LAPSE, ADEMPTION, EXONERATION OF LIENS

Question 1

What is lapse?

Answer 1

The beneficiary predeceases the the testator

Question 2

What is an anti lapse statute (most states have them)?

Answer 2

A statute that operates to save the gift if the predeceasing beneficiary was in a specified degree of relationship to the testator, and; left descendants who survived the testator - These descendants take by substitution - The statute applies unless a contrary provision appears in the will
**ALSO - An anti-lapse statute is a rule of construction in trusts and estates law. If a testator devises a gift to a person in his will and the devisee predeceases the testator, the anti-lapse statute will allow the gift to pass on to the devisee’s descendants rather than force the gift to pass through intestacy.

Question 3

T executes will in 2004; it provides (inter alia) “I give the sum of $5,000 to my sister, Paula.” Paula dies in 2005; she is survived by her husband H and two children. Paula has a will which leaves all of her estate to H. T dies in 2010. Who takes the $5,000?

Answer 3

Paula’s 2 kids split the money - The general rule is When beneficiary named in the will dies before (or within 120 hours of) the testator, the gift lapses HOWEVER;
When the lapse issue comes up in the Bar respond by writing: “When a beneficiary named in a will dies before or within 120 hours of the testator the gift lapses” Term of Art - Falls to the residue and passes as part of the residuary estate, unless saved by the states anti-lapse statutes
*Remember the beneficiary must be a close relative

Question 4

“I devise Blueacre to the children of my good friend, John Bates; I leave the residue of my estate to X.” At the time T executes his will, John Bates has three children: A, B and C. Thereafter, during T’s lifetime, Bates has another child (D), and his son A dies leaving a child A Jr. Then T dies; he is survived by John Bates; by Bates’ three children, B, C and D; by Bates’ grandchild A Jr. and by X. Who takes Blueacre?

Answer 4

B, C and D divide Blue acre equally, aka Bates’ children at T’s death (not under the antilapse statute, see rule at top of page 8) 1:38

Question 5

What is the class gift rule?

Answer 5

Class gift rule: When there is a gift by will to a group of persons generically described as a class (“children,” “nephews” and nieces,” etc.) and some class member predeceases the testator and the lapse statute does not apply, the surviving class members take.

Question 6

“I devise Blueacre to the children of my brother, John Bates; I leave the residue of my estate to X.” At the time T executes his will, John Bates has three children: A, B and C. Thereafter, during T’s lifetime, Bates has another child (D), and his son A dies leaving a child A Jr. Then T dies; he is survived by John Bates; by Bates’ three children, B, C and D; by Bates’ grandchild A Jr. and by X. Who takes Blueacre?

Answer 6

B, C, D, and A Jr. Share in the gift

Question 7

“I devise all the rest, residue and remainder of my estate in equal shares to my good friend Alan Andrews, my business partner Betty Bates and my sister Carla Carter. Alan Andrews predeceases T, leaving a child (Alan Jr.) who survives T. T, widower, is also survived by Bates, by Carter and by an only child Stephen. Who takes the residuary estate?

Answer 7

This question address, “what if the lapse occurs in the residuary gift itself” - 1/2 Bates, 1/2 Carter - 2 Remaining residuary beneficiaries, see- UPC (majority) rule: If the residuary estate is devised to two or more persons and the gift to one of them fails for any reason, the surviving residuary devises take the entire residuary estate in proportion to their interests in the residue.

Question 8

What is the “class gift” rule?

Answer 8

If the residuary estate is devised to two or more persons and the gift to one of them fails for any reason, the surviving residuary devises take the entire residuary estate in proportion to their interests in the residue

Question 9

What is a specific devise or request?

Answer 9

Specific gifts: Translates to a specifically identifiable asset, i.e. “the car,” at the time of death, does not matter at time of writing - these include: car, land, bank accounts, etc.

Question 10

What is a demonstrative legacy?

Answer 10

“I give the sum of $5,000, to be paid out of the proceeds of sale of my Acme stock, to my sister Sarah.” - This is a hybrid, but will goes on and gives instruction on how to fund, so this is like a general legacy with funding instructions (in this case the 5K is paid out of the sale of stocks)

Question 11

What is a general legacy?

Answer 11

Direct payment of cash, i.e. “I give the sum of $10,000 to my daughter Donna.”

Question 12

What is a residuary bequest?

