Changes in beneficiaries and property after will execution Flashcards
Classification of gifts
Important for issues like ademption, satisfaction, and abatement
Based on type of property and type of beneficiary
Classification based on type of property - devise, bequest, legacy
A devise is a gift of real property and the recipient of a devise is a devisee
A bequest is a gift of personal property
Legacy is a gift of personal property in a will, usually of money, and recipient is called a legatee
Specific devise or legacy and specific bequest of general nature
A specific devise or legacy is a gift of a particular item of property distinct from all other objects in the testator’s estate
A specific bequest of a general nature is not distinguishable from the rest of the testator’s estate until the testator dies
- leave my computer to X
General legacy
Gift of a general economic benefit (often a dollar amount) payable out of the general assets of the estate without requiring any particular source of payment
Gift of 100 shares of xyzzy stock or 100 acres of property in smith country can also be general legacies if the testator never owned those items and intended the executor to purchase them for the beneficiary
Demonstrative legacy
Gift of a general amount that is to be paid from a particular source or fund
Hybrid - treated as a specific legacy to the extent the source of payment is available and a general legacy to the extent of any shortfall of that source of payment
If designated fund in sufficient, balance will usually be paid from other assets of the estate
Residuary estate
Residuary estate and a gift of the residue consists of the balance of the testator’s property after paying
- debts, expenses, and taxes, and
- specific, general, and demonstrative gifts
Some use this for the forgotten items and some use as the main disposition of their property
Ademption
Ademption refers to the failure of a gift because the property is no longer in the testator’s estate at the time of their death
Does not get anything if the item given is not in the estate
Identity theory - ademption
Under the identity theory applied in most states, the demotion doctrine is an objective test that does not take into account the testator’s probable intent
If the property is not in the estate at the testator’s death, adeemed and reason it is not in the estate is immaterial
Ademption - specific devises and bequests
Ademption applies only to specific devises and bequests
Most states follow the identity approach so that if specifically bequeathed property is not in the testator’s estate at death, the bequest is adeemed and the beneficiary takes nothing
Does not take a substitute gift nor the value of the gift and beneficiary cannot trace into the proceeds of the sale of the gift even if identifiable
Most states - court will not inquire into the testator’s intent or the reason the property is no longer in the estate
Partial ademption
A gift may be partially adeemed - testator devises a large tract of land and then conveys a portion of the tract during their life
Beneficiary takes the remaining portion
Ademption - general or demonstrative legacies
Neither general nor demonstrative legacies are adeemed by an absence of cash or the specific asset in the estate
- satisfied by selling or directly giving other assets
Avoiding ademption
To avoid ademption, a court will attempt to construe a gift of securities as a general legacy, unless the testator specifically stated, MY 200 shares of Acme stock”
Ademption exception - replacement property
Some states allow the beneficiary to receive replacement property if the testator replaced the gifted item with another similar item
Ademption exception - balance of purchase price
If the testator sold the gifted item and the purchaser still owes money to the testator, some states allow the beneficiary to receive the remaining money
Ademption exception - proceeds of condemnation award or insurance
Some states allow the beneficiary to receive a condemnation award paid after the testator’s death or casualty insurance proceeds for the loss of the property if they are paid after the testator’s death
Ademption exception - proceeds from sale by guardian or conservator
If the testator became incompetent and the specifically devised property was sold by a guardian, the beneficiary may be entitled to a general pecuniary legacy equal to the amount of the proceeds
If a guardian or conservator is appointed for the testator after the will is executed and the bequeathed property is sold by the guardian, the beneficiary is entitled to the sale proceeds
- at least to the extent they have not been expended for the testator’s care
Ademption by satisfaction
A testamentary gift may be satisfied in whole or in part by an inter vivos transfer from the testator to the beneficiary after the execution of the will, if the testator intends the transfer to have that effect
Most states require a writing or specific instructions in the will before a gift is deemed a satisfaction
