Changes in Beneficiaries and Property after Will's Execution: Classification of Property; Ademption

Question 1

What are the three classifications of gifts?

Why are the important?

Answer 1

1. Specific Devise or Legacy
2. General Legacy
3. Demonstrative Legacy
4. Residuary Estate

Important for:

1. ademption
2. satisfaction
3. abatement

Question 2

What is a “specific devise or legacy”?

Answer 2

gift of a particular item of property

Example –> my 3 carat ring

Question 3

What is a “general legacy”?

Answer 3

General gift (often a dollar amount) paid out of general assets of the estate, without requiring any particular source of payment

Example –> I bequeath $5,000 to Ann

NOTE –> a gift of “100 XYZ shares” or “500 acres in Monmouth county” CAN be a general gift IF T doesn’t own the property, but wants executor to buy it for him

Question 4

What is a “demonstrative legacy”?

Answer 4

Gift of a general amount that is to be paid out of a particular source

Example –> I bequeath $5,000 to Ann, to be paid out of sale of my XYZ stock

NOTE –> demonstrative legacy is a HYBRID

• Treated as SPECIFIC LEGACY to extent source of payment is available
• Treated as GENERAL LEGACY to the extent of any shortfall of that source for payment

Question 5

What is the “residuary estate”?

Answer 5

Balance of T’s property after paying:

1. debts, expenses, taxes;
2. specific, general, and demonstrative gifts

Question 6

What is “ademption”?

When does it apply?

Answer 6

“ademption” refers to failure of a gift bc the property is no longer in T’s estate at time of death

Applies only to –> SPECIFIC gifts
EFFECT –> if specific gift is NOT in T’s estate at death, bequest is ADEEMED and beneficiary takes nothing

Question 7

What is “partial ademption”?

What is the effect?

Answer 7

If T gets rid of PART of gift in his lifetime, then there is only ademption as to that part. Remainder goes to beneficiary.

EXAMPLE –> If T gives specific gift of 100 acres of land, but then sells 50 acres, beneficiary will get the other 50

Question 8

What is the rule w regards to “ademption” and “general” or “demonstrative” legacies?

Answer 8

• Neither general nor demonstrative legacies are deemed by an absence of cash/or the specific asset in the estate.
• They will be satisfied by selling (or directly giving) other assets

NOTE –> to avoid ademption, courts will attempt to construe a gift of securities as a general legacy, UNLESS the testator specifically stated “MY shares of XYZ stock”

Question 9

What is the rule w regards to “ademption” and “intent”?

Answer 9

Most jdxns –> won’t look into intent to adeem

CA –> DOES take T’s intent into consideration to determine whether gift is deemed. California courts do this whenever possible to avoid harsh effects of adoption.

Question 10

In CA, what general rules apply to protect gifts from ademption?

Answer 10

1. If possible –> a court will find that T intended to make a general or demonstrative fit.
2. if gift is destroyed in same accident that took T’s life –> CA courts will find that T would not have intended gift to adeem, so it will not
3. gift that has merely changed form –> not adeemed unless there is evidence that T so intended
   THUS –> if proceeds of sale of property are easily traceable, there will be no ademption
   HOWEVER –> if proceeds can’t be traced, it might be inferred that there was intent to adeem

Question 11

In CA, what statutory rules apply to protect gifts from ademption?

Answer 11

A specific devisee has right to the following:
1. Any balance of PURCHASE PRICE (together w any security interest) owing front purchaser to T at time of death by reason of sale of the property

2. Any amount of eminent domain award for taking of the property unpaid at death
3. Any proceeds unpaid at death on fire or casualty insurance on the property
4. Property owned by T at death as a result of foreclosure, or obtained in lieu of foreclosure of the security interest for a specifically devised obligation
5. Securities in another entity that were the result of action on the part of the entity whose stock was bequested
6. Remaining proceeds fo the sale of T’s property paid to guardian of incompetent T

Question 12

What is the rule w regards to increases occurring before T’s death?

Answer 12

income on property –> goes to general estate

improvements on real estate –> goes to specific devisee

Question 13

What is the rule w regards to increases occurring after T’s death?

Answer 13

Any increase to specific gifts after T’s death passes to beneficiary

REASONING –> B is deemed to own that property from time of T’s death

Question 14

What is the rule re: stock splits and stock dividends

Answer 14

Specific bequest of stock includes additional shares due to stock splits and stock divs.