Statutory interest on pecuniary legacies within Wills

As a general rule, interest (not compound) is payable on a pecuniary legacy (the gift of a specific sum of money) in a Will starting on the date the legacy is due to be paid. If the legacy in question is an immediate legacy which the deceased testator wanted to be paid to the legatee immediately upon the distribution of the estate, then the legacy is due to be paid within one year of the testator’s death. This means that interest begins to run on the date of the first anniversary of the testator’s death.

If the will directs that the legacy is not due to be paid until a later date such as a contingent gift, e.g. upon the beneficiary attaining a certain age, then interest will begin to run from the date the gift is due to be paid.

In the absence of a specific provision in the Will, interest is calculated according to the basic account rate set by the Court Funds Office. As you can see from the below table, the current rate since 19 September 2024 is 3.75%.

Date	Basic account rate(Interest Payable on pecuniary legacies)
On or after 19 September 2024	3.75%
On or after 12 June 2024	3.94%
On or after 23 August 2023	5%
On or after 13 June 2023	3.375%
On or after 21 April 2023	3.188%
On or after 13 February 2023	3%
On or after 16 January 2023	2.625%
On or after 18 November 2022	2.25%
On or after 25 October 2022	1.688%
On or after 2 September 2022	1.313%
On or after 5 July 2022	0.94%
On or after 29 April 2022	0.323%
On or after 1 June 2020	0.05%
On or after 6 June 2016	0.1%
On or after 1 July 2009 but before 6 June 2016	0.3%
On or after 1 June 2009 but before 1 July 2009	1%
On or after 1 February 2009 but before 1 June 2009	2%
On or after 2 February 2002 but before 1 February 2009	4%

 

Are there exceptions to the general rule?

There are certain exceptions to the general rule regarding when interest is payable on a pecuniary legacy.

Firstly, a legacy to an executor that is conditional on them taking office, carries interest only from the time the executor proves the will (obtains a grant to administer the estate).

In certain circumstances, the interest will be payable from the date of the testator’s death:

• If a legacy is given in satisfaction of a debt;
• If a legacy is a charge on real estate alone;
• If a legacy is given to a minor (someone under the age of 18) and the will shows an intention to provide for the minor’s maintenance or education;
• If a legacy is given by the testator to their minor child or to a minor for whom they stand in the position of a parent. But this is on the condition that:

 

1. the testator makes no other provision for the maintenance of the minor;
2. the legacy is given directly to the minor and not the trustees of the minor;
3. any specified contingency has some reference to the child’s minority.

 

Personal Representatives’ (PRs) personal liability

Interest payable on a legacy is not a part of the legacy but a sum paid in administration. Its purpose is to prevent injustice arising from a delay in payment and consequently, a legacy will not be reduced to provide interest on other legacies.

Therefore, there is the risk of action being taken by residuary beneficiaries against the PRs where their entitlement is reduced by interest that is payable to pecuniary beneficiaries as a consequence of delays in the distribution of the legacies to the pecuniary beneficiaries.

Any action to recover interest on a pecuniary legacy by a beneficiary must be brought within 6 years from the date on which the interest became due as taking action to recover interest owed for over 6 years is statute-barred by the Limitation Act 1980 s22(b). Any action taken by a residuary beneficiary to recover the loss they have incurred by the reduction in the value of their share of the estate as a result of interest that has accrued on a pecuniary legacy is also statute-barred by the Limitation Act 1980 s22(a) but to 12 years.  This 12 year time frame should be calculated from the date on which the PRs were in a position to distribute the residuary estate and the loss incurred by the residuary beneficiary was realised.

Beneficiaries can bring a devastavit (wasting of assets) claim against a PR where the PR has acted in a way that causes a loss to the estate, e.g. allowing interest to run on a pecuniary legacy for too long. In this instance, a possible remedy that is within the courts power to order is for the PRs to personally account for the loss that has been caused to the estate.

 

When will PRs be personally liable?

The court has discretion, under Section 61 of the Trustees Act 1925, to totally or partially relieve a PR of personal liability for a claim for devastavit. Whilst Section 61 only refers to trustees, Section 68(17) of the same Act confirms this also applies to PRs. The discretion is exercised where the following criteria are satisfied:

1. the PRs acted honestly;
2. the PRs acted reasonably;
3. the PRs ought to be fairly excused for omitting to obtain the directions of the court in the matter in which they committed the devastavit.

It is important for PRs, particularly professional PRs of whom a higher standard of care is expected, to obtain proper legal advice to show that they have acted honestly and reasonably.

A PR may incur personal liability to account for interest if, without good reason, they hold on to money they ought to have paid over to the person entitled to it. However, mere delay in doing something like taking the accounts to ascertain what the sum due actually was or in realising funds from an illiquid asset like a property will not result in PRs having to account for interest themselves.

Furthermore, there must be a clear case of improper retention of balances to a substantial amount. Following from this, if the retention of funds and therefore the failure to make payment of a legacy is justified and necessary in order to properly deal with the deceased’s affairs, the PRs will not be liable to pay any interest that has accrued. So, if for example, there was a dispute in relation to the validity of the will of the testator, whereby the retention of funds was necessary until the dispute was concluded due to the uncertainty regarding distribution, the retention of funds would be justified.

On the other hand, if the dispute was amongst the PRs themselves then the retention of funds and failure to pay out any legacies may be deemed as improper. Failure to properly invest money retained may result in the PRs being held liable for the interest that has accrued. Therefore, in the instance of a dispute amongst themselves, PRs should consider placing funds in an interest-bearing account to minimise any losses and their potential personal liability for interest.

 

Takeaways

1. In the event of a delay in the administration where the PRs/their solicitors are holding estate funds for a protracted period of time, it is prudent to place funds in an interest-bearing account to try and offset interest payable on any pecuniary legacies and in turn reduce potential income tax liability.

 

2. Be aware of exceptions to the general rule.

 

3. Attempting to force PRs to distribute may draw their attention to any pecuniary interest accumulating and the impact this will have on residuary entries.

 

4. PRs have the liability to pay pecuniary interest without a formal demand from a beneficiary. If PRs are unaware and don’t pay this and the estate is distributed, then they may be personally liable to the beneficiaries.

 

 

5. If a beneficiary is unable to recover interest from the estate because it has been distributed, they could look to recover this from PRs who may have personal liability.

 

We’re here to help you during the estate administration process whether you are a PR or a beneficiary.

There are multiple options available to you, and our dedicated inheritance and trusts disputes team can provide tailored advice specific to your situation.  Please get in touch with us.