Ademption by satisfaction - UPC
In UPC states, the doctrine does not apply unless the testator provides for satisfaction in the will or a contemporaneous writing, or the devisee acknowledges, in writing, the gift as one in satisfaction
However, writing is not required if the testator gives specifically described property to the beneficiary
- in this case, there is both a satisfaction of the legacy and an ademption
Increases to property after execution of will - appreciation and deprivation
Appreciation and deprivation of speficially gifted property between will execution and death is normally irrelevant
Increases to property after execution of will - income on property before death
Income on property that occurs before death goes into the general estate, but improvements to real property before death go to the specific devisee
Increases to property after execution of will - increases occurring after death
Any increase to specific gifts occurring after the testator’s death passes to the specific beneficiary because the beneficiary is deemed to own the property from the time of the testator’s death
Securities acquired after will execution - stock splits and stock dividends
At common law, a specific bequest of stock includes any additional shares produced by a stock split but does not include shares produced by a stock dividend
- today, UPC and nearly all states also include stock dividends
Beneficiary will also take an increase in securities caused by a merger or corporate reorganization
Securities acquired after will execution - newly purchased securities
The beneficiary does not take new securities that have been purchased or acquired by the reinvestment of dividends
Exoneration of liens
While the common law and some states follow the contrary view, the UPC and a large number of state provide that liens on specifically devised property are not exonerated (paid off with estate funds) unless the will so directs
Beneficiary takes property subject to the debt
Abatement
Process of reducing testamentary gifts in cases where the estate assets are not sufficient to pay all claims against the estate and satisfy all bequests and devises
Abatement order
If testator does not set out an order of abatement in the will, testamentary gifts will usually abate in the following order
- property passing by intestacy
- residuary estate
- general legacies
- demonstrative legacies
- specific bequests and devices
Within a class, abatement is pro rate
- in some states, personal property in each category is used before real property in that category
Abatement - demonstrative legacies and specific / general legacies
To the extent they can be satisfied from the designated source, demonstrative legacies are treated as specific legacies for abatement purposes
To the extent the fund is insufficient, demonstrative legacies are treated as general legacies for abatement purposes
Lapsed gift
A gift lapses if the beneficiary predeceases the testator or if the beneficiary is treated as not surviving the testator
Distribution of lapsed gifts
Who receives a lapsed gift is controlled by
- the express terms of the will
- rule of law (anti-lapse statute)
- residuary clause
- intestacy
Anti-lapse statute
Nearly all states have these - operate to save the gift if
- the predeceasing beneficiary was in a specified degree of relationship to the testator (descendant of testator, testators parent or grandparent) and
- left descendants who survived the testator
Take by substitution
Statute applies unless a contrary provision is in will
Words of survivorship and contrary will provision - anti-lapse statute
In most states, words of survivorship are considered a contrary will provision and the anti-lapse statute will not be applied
Under UPC, mere words of survivorship are not sufficient to negate application of the anti-lapse statute
Lapse in residuary gift - common law
If a will devises the residuary estate to two or more beneficiaries and one of them predeceases the testator (and the anti-lapse statute does not apply), some states follow the common law rule and do not allow the surviving residuary beneficiaries to divide the deceased beneficiary’s share among them
- unless the will specifies this
Instead, deceased beneficiary’s share passes by intestacy
Lapse in residuary gift - most states today
Most states have replaced this no residue of a residue rule with one allowing the surviving residuary beneficiaries to divide the share in proportion to their interests in the residue
But if anti-lapse statute’s provisions are met, that statute takes precedence and the deceased beneficiary’s descendants take
Class gifts
If a will makes a gift to a class, only the class members who survive the testator take a share of the gift
Unless the will provides otherwise or the anti-lapse statute’s requirements are met
Beneficiary dead when will executed
If a will makes a gift to a beneficiary who was dead at the time the will was executed, the gift is void
In many states, rules that apply to lapsed gifts also apply to void gifts
