Interest (or so it appears) on cash legacies

Lilio8

Good morning All.

I've not posted for a little while as things have been chugging along with some ups & downs. My probate case is almost completed. It's been a journey to hell & back!

I have a question: the cash legacies, cash gifts, have just been distributed to the beneficiaries with some added extra amount (there are 3 of us beneficiaries, me included, I'm the sole executor, there's a solicitor firm involved).  When I calculated x/y, where x is the (small) extra amount received and y is the larger amount (the cash gift), I get = 0.00z for the each of the 3 respective amounts. To me it looks like 'interest%'. Each x amount is different since each of us received a different y amount. One of the beneficiaries asked me about the 'extra' bit.

Why are the extra amounts not part of the 'residuary estate' ?  

poppystar

Probably because, as interest earned after death, it isn’t part of the estate itself. 

probate_slave

If the interest had been bank interest earned during the administration then it would have been added to the residue, as Lilio suggests. However, pecuniary legacies are subject to statutory interest from one year after death until distribution, at a variable rate set by the Court Funds Office, currently 3%. If your friend died in August 2024, the solicitor is obliged to add around ½% to the legacies, and this amount will come out of the residue. It is taxable interest in the legatee's hands, incidentally.

The rates shown here are more regularly updated than on the government website:

https://www.footanstey.com/our-insights/articles-news/a-guide-to-pecuniary-legacies-and-statutory-interest/

Lilio8

probate_slave said:

If the interest had been bank interest earned during the administration then it would have been added to the residue, as Lilio suggests. However, pecuniary legacies are subject to statutory interest from one year after death until distribution, at a variable rate set by the Court Funds Office, currently 3%. If your friend died in August 2024, the solicitor is obliged to add around ½% to the legacies, and this amount will come out of the residue. It is taxable interest in the legatee's hands, incidentally.

The rates shown here are more regularly updated than on the government website:

https://www.footanstey.com/our-insights/articles-news/a-guide-to-pecuniary-legacies-and-statutory-interest/

Thank you for your reply. The article is most useful and prompt me to dig further.

When I did a quick calculation of x/y I obtained 0.006, 0.6%. And using Interest = Principal x Interest Rate x (Time Period in days)/365 , with a little help from an AI friend, the interest rate came to 2.19% (rate in force before December '24) , not 3%.

Why would the solicitors use 2.19% instead of the current 3%? Just for me to have an idea and be prepared in case I'll be queried further.

probate_slave

Not sure I would trust your AI friend here. Without having exact dates, let's say Aug 25th - Nov 7th. 73 days at 3% pa yields precisely 0.6% statutory interest

Lilio8

probate_slave said:

Not sure I would trust your AI friend here. Without having exact dates, let's say Aug 25th - Nov 7th. 73 days at 3% pa yields precisely 0.6% statutory interest

Ah, yes, you're right! I should have checked CoPilot's calculations. Re-arranging the formula then we have %Interest = (x-extra amount * 365)/y-legacy-amount * 73) = 0.03. Good! Phew! I was a bit worried. Many thanks!