What it means
Bequests come in recognisable types. A specific bequest names a particular asset such as a house or a set of shares, a pecuniary bequest is a stated cash amount, and a residuary bequest gives a percentage of whatever is left after everything else has been paid.
The order in which they are settled matters enormously. An estate pays debts, funeral costs and administration expenses first, then specific and pecuniary gifts, and only then divides the residue, so the residuary beneficiaries carry the risk that the estate is smaller than expected.
If an estate cannot cover all its cash gifts, those gifts are reduced proportionally in a process called abatement. If a specifically bequeathed asset has been sold before death, the gift simply fails, which is called ademption, and the intended recipient usually receives nothing in its place.
For businesses, bequests appear in two ways. Founders often use their wills to pass company shares to family or to a trust, and charities plan their long-term budgets around legacy income that arrives as residuary bequests from supporters.
The nuance most people miss is the interaction with assets that pass outside the will. Jointly held property and anything covered by a beneficiary designation are usually not available to fund bequests, so an estate can look wealthy on paper and still struggle to pay the cash gifts written into the will.
Executors also have to think about timing and liquidity. Property and private company shares can take a year or more to convert into cash, so a will that promises large fixed sums may force a sale on unfavourable terms unless the drafting anticipates the problem.
In practice
Real-world examples.
Example
A retired engineer leaves a $150,000 cash bequest to his nephew and the residue of his estate to his three children. Because the estate turns out to be smaller than expected, the nephew's fixed gift is paid in full and the children absorb the shortfall.
Example
A charity's fundraising director budgets for legacy income after being notified of a residuary bequest. Because the estate includes a house that has yet to sell, she models a range rather than a single figure in the annual plan.
Example
A founder's will bequeaths her 40% shareholding to a family trust rather than directly to her children. The trustees vote the shares as a block, which prevents the stake fragmenting across several individual holders. The co-founders had insisted on this arrangement years earlier in the shareholders' agreement.
Think of it
“Bequest is a gift in a will-leaving something to someone.
Formula
Calculation
Formula: Residuary estate = Gross estate - Debts and administration expenses - Specific and pecuniary bequests. Each residuary beneficiary's share = Residuary estate x Their percentage.
An estate is valued at $1,200,000. The will leaves a pecuniary bequest of $150,000 to a nephew and $75,000 to a local charity, so specific gifts total $150,000 + $75,000 = $225,000. Debts, funeral costs and administration expenses come to $175,000.
The residue is therefore $1,200,000 - $225,000 - $175,000 = $800,000. The will divides the residue equally among four grandchildren, so each receives $800,000 / 4 = $200,000. Checking the arithmetic, $225,000 + $175,000 + $800,000 = $1,200,000, which accounts for the whole estate.Case study
Seen in the real world.
Thornhill Joinery is a fictional family firm used for this illustrative example. Its late founder left an estate valued at $1,200,000, including a minority shareholding in the business, and his will made cash bequests of $150,000 to a nephew and $75,000 to a woodworking charity.
Debts and administration costs came to $175,000, so the residue was $1,200,000 - $225,000 - $175,000 = $800,000, divided equally between four grandchildren at $200,000 each. The complication was that most of the estate's value sat in unlisted shares that could not be sold quickly.
In this illustrative case the executors negotiated a share buyback with the company to raise the cash needed for the fixed bequests. The story shows why liquidity, not headline value, decides whether a will can actually be carried out as written.
Watch out
Common mistakes.
- Assuming a bequest is paid before debts. Creditors, taxes and administration costs are settled first, and gifts are only paid from what remains.
- Naming a specific asset that may not exist later. If the item has been sold or replaced before death, the gift fails and the beneficiary receives nothing in substitution.
- Writing cash bequests that consume most of the estate. A fall in asset values can leave the residuary beneficiaries, often the closest family, with almost nothing.
Questions
People also ask.
What is the difference between a bequest and a legacy?
The words are used almost interchangeably in everyday practice, though strictly a bequest traditionally referred to personal property rather than land.
Are bequests taxed?
It depends on the jurisdiction; some tax the estate before distribution and others tax the recipient, so the drafting should state who bears the charge.
Can a business receive a bequest?
Yes, a company, charity or trust can be named as a beneficiary in a will just as an individual can.
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