Gone but not forgotten: The ademption of gifts in deceased estates

Remember that will you signed a few years ago? Remember how sure you were at the time that everything had been captured perfectly? Nothing to worry about…right?  Now think about just how much may have changed in that time: new home, new car, maybe even a new child or grandchild that you may wish to specifically provide for. While there may be many reasons why you should update your will from time to time, and we certainly recommend you ensure that your will is up-to-date at all times, this article will address one key matter – being a situation in which specific property subject of a specific gift in a will is sold, either by a testator or by their attorney under a power of attorney prior to their death.

What is ademption?

Ademption, derived from the Latin term “ademptio” meaning ‘a taking away’, is the legal term used to describe the circumstances where a gift of specific property bequeathed under a will fails because it no longer belongs to