Changes in Property After Execution of Will

Question 1

Different Changes in Property After Execution of Will

Answer 1

1) Ademption
2) Satisfaction
3) Abatement

Question 2

General Idea: Changes in Property After Execution of Will

Answer 2

In-between T executes the will and T dying, there is a change in certain assets described in the will

Question 3

Ademption by Extinction

Answer 3

Failure of a specific gift because the property is not in the testator’s estate when the testator dies (e.g., the property is sold, used up, given away, or destroyed during testator’s life.)

Majority Rule: Gift is adeemed (revoked) & the beneficiary gets nothing.

Minority (CA) Rule: Presumes that testator did not intend to revoke the specific gift -> See if beneficiary can take something else upon the testator’s death.

Question 4

What if Ademption by Extinction does not entitle Beneficiary to a replacement gift?

Answer 4

Use Tracing Theory:
If the missing asset can be traced to another asset that exists in the testator’s estate at the testator’s death (i.e.
the missing asset merely changed in form), the beneficiary may be able to claim the asset in its changed form.

Question 5

Ademption by Extinction Analysis

Answer 5

1. Is there any property that was specifically gifted in the will, but no longer exists in the estate of the decedent.
2. If yes, transferee entitled to:
   
   • Any balance of the purchase price owed to estate
   • Any amount of award paid
     *If you can figure out how much the item cost, transferee is entitled to money
3. If no, go to Tracing argument
4. If still no, the majority rule applies (beneficiary gets nothing)

Question 6

What are the 4 Scenarios where a beneficiary can claim a “replacement gift”

Answer 6

1) You leave a gift of property then sell that property and take the down-payment, but you take a promissory note for the rest of the value of the house. B can get the promissory note for whatever value of the purchase price of the house that is left.

2) The government takes the property specifically gifted in the will/trust using eminent domain power. If the eminent domain award is UNPAID at the time of distribution, B can claim it (otherwise B gets nothing).

3) MOST COMMON ON EXAM: B was going to get diamond ring. If T dies and ring was lost, but T had insurance on that ring, then B can take those insurance proceeds if they remain unpaid (otherwise, adeemed)

4) T loans money to someone and receives a secured promissory note from the borrower + security for the loan (collateral). Then, in T’s will, T gives that promissory note as a gift to Mary. Borrower then defaults on the loan and T forecloses and takes borrower’s car. Mary can claim borrower’s car (since the promissory note is no longer there, but was secured by the car, as collateral.)

Question 7

Tracing Theory

Answer 7

A change in the FORM of an asset (not the substance), may allow the specific beneficiary claim the asset in its changed form.

BUT, if the specific gift changes in substance, and becomes another type of asset, it likely cannot be traced, and the gift would be adeemed, and the beneficiary gets nothing.

Question 8

Example of When Tracing Theory Applies

Answer 8

T gifts B a savings account at Bank of America. After T executes will, T closes that account and transfers the money to a new account at Wells Fargo Bank. When T dies, the Bank of America account is not in T’s estate. B can still argue that the substance of the gift was to give her a savings account, and since the Bank of America account became a Wells Fargo account (change in form only,) B should get the Wells Fargo account instead.

Question 9

Example of When Tracing Theory Does Not Apply

Answer 9

T gifts B a savings account at Bank of America. After T executes the will, they closes that account and uses the money to buy stocks.

This is a change in substance (a stock is a security, not cash; it’s become an entirely different thing) Thus no tracing is allowed.

Question 10

Timeline for Changes in Property After Execution of Will

Answer 10

1. T executes a will.
2. After execution of the will, but before testator dies, certain assets change, triggers analysis of:
   a. Ademption
   b. Increase of Gift
   c. Satisfaction
3. T dies; During probate –the following doctrines may need to be applied:
   a. Abatement
   b. Property increases after the testator’s death

Question 11

Ademption by Satisfaction

Answer 11

General Idea: There is a rebuttable presumption that a devise is (partially or wholly) satisfied if testator gives property of a similar nature (inter vivos transfer) to a devisee after executing the will.

