Changes in Distribution of Testamentary Gifts

Question 1

“I devise Bluacre to my son.” is a …?

Answer 1

Specific gift.

Question 2

A general amount paid, and testator specifies a specific source from which that amount should be paid - is a …?

Answer 2

Demonstrative legacy.

Question 3

A general amount of money, but the testator does not specify a specific source from which the amount should be paid - is a …?

Answer 3

General legacy.

Question 4

“I give the rest, residue, and remainder of my estate to my son.” is a …?

Answer 4

Residuary disposition.

Question 5

Where the will has no residuary clause and a gift in the will fails (and anti-lapse doesn’t apply)?

Answer 5

it is intestate property.

Question 6

What is abatement?

Answer 6

When there are more claims against the estate than assets to cover those claims - gifts made under the will abate.

Creditors must be satisfied before gifts are paid out.

Question 7

What is the order of abatement?

Answer 7

1st. Residuary and intestate property
2nd. General legacies
3rd. Demonstrative legacies
4th. Specific gifts
5th. Items that qualify for the estate tax marital reduction

Question 8

How do you decide who pays when the gifts (in the same class) to two or more beneficiaries more than cover the debt?

Answer 8

Their gifts will abate proportionally.

Question 9

If your abated gift is personal or real property, do you have to satisfy the debt by giving up that property?

Answer 9

No - you can substitute cash for the value of the abatement and keep the property.

Question 10

What is ademption?

Answer 10

If a testator makes a specific gift of property and that property is lost or the testator no longer owns it when he died, the gift “adeems” (i.e. fails).

It doesn’t matter if testator’s intent is thwarted or frustrated by ademption - just follow the rules.

Question 11

To what kinds of gifts does ademption apply?

Answer 11

Only to specific gifts - and to no other kinds of gifts.

Question 12

What happens to a demonstrative legacy if the source from which the amount is to be paid is depleted at the time of testator’s death?

Answer 12

The amount will come from the estate - and if necessary, assets will be sold to satisfy the demonstrative legacy.

Question 13

If testator has an insurance policy on an item that is a specific gift in their will, and that item is destroyed - when can the beneficiary take the insurance proceeds (and avoid ademption)?

Answer 13

ONLY when the insurance proceeds are paid AFTER the testator’s death.

Any insurance proceeds paid during testator’s life go into the residuary estate and cannot be claimed by the specific gift beneficiary even if easily traceable to the gift they were supposed to get.

Question 14

If a testator receives proceeds under a contract (i.e. for sale of the specific gift) that has not been performed yet - when can the beneficiary collect those proceeds?

Answer 14

ONLY if the proceeds are paid AFTER testator’s death.

Any proceeds from the sale of a specific gifts that are paid to the testator during her lifetime go into the residuary estate and do not go to the specific gift beneficiary even if easily traceable to that gift.

Question 15

Who takes the proceeds from a guardian or conservator’s sale of specifically bequeathed property?

Answer 15

A beneficiary is entitled to receive the money/property to the extent that the proceeds from the sale or the transfer can be traced are not yet spent.

Question 16

Under common law, what is the recipient of mortgage or lien-encumbered property entitled to?

Answer 16

They are entitled to have the remainder of the estate used to EXONERATE the lien or mortgage.

Question 17

Under NY law, what is the recipient of mortgage or lien-encumbered property entitled to?

Answer 17

They are NOT entitled to exoneration with the residuary estate unless the will SPECIFICALLY calls for that.

Question 18

Does a provision that calls for “payment of all debts” with the residuary estate allow for exoneration in NY?

Answer 18

No - there must be a clear and specific statement that the remainder should be used to exonerate a specific mortgage or lien in order for the residuary to be used for that purpose.

Question 19

In NY, does a beneficiary who takes encumbered property take subject to the lien/mortgage or do they assume the lien/mortgage?

Answer 19

They take subject to the lien or mortgage. This means they are not personally liable, but the creditor(s) can foreclose on the property to satisfy the debt.

Question 20

In what class of gifts do publicly-traded stock shares fall?

Answer 20

They are considered general gifts - which do not adeem (only specific gifts adeem).

Question 21

If testator bequeaths “my shares in AT&T” - what type of gift is this?

Answer 21

By including the word “my”, this is transformed into a specific gift.

Question 22

If the bequest is “my shares in AT&T” and before testator’s death (but no change in the will), Verizon buys AT&T and the shares become Verizon shares - what happens to the gift?

Answer 22

The gift does not adeem - this is a change in form, not substance.

Question 23

What kind of gift is shares in a closely-held corporation?

Answer 23

Specific gifts, which will adeem if they don’t exist or testator does not own them anymore at death.

Question 24

Testator bequeaths publicly traded stock (or closely held stock or “my” stock in X). There is a stock split. What happens to the gift?

Answer 24

They will get the number of shares equivalent to the value of the stock at the time of the will - so if the stock splits “two for one” - they get double the number of stock originally bequeathed (the equivalent of what they were supposed to get).