After the debts of an estate and the applicable estate taxes have been determined and paid, the fiduciary must focus on carrying out the remaining provisions of the decedent’s will as they relate to principal and income. If the decedent dies intestate, distribution of remaining estate principal is governed by applicable state law.
Distributions of Property
If a decedent dies intestate, real property is distributed according to the laws of descent of the state in which the real property is located. Personal property is distributed according to the laws of distribution of the decedent’s home state, called the state of domicile. In general, only a spouse or blood relative may receive an intestate distribution.
In a testate situation, a distribution of real property is a devise, and the recipient of the property is the devisee. Distributions of personal property are called bequests or legacies, and the recipient of personal property is called the legatee.
A devise is usually a distribution of a specific piece of real property. In contrast, legacies may include one or more of the following types:
1. A specific legacy is a gift of a particular, specified thing, distinguishable from others: my 3-carat diamond ring or the twenty bottles of Romanée Conti Burgundy 1961 on the north wall of my wine cellar.
2. A demonstrative legacy is a gift of an amount from a specific source, with the will stipulating that if the amount cannot be satisfied from that source, it shall be satisfied from the general estate: $50,000 from several identified insurance policies. If proceeds are inadequate to meet the amount, the difference shall constitute a general legacy.
3. A general legacy is a gift of an indicated amount or quantity of something: $5,000 or twenty bottles of wine. However, the specific source of the payment is not designated.
4. A residuary legacy is composed of all estate property remaining after assigning the specific, demonstrative, and general legacies.
If the remaining estate principal, after paying debts and expenses, is not adequate to satisfy the various legacies, a process called abatement is followed. Abatement requires that the legacies be satisfied to whatever extent possible in the order in which they are presented. If the amount of assets designated as a general legacy is not available, the available amount is abated proportionately among the recipients. For example, assume a general legacy calls for $5,000 to be paid to each of two individuals and $2,500 to be paid to each of another two individuals and only $12,000 is available. Abatement would result in two individuals receiving $4,000 each and the other two individuals receiving $2,000 each.