Testamentary Gifts/Non-Probate Assets

Question 1

How does NY handle negative bequests (disinheritance language)?

Answer 1

The common law rule is that when a will does not make a complete distribution of the estate (resulting in partial intestacy), words of disinheritance in the will are ineffective with respect to property passing by intestacy.

In NY - words of disinheritance are given full effect, even in partial intestacy.

Question 2

How are lifetime gifts to a beneficiary treated?

Answer 2

At common law - a lifetime gift made after a will’s execution to a beneficiary named in the testator’s will was presumptively made in partial or total satisfaction of the legacy, to be taken into account whhen distributing the testator’s estate at death.

However, NY has rejected the “satisfaction of legacies” (similar to advancements in intestacy) presumption by statute. Thust, there is no satisfaction of legacy unless proved by:

a. contemporaneous writing made at the time of the gift; AND
b. signed by donor or donee.

Question 3

What is incorporation by reference of extrinsic documents? How is it treated in NY?

Answer 3

The terms of an extrinsic document can be incorporated by referecne if: (i) the document was in existence when the will was drafted, (ii) the will shows an intent to incorporate the dcoument, and (iii) the document is clearly identified by the language in the will.

However, NY does not recognize incorporation by reference. Everything must be formally executed (except for pour over trusts).

Question 4

How are acts of independent significaince (nontestamentary acts) handled?

Answer 4

Acts performed by the testator AFTER the will is executed which have a purpose or motive independent of any testamentary purpose are given full effect when distributions are made.

EXCEPTION: Title documents (e.g. deeds, stock certificates, bank passbooks) can only be transferred as mandated by law.

Question 5

What is a specific gift?

Answer 5

A specific gift provides a particular piece of property to the beneficiary.

Question 6

What is a demonstrative gift or legacy?

Answer 6

A general amount, but the testator designates a specific source from which the amount is to be paid from.

Question 7

What is a general gift or legacy?

Answer 7

A general amount given to the beneficiary (not specified from where).

Question 8

What is a residuary disposition?

Answer 8

The grant of the residuary estate to a beneficiary.

Question 9

What is abatement (reduction of legacies)?

Answer 9

If there are more claims against the state than there are assets to cover all gifts made under the will, the gifts will abate.

Abatement is not giving effect to gifts so that creditors’ claims can be satisfied.

Question 10

What is the order of abatement?

Answer 10

a. intestate and residuary property; THEN
b. general legacies; THEN

c, demonstrative legacies; THEN

d. specific legacies; AND ONLY THEN
e. items that qualify for the estate tax marital deduction.

General legacies and demonstrative legacies abate pro rata.

Question 11

What is ademption?

Answer 11

If a testator makes a specific gift of property, and the property cannot be found or is no longer owned by the testator at the time of her death, the gift fails under the doctrine of ademption. In other words, if the specific gift doesn’t exist, the person getting the gift loses.

REMEMBER: Ademption only applies to specific gifts.

Question 12

What are the three statutory exclusion to ademption?

Answer 12

1. Insurance proceeds for lost, damages or destroyed propery: beneficiary takes insurance proceeds to the extent that they are received AFTER death.
2. Proceeds recieved under an executory contract: beneficiary gets proceeds that are paid after death.
3. Proceeds from guardian or conservator sale of specifically bequeathed property: beneficiary is entitled to receive the money or property in which the proceeds from the sale or trnansfer can be traced. If it cannot be traced, you have ademption.

Question 13

What happens if the testator makes a specific gift of property that is subject to a mortgage or other lien on which the testator was personally liable? How does NY handle this?

Answer 13

The common law rule - the beneficiary is entitled to have the lien exonerated. Exoneration means the discharge of any encumberances on specifically bequeathed property using the residuary estate.

In NY, liens on specifically devised property are not exonerated unless will specifically directs exoneration.

Question 14

What are gifts of shares of stock in a publicly traded corporation?

Answer 14

They are general gifts and don’t adeem, UNLESS the gift of shares of stock is specified by saying “my…stock” - then they are specific gifts.

Question 15

What are gifts of shares of stock in closely-held companies?

Answer 15

Specific gifts and adeem if they don’t exist.

Question 16

What are gifts of shares of stock where a stock split occurs?

Answer 16

They are specific bequests for the purposes of the language. It is irrelevant whether the testator used “my” language or whether the stock was publicly traded or closely held.

The type of legacy is irrelevant though - so the beneficiary gets what is there (i.e. the will bequeaths 100 shares of Kodak common stock, but there is a stock split 2 for 1 - the beneficiary takes all 200 shares).

Question 17

What are non-probate assets?

Answer 17

Interests in property that are not subject to dispositon under the will or via intestacy. The categories of non-probate assets are:

a. property passing by right of survivorship (joint property);
b. property passing by contract (including life insurance policies or employee benefits payable to a benefiicary other than the decedent or decedent’s estate);

NOTE: if insurance or benefit prceeds are paid to the testator’s executor or estate, the proceeds become probate assets.

c. Property held in trust;
d. Property over which the decdent held the power of appointment.