Changes in Distribution of Testamentary Gifts Flashcards
5 Types of Gifts
1- Specific Gift
2- Demonstrative Legacy- a general amount, but T designates a specific source from which the amount is to be paid. (“from”)
3- General Legacy- a general amount
4- Residuary Disposition
5- Intestate property- where partial intestacy results b/c will has no valid residuary clause
ABATEMENT (Reduction) of Legacies:
- def “abatement”
- when it happens
Def- not giving effect to gifts so that creditors’ claims can be satisfied.
Occurs when there are more claims against the estate than there are assets to cover all gifts made under the will.
Order of Abatement
Absent a provision in the will, the order in which Ts property abates is:
1- intestate & residuary property
2- General legacies (abate pro rata)
3- Demonstrative Legacies (abate pro rata)
4- Specific Gifts
Ademption
- what is it?
- what is the rule?
- Failure of Gift
- ROL- If T makes a SPECIFIC GIFT and the property cannot be found or is no longer owned by T AT THE TIME OF Ts DEATH, the GIFT FAILS under the doctrine of ademption.
aka if the specific gift doesn’t exist, the gift fails
Do demonstrative legacies adeem?
NOO– ONLY SPECIFIC GIFTS ADEEM
A demonstrative legacy (general gift from a specific source) will turn into a general legacy if there is no cash available from the designated source. Aka, if there is no cash in the estate or if the designated source is no longer in existence, other assets will be sold to satisfy a demonstrative legacy.
Exceptions to ademption of specific gifts not in existence: (3)
1- Beneficiary of lost, damaged, or destroyed property will take the insurance proceeds TO THE EXTENT THAT THEY ARE PAID AFTER DEATH
2- Beneficiary of specific gift transferred by an EXECUTORY CONTRACT (aka not fully performed K) gets proceeds which are paid after Ts death.
3- Beneficiary of a specific gift that was sold by a guardian or conservator is entitled to receive money or property into which the proceeds from the sale can be traced. If they can’t be traced, we have ademption.
Specific Gifts of Encumbered Property
- CL rule
- NY rule
CL- If a testator makes a specific gift of property that is subject to a mortgage or other lien on which the testator is personally liable, the beneficiary is entitled to have the lien exonerated.
NY- Liens on specifically devised property are not exonerated unless the will directs exoneration. Furthermore, a general provision for payment of debts does NOT work to exonerate liens.
NOTE- someone who takes property subject to a mortgage is not personally liable for the mortgage, and neither is the estate, the land can just be foreclosed on if nobody pays it.
Def: Exoneration
The discharge of any encumbrances on specifically bequeathed property USING THE RESIDUARY ESTATE.
Bequests of Stock/Securities:
Gifts of shares of stock in publicly-traded corps . . .
- are general gifts
- do not adeem
EXCEPTION- gifts of shares of stock in publicly traded corps are specific gifts if the testator bequeaths “MY stock”
Bequests of Stock/Securities:
Gifts of shares of stock in closely-held companies . . .
- are specific gifts
- adeem if they do not exist @ Ts death
Bequests of Stock/Securities:
Gifts of shares of stock where a stock split occurs . . .
- are treated as a specific bequest for purposes of the split REGARDLESS of whether the T used “MY” language and/or whether the stock was publicly-traded or closely-held
Suppose T leaves X “my shares of IBM.” Then, IBM is acquired by AT&T in a friendly takeover in which IBM shareholders get one share of At&T stock for every two shares of IBM. Thus, at the time of his death, Troy owned 50 shares in AT&T but none in IBM. Does ademption apply?
NO– this is a change in form, not substance. Even though this is a specific gift and would normally adeem, the IBM stock is directly traceable to the ATT stock.
