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Order in Payment of Debts and Liabilities

 Order of application since 1925.

In the case of death after 1925 the statutory order of application applies. Subject to rules of court and the statutory provisions as to charges on the deceased’s property, and to any provisions contained in his will, the deceased’s real and personal estate is applicable towards the discharge of the funeral, testamentary and administration expenses, debts and liabilities payable out of it in the following order:

  • (1)     property undisposed of by will;
  • (2)     property included in a residuary gift;
  • (3)     property the subject of specific gifts;
  • (4)     property charged with the payment of debts;
  • (5)     the fund for pecuniary legacies;
  • (6)     property specifically devised or bequeathed; and
  • (7)     property appointed under a general power.

The statutory order deals only with the ultimate adjustment of the burden as between the parties becoming entitled to the testator’s estate.

If there is property of the deceased undisposed of by will, and if as a matter of construction the will does not otherwise provide, this undisposed of property is first applicable in payment of debts and liabilities, but subject to the retention out of it of a fund sufficient to meet any pecuniary legacies. Included in property undisposed of by will are a lapsed share of residue or of income and a lapsed devise of real estate.

The second class of property applicable in payment of debts and liabilities  is property of the deceased not specifically devised or bequeathed but included, either by a specific or by a 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 under the preceding paragraph.

Accordingly, a fund must be set aside out of residue to satisfy pecuniary legacies, and since pecuniary legacies are still primarily payable out of personalty it will be set aside primarily out of personalty in the absence of a contrary intention. The residue is divided notionally into two separate funds, the first to meet pecuniary legacies, and a second fund consisting of the balance of the residue. The second fund must be exhausted before the first is touched, so that the old rule by which debts and testamentary expenses were a first charge on the residuary personalty is displaced.

The third class of property applicable in payment of debts and liabilities is propertyof the deceased specifically appropriated or devised or bequeathed, either by a specific or by a general description, for the payment of debts. This must be read as referring to property other than property included in a residuary gift.

The fourth class of property applicable in payment of debts and liabilities is property of the deceased charged with or devised or bequeathed, either by a specific or by a general description, subject to a charge for the payment of debts. This must be read as referring to property other than property included in a residuary gift.

The fifth class of property applicable in payment of debts and liabilities  is the fund, if any, retained to meet pecuniary legacies. ‘Pecuniary legacy’ includes an annuity, a general legacy, a demonstrative legacy so far as not discharged out of the designated property and any general direction by the testator for the payment of money, including all inheritance tax free from which any devise, bequest or payment is made to take effect.

The sixth class of property applicable in payment of debts and liabilities is property specifically devised or bequeathed, rateably according to value; but neither portions nor legacies charged on real estate are liable to contribute with the real estate or specific legacies. The value of the property is the value to the testator, and therefore, where real estate is devised subject to a mortgage and to the payment of legacies, the mortgage may be deducted from the value but not the legacies.