IHTM12093 - The incidence of debts and legacies: payment of uncharged debts out of the estate

S34 (3) Administration of Estates Act 1925 provides that a deceased person’s real and personal estate shall ‘be applicable towards the discharge of the funeral, testamentary and administration expenses, debts and liabilities payable thereout in the order mentioned in Part II of the First Schedule’ to the Act. The schedule is as follows

Order of Application of Assets where the estate is solvent

  1. Property of the deceased undisposed of by will, subject to the retention thereout of a fund sufficient to meet any pecuniary legacies
  2. Property of the deceased not specifically devised or bequeathed but included (either by a specific or general description) in a residuary gift, subject to the retention out of such property of a fund sufficient to meet any pecuniary legacies, so far as not provided for as aforesaid
  3. Property of the deceased specifically appropriated or devised or bequeathed (either by a specific or general description) for the payment of debts
  4. Property of the deceased charged with, or devised or bequeathed (either by a specific or general description) subject to a charge for the payment of debts
  5. The fund, if any, retained to meet pecuniary legacies
  6. Property specifically devised or bequeathed, rateably according to value
  7. Property appointed by will under a general power, including the statutory power to dispose of entailed interests, rateably according to value
  8. The order of application may be varied by the will of the deceased

As regards number 8 above, this means that the statutory order will always be subject to a contrary intention being shown. In that case, the court will require proof that the deceased set aside particular property for the payment of debts with the intention of exonerating other property from the burden.

The seven classes of assets given in the schedule above are not fully comprehensive and other assets are available for the payment of creditors.

These are

  • funds payable to the estate upon the exercise of an option
  • property subject to a donatio mortis causa
  • property subject to a general power of appointment (IHTM04034) exercisable by deed if it had been exercised