Answer 12

A gift of the residuary of the estate; “I give all the rest, residue, and remainder of my property to my wife, Agnes.”

Question 13

What is intestate property?

Answer 13

When there is a partial intestacy for some reason (e.g., all of the residuary beneficiaries predecease the testator, and the case is not covered by the anti-lapse statute).

Question 14

What is the issue of abatement? - i.e. What if T’s will is partially insolvent, what is the order of administration of assets, for funeral, admin costs, etc.

Answer 14

Rule - The following order is the order that is to be followed:

1. Intestacy
2. Residuary Estate
3. General Legacy
4. Demonstrative Legacy

Question 15

What is ademption? - Or in other words what does it mean when a gift is adeemed?

Answer 15

Ademption refers to the failure of a gift because the property is no longer in the testators estate at the time of her death (T devises blackacre to John, later T sells blacker, and later dies, John is adeemed of his gift)

Question 16

What is the exception to ademption?

Answer 16

Demonstrative gifts - e.g. “I give the sum of $5,000, to be paid out of the proceeds of sale of my Acme stock, to my sister Sarah.” T had sold her Acme stock and did not own any such stock at her death. Does ademption apply to the gift to Sarah? - ANSWER - No - Ademption does not apply to demonstrative gifts - If there is Acme stock on hand that is what we use to fund, however Sarah does not lose out if there is not, we will fund with other assets
Doctrine of ademption - Is restricted to specific gifts, if not specific, not adeemed

Question 17

In addition to the right to specifically devised property, what does a specific devisee have a right to?

Answer 17

1. Any balance of purchase price owing from purchaser when contract is still executory at T’s death. (At common law, equitable conversion would apply, and T would no longer own real property, but merely a claim to the remaining purchase price.)
2. Any amount of condemnation award for taking of the property, to the extent unpaid at T’s death.
3. Any amount of fire or casualty insurance proceeds unpaid at death.
4. Any real or tangible personal property acquired as a replacement for other similar
   property.
5. Property acquired as a result of a foreclosure of a security interest on specifically devised note.

Question 18

“I give and bequeath my Rembrandt painting to my daughter Dora.” The Rembrandt painting was incinerated in 2012. The painting was insured, and the insurance company duly paid its full value of $150,000 to T. Subsequently, T dies. Is Dora entitled to the insurance proceeds?

Answer 18

No - Dora is adeemed, Incompetency exception not at play, Fire exception is for insurance collection UNPAID, (if T was incinerated with the painting than yes)

Question 19

T’s will leaves his “Buick automobile” his son, James. Subsequently, T sells the Buick for $5,000 and purchases a new BMW convertible for $40,000 cash. Is James entitled to the BMW at T’s death?

Answer 19

CL - No, UPC - Yes
CL - You are left a Buick there is no buick you are adeemed
UPC - You are entitled to any property that was a replacement for the specifically devised property

Question 20

What is the rule of increase?

Answer 20

1. At common law, any stock increase by a stock split than the beneficiary takes all, any tocsin increase by stock dividends, than the beneficiary only takes the original number of stock
   The UPC - In both cases the beneficiary takes the whole increase - A specific devisee takes “any additional or other securities of the same entity owned by the testator because of action initiated by the entity, excluding any acquired by exercise of purchase options.”

Question 21

What is the rule of increase in regards to mergers? i.e. as a part of the merger each shareholder was given one share of the new stock for every two shares of the old stock. At T’s death he owned 50 shares of the new stock. Does B get the new stock?

Answer 21

1. At common law you are adeemed.
2. Under the UPC - YES: A specific devisee is entitled to securities of another entity owned by the testator as a result of merger, consolidation, reorganization, or other similar action initiated by the entity.

Question 22

Exoneration of the Lien: “I devise Gatoracre to my son, Sylvester. I devise my residuary estate to my wife, Willette.” At T’s death Gatoracre is subject to a mortgage that is security for a note on which T was personally liable. Sylvester demands that the executor pay off the indebtedness (“exonerate the lien”) so that Gatoracre will pass to him free and clear of the encumbrance. Is he so entitled?

Answer 22

1. Under the common law - YES, S has the right to exonerate the lien
2. Under the UPC - NO, A specific devisee of encumbered property is not entitled to have the encumbrance paid out of the residuary estate unless the will shows such intent. Moreover, a general direction in the will to pay debts does not show such an intent