Pg 17 Flashcards
If a will says, “Car to A, $1000 to B, $3000 to C, residue to D“ and at death the estate has a car and $800, what do you do under abatement?
– First categorize each gift: A is a special gift (class 6), B and C are general gifts (class 4), and D is a residuary gift (class 2). - Begin abatement: satisfy gifts from the bottom up, so start with class 6. A's specific gift of the car can be given because the estate still has it. Then go to class 4 and together B and C are owed $4000, but there’s only $800 left in the estate, so this can only be partially satisfied and must be done pro rata. You take the $800 in the estate and divide it by $4000, which equals 20%. Then each one of them get 20% of their gift, so B gets $200 and C gets $600. That leaves nothing for D.
What is the process for figuring out an abatement question?
– categorize the gifts into classes – abate the gifts from the bottom class to the top, so go from class six all the way to class one – if there are not enough assets to satisfy a class, then give the amount to each person in that class pro rata by dividing the total amount that is in the estate by the amount that they should get, and that will give you a percentage. Then each person gets a percentage of the estate.
A will leaves the car to A, 500 shares to B (son), $50,000 to C (brother), $40,000 to D, $20,000 to E, and the rest to his niece F. If at his death, the testator‘s estate has a car, stock, and $80,000 in cash, what do you do?
– Categorize each gift: stock to B is class 6, car to A is class 5, $50,000 to C is class 4, $40,000 to D and $20,000 to E are class 3, residuary to F is class 2. – B gets his stock and A gets the car. C gets $50,000, and that leaves $30,000 remaining. The general gift that still has to be paid out equals $60,000, so we have to abate pro rata. This means we divide the $30,000 in the estate by the $60,000 that needs to be paid and that equals 50%. So that means D would get $20,000 and E would get $10,000, and F would get nothing.
If the facts for an abatement problem do not say whether a person is related or not related, what do you do?
Assume that they are not related.
If a will says, “I have $1 million in my account and I want C to have most of my estate, so I will leave my car to A, $1000 to B, and the rest to C.“ If the testator died with only a car and $500, the court already knows that the testator wanted C to get most of the cash, so what can be done here?
The exception for court deviation says that the intent of the testator is the most important thing. The court will then decide if it’s more important that C get the sale value of the car than A getting the car. This is easy when the will is very specific.
If a will says, “Car to A who is my friend that taught me how to drive, 500 shares of stock to B who is my second cousin, $100,000 to my uncle who saved my life and never had nice things, and the residue to D who is my mailman.“ If at execution of the will the car was worth $50,000, the stock was worth $5000, and the testator had $110,000 in cash, but at death, the car was worth $60,000, the stock was worth $80,000, and there was only $15,000 left in cash, how does abatement work?
The default rules would say that since B is class 6, the car is class 5, the money to C is class 4, and the rest to D is class 2, B would get the stock and A would get the car, C would get $15,000, and D would get nothing. But the court can deviate from the default to avoid defeating the testator's intent. The testator didn’t say what to do in abatement, but he gave clues because when he made the will most of the estate went to the uncle for saving his life. The stock was just a small amount and the residuary gift was small, although at death the stock was the biggest item and the cash was very little. The testator would likely rather that C had a big gift, even if that means liquidating specific gifts that would get priority under the default. Clearly the car had sentimental value to A, so the court might give the car to A, take the stocks and sell them and give that money to the uncle with the $15,000 cash. That probably best comports with the testator's intent.
What is exoneration as a type of change in property?
The default is that a gift of property encumbered by a mortgage or a lien stays encumbered at death if the mortgage is not exonerated even if there is a general directive in the will to pay all debts.
- old common law: assumed the testator wanted the mortgage paid off
– modern law: assumes the testator left the property subject to the mortgage unless specified otherwise
If a testator makes a gift of his house that is worth $1 million and subject to a $400,000 mortgage, does he leave it as a $1 million gift or a $400,000 gift?
If the will specifies what the testator wants, that is followed. If not, the default is followed and that is that exoneration is not the default, so if exoneration will apply it must be done expressly.
If a testator leaves property and specifically says he wants exoneration to apply, which means he wants all mortgages and liens paid off, but there are not enough assets to clear the encumbrance, what do you do?
Exonerate until you run out of funds and then stop
What are ways that you can create exoneration?
Through specific words like, “I leave my house to Ned with the right of exoneration“ or “I leave my house to Ned free and clear of any mortgage remaining.“
What does exoneration mean?
If property is left in a will subject to a mortgage or a lien, the mortgage or lien will be paid and the property will be given under the will free and clear.
Many wills have boilerplate clauses that say that the testator wants all debts paid from his residue. Does that usually include that he wants all encumbrances on his property exonerated from the residue?
No, it usually just covers things like funeral expenses, costs of probate, unpaid credit card bills, etc.
What are some of the ways that people can change between the time that the will was made and the will actually got probated?
New people could be born, some could die, some could get married or divorced, etc.
What does Lapse mean with regard to changes in persons for wills?
When a gift to a devisee fails because the devisee dies before the testator dies. This means that the gift has lapsed
What is the most important consideration when it comes to lapse?
Whether the gift was to an individual or a class
