Pecuniary and Residuary Gifts: What’s the Difference and Why Does It Matter?

Pecuniary and Residuary Gifts: What’s the Difference and Why Does It Matter?

When making a Will, it is important to consider not only who should benefit from your estate, but also how those gifts are structured. Two of the most common types of monetary gifts are pecuniary gifts and residuary gifts.

A pecuniary gift is a fixed sum of money, while a residuary gift is a share of what remains in your estate after debts, taxes, expenses and other gifts have been paid. The distinction between the two can make a significant difference to what your beneficiaries ultimately receive.

Pecuniary Gifts

A pecuniary gift is a gift of a fixed sum of money, such as £1,000 to a grandchild, £5,000 to a friend or £10,000 to a charity. The main advantage is certainty. You can specify exactly how much you would like someone to receive. However, fixed sums do not automatically keep pace with inflation. A gift that seems generous when a Will is made may be worth considerably less in real terms many years later.

Residuary Gifts

A residuary gift is a gift of all or part of what remains in your estate after the payment of debts, taxes, administration expenses and any specific or pecuniary gifts. As the value of an estate cannot be predicted when a Will is made, residuary gifts are usually expressed as a percentage or share of the residue. Because they are linked to the value of the estate at death, the amount ultimately received can rise or fall with the overall value of the estate.

What Difference Can This Make in Practice?

The difference can be seen more clearly in a practical example.

Martha leaves £20,000 to each of her five nieces, with the residue of her estate divided equally between her four children.

If Martha’s estate is worth £120,000 when she dies, the five pecuniary gifts total £100,000, leaving only £20,000 to be divided between her four children.

If, instead, Martha had chosen to leave 20% of her estate to be divided between her nieces, they would receive £24,000 between them and the remaining £96,000 would pass to her children.

The example demonstrates how the way a gift is structured can have a very different outcome if the value of an estate changes over time. 

What About Gifts to Charity?

The same principle can be particularly important when someone chooses to remember a charity in their Will. A fixed gift remains the amount originally specified. For example, a gift of £5,000 remains £5,000 regardless of whether the estate is eventually worth £100,000 or £2 million. A residuary gift works differently because it represents a percentage of what remains. If someone leaves 2% of their residuary estate to a charity and the estate is worth £1 million, for example, the gift would be £20,000. This means a residuary gift can retain its significance over time and, where the value of an estate grows, the charity shares proportionately in that growth.

Supporting Hospice in the Weald

As part of our relationship with Hospice in the Weald, Buss Murton is helping to raise awareness of Gifts in Wills and the different ways people can choose to support charities that are important to them. There is no obligation to include a charitable gift when making a Will. However, for those who would like to do so, understanding the difference between a pecuniary and residuary gift can help them decide how they would like that support to work. Charitable gifts to UK registered charities are generally exempt from inheritance tax. Depending on the circumstances, charitable giving can also affect the inheritance tax payable by an estate.

Choosing the Right Approach

Pecuniary and residuary gifts can both have an important role in a Will. A pecuniary gift provides the certainty of a fixed amount, while a residuary gift reflects the value of your estate at the time of your death. The right approach will depend on your circumstances, the people or organisations you would like to benefit and what you would like your Will to achieve. Understanding the distinction, and reviewing your Will from time to time, can help ensure that it continues to reflect your wishes. Our Private Client team are here to help.