Example situation :
A property is to pass as a specific legacy but at time of death a mortgage existed connected to the property. The legatee (Mr X) must take on or otherwise clear the mortgage prior to the property being transferred out of the estate.
The steps below ensure a trail of postings are made to show the asset, the at-death liability, one or more credits from the legatee to pay off the liability, and finally the payment of the at-death liability.
- Add the property as an asset of the estate as normal. E.g. £500,000.
- Add the at-death mortgage as a liability of the estate. E.g. £250,000. Show the liability as linked to the property as added in step 1.
- This is the "at death" position.
- When the legatee has taken on or paid off the mortgage, the mortgage is no longer a liability of the estate. Therefore, show this "credit" by recording a negative liability to match the mortgage value i.e. £-250,000. For the cash tracking account use a new holding account e.g. "Legatee Mr X mortgage account". N.B. this could be one posting or split across multiple postings.
- Now, edit and pay the original mortgage liability from the newly credited holding account ("Legatee Mr X mortgage account"). This holding account will now be zero.
- Transfer the asset as a specific gift to legatee "Mr X".
This ensures the transactions related to the mortgage are ring-fenced inside the holding cash tracking account. The liabilities report will show both the original liability and a credit of the same amount.