a named item or personal possession to a named beneficiary. This can be something small and sentimental for example, jewellery or photographs but can also be something as big as property.
Small items of sentimental value rather than monetary value can be distributed under the executor’s discretion. However, high-value items for example valuable pieces of art, antique collections, boats etc. should be held onto and protected by the executor until they can be accounted for under probate. You can get a better guide on what kind of high-value items HRMC are looking for from the IHT407 form. Common sense and reasonable judgement should be applied when deciding when and how these types of bequests are distributed.