Which Gifts in a Will Get Cut First If the Estate Cannot Pay Its Debts?

A will can promise the house to one child, $25,000 to each grandchild, and everything else to a spouse. What it cannot do is promise that the money will be there. Once the final medical bills, the credit cards, the taxes, and the cost of probate are paid, some estates do not have enough left to make every gift in full.

Washington has a set order for who absorbs the shortfall. Under RCW 11.10.010, property the will did not give away is used first, then the residuary gift, then general gifts, and specific gifts last. The process is called abatement. A will can set a different order, and the default is worth understanding before relying on it, because it takes first from the person who receives "everything else."

What Are the Four Categories?

RCW 11.10.010 lists four classes of property and gives no preference between real estate and personal property within them.

Intestate property is anything the will fails to dispose of, as when a will has no residuary clause. It is the first to go.

A residuary gift is the gift of whatever is left after the other gifts are made, usually written as "the rest of my estate." It is the second to go.

A general gift is a gift of a stated amount that is not tied to any particular asset, such as "$10,000 to my nephew." General gifts are reduced third.

A specific gift is a gift of a particular identified thing: the house in Mill Creek, a wedding ring, the shares in a named company. Specific gifts are reduced last.

The statute also deals with a hybrid it calls a demonstrative gift, which is a general gift charged on a specific asset or fund, such as "$5,000 from my savings account." That gift is treated as specific up to the value of the fund it is charged on, and as general for any amount the fund cannot cover.

How Is the Loss Shared Within a Category?

Proportionally. RCW 11.10.010 says abatement within each class is in proportion to the amounts each beneficiary would have received if the will had been carried out in full. If the general gifts as a group have to be cut by 40 percent, each general gift is cut by 40 percent.

Each class is used up before the next is reached. The residue goes to zero before the first dollar comes out of a general gift, and every general gift goes to zero before a specific gift is touched.

A Worked Example

Walter, a widower in Marysville, dies with a house worth $400,000 and $200,000 in bank and investment accounts. His will leaves the house to his daughter Anne, $20,000 to each of his two grandchildren, and the residue to his son David. On paper, David is due $160,000.

Walter's final medical bills, other debts, and the costs of administering the estate come to $180,000. The house is a specific gift, the two $20,000 gifts are general gifts, and David's share is the residue. Under RCW 11.10.010, the residue is used first, so all $160,000 of David's share goes to the bills. The remaining $20,000 comes from the general gifts in proportion, so each grandchild receives $10,000 in place of $20,000. Anne receives the house untouched.

Walter may have thought he was providing for both of his children. The order of abatement turned $180,000 in bills into one child receiving a $400,000 house and the other receiving nothing.

Can the Will Set a Different Order?

Yes. RCW 11.10.010 says that if the will expresses an order of abatement, the gifts abate as needed to carry out the testator's intent. A will can say that all gifts abate proportionally, or that a particular gift is paid before any other.

The same subsection has a second safety valve. Even without an express clause, if the default order would defeat the testamentary plan or the express or implied purpose of a gift, the gifts abate in whatever way is needed to give effect to what the testator intended. If the family disagrees about what that is, a court decides. An express clause is far more reliable than proving intent after the fact.

One thing the statute does not contain is an automatic preference for a surviving spouse or domestic partner. In many wills the spouse is the residuary beneficiary. Under the default order, that puts the spouse's gift ahead of everyone else's in line to be cut, unless the will says otherwise or the default order would defeat the plan.

How Does Community Property Fit In?

For a married person, part of the answer comes before the will is read at all. Under RCW 11.02.070, one-half of the community property is confirmed to the surviving spouse or domestic partner, and only the other half is the decedent's to give by will, although the whole of the community property is subject to probate administration for payment of community debts. RCW 11.10.030 then assigns each debt to the right pool. A community debt is charged against the entire community property, with the surviving spouse's half and the decedent's half charged equally. A separate debt of the decedent is charged first against the decedent's separate property, and only then against what remains of the decedent's half of the community property after community debts are paid.

RCW 11.10.010 adds that when the whole of the community property is subject to abatement, the shares of the decedent and the surviving spouse or domestic partner abate equally. In a second marriage, where one spouse brought separate debts or assets into the household, these rules can decide how much the surviving spouse and the children of a first marriage each receive.

Do Assets Outside the Will Share the Burden?

They can. RCW 11.10.040 covers abatement among people who receive nonprobate assets. An identifiable asset that passes at death outside the will, such as a joint tenancy interest or a payable on death account, is classified as a specific bequest for abatement purposes. To the extent a nonprobate asset is subject to the same obligations as the property passing under the will, it abates along with the probate assets in its category. Whether a particular nonprobate asset can be reached for the decedent's debts in the first place is a separate question under RCW 11.18.200, covered in the article on owing an estate's debts when you inherited outside probate.

Two Related Rules

Abatement decides whose gift shrinks. Which creditors are paid first, and how claims are made, is covered in the article on how debts are paid in probate.

Being last in line also does not make a specific gift free of its own debt. Under RCW 11.12.070, a person who receives a specific gift of mortgaged property takes it subject to the mortgage unless the will provides for the mortgage to be paid some other way. The article on who pays the mortgage on a house you inherit explains that rule.

Plan for the Shortfall Before It Happens

An abatement clause is a few sentences long. It is the difference between a shortfall shared the way you chose and one that falls on whoever holds the residue. The Law Office of Chad Foster drafts wills that address abatement directly and advises personal representatives who have to apply these rules. Call 425.785.8679 to talk with a Snohomish County estate planning or probate attorney.