Lifetime Gift satisfied ONLY IF ONE applies:

(1) The instrument provides for deduction of the lifetime gift from the at-death transfer.

(2) The transferor declares in a contemporaneous writing that the gift is in satisfaction of the at-death transfer or that its value is to be deducted from the value of the at-death transfer.

(3) The transferee acknowledges in writing that the gift is in satisfaction of the at-death transfer or that its value is to be deducted from the value of the at-death transfer.

(4) The property given is the same property that is the subject of a specific gift to that person

Question 12

Advancement v. Satisfaction:

Answer 12

Advancements are if a person dies INTESTATE

Satisfaction is when there is a will that gives a gift.

Question 13

Valuation of a Lifetime Gift

Answer 13

For the purpose of partial satisfaction, property given during lifetime is valued as of the time the transferee came into possession or enjoyment of the property or as of the time of death of the transferor, whichever occurs first.

However, if the value of the gift is expressed in then contemporaneous writing of the transferor, or in an acknowledgment of the transferee made contemporaneously with the gift, that value is conclusive in the division and distribution of the estate

Question 14

Lifetime Gifts: If the transferee fails to survive the transferor

Answer 14

The gift is treated as a full or partial satisfaction of the gift, as the case may be, in applying [Anti-Lapse] unless the transferor’s contemporaneous writing provides otherwise.

Question 15

Increase of Gift: Securities

Answer 15

Determine how any additional shares of stock were acquired. If they were acquired automatically, via outside forces (i.e. an action of the company, and not the testator), the beneficiary gets the additional shares. Otherwise, they fall to the residue.

However, this excludes any acquired by exercise of purchase options. [i.e. stock splits].

*NOTE: Distributions in cash before death with respect to a described security are not part of the transfer.

Question 16

Proactive Purchases (Increase in Gift Value)

Answer 16

If T, during their lifetime, bought additional shares on his own and never changed his will to give the beneficiary the increased amount, the additional shares acquired by T will fall to the residue

Question 17

Abatement

Answer 17

Abatement is the reduction of gifts to beneficiaries because the estate contains insufficient funds to satisfy estate debts, expenses, and gifts.

E.g., After T’s death, there are not enough assets to satisfy the gifts contained in the will and pay off debts and expenses of the administration of the estate.

General Rule: Before beneficiaries receive any gifts, all debts and expenses of administration must be paid.

Question 18

Abatement: Order of Gift Priority

Answer 18

(1) Specific gifts: a gift of a particular item of property distinct from all other objects in the estate.

(2) Demonstrative gifts: a specific type of general gift
that is payable first from a particular item of property, & then if insufficient, from the estate’s general assets.

(3) General gifts: a gift of general economic benefit
payable out of the estate’s general assets.

(4) Residual gifts: the remainder of estate assets after
paying specific gifts, general gifts, debts, expenses
& taxes.

Question 19

Abatement: What gets reduced first?

Answer 19

(1) Property not disposed of by the instrument. [rare, failed residuary gifts, intestate property.]

(2) Residuary gifts. [usually where you start off, until all used up]

(3) General gifts to persons other than T’s relatives.

(4) General gifts to the transferor’s relatives.

(5) Specific gifts to persons other than the transferor’s relatives.

(6) Specific gifts to the transferor’s relatives.

Question 20

Order of Abatement for Creditors

Answer 20

1) IRS & Franchise Tax Board (income tax, capital gain, estate tax)

2) Administration expenses

3) Mortgage- secured creditors

4) Funeral expenses

5) Medical expenses (nursing homes, rehabilitation,
hospital)

6) Family allowances

7) Wage claims (garnishment)

8) General debts, including those not secured by lien (credit card)

Question 21

Increases in Value AFTER T’s Death

Answer 21

Real estate: B is entitled to income generated by real estate from date of death to date of distribution MINUS any typical expenses from maintaining the property (ins., property tax, maintenance & upkeep, mortgage pmts.)

Financial title accounts that accrue interest: B of a specific gift of a financial account is entitled to the interest earned on that specific gift from date of death to date of distribution.

General gift beneficiaries are NOT entitled to increases in value UNTIL 1 year after probate is opened