“Now you see it, now you don’t” what happens when a gift in Will no longer exists at death?

Hi Sebastian

It is common for clients to want to leave specific items of real or personal property to a beneficiary upon death. This may include a gift of jewellery, a motor vehicle or a piece of property. However, when clients are specific about their wishes, problems can arise if these items of property no longer exist at the time of death. In these circumstances, the rule of “ademption” applies.  The gift is said to have “adeemed” and is considered to have failed, resulting in an unintended outcome for the beneficiary affected. In other words, the intended beneficiary of the gift will not receive the gift, and the property or asset will pass to those beneficiaries entitled to the residuary estate.

There are some general exceptions to this rule, and these include:-

1. The sale of property by an attorney under an enduring power of Attorney. Various legislative changes have enabled the monies from the sale of an asset by an attorney to be traced and paid to the beneficiary the subject of the gift in the Will;
2. When a gift is not specific and general in nature such as a percentage of the estate or the payment of money;
3. Where the property has changed its name in form only and can be identified, or
4. Where the gift ceases to exist as a result of an unlawful act of a third party

Discussion with your client: How to avoid the ademption of a gift ?

There is a real risk of a gift being adeemed if the client making a will is young and healthy. In those circumstances, it is likely that the gift may no longer exist many years down the track when the client passes away.

Inherit’s legal bot will help you navigate these issues and here are a few thoughts for your consideration when discussing specific gifts with your clients:

1. If a specific gift is nominated, you should ask your client what is their intention if the gift no longer exists at death. Are they happy for that beneficiary to miss out on the gift or do they want to compensate that beneficiary for the value of the item gifted? If this is the client’s intention your nominated Inherit lawyer may suggest a “tracing clause” in the Will that will direct that the proceeds of the sale of the property ( or its value)  be paid as a cash gift to the beneficiary if the asset is sold
2. Consider if it would be better for the client’s beneficiary to receive a gift of a specific percentage of the residue of the estate;
3. Clients who wish to make specific gifts of real or personal property should regularly review their Will and estate plan to determine if changes are required if the property is sold;
4. If the gift is of significant value, it may be appropriate to transfer the gift to a trust to avoid the gift being adeemed, however this approach may require taxation and stamp duty considerations.

As with any gift nominated by your client,  inherit’ s legal bot will ask you what should happen if the beneficiary passes away before the client dies and if the gift is to be adjusted if that beneficiary is entitled to a share of the client’s residuary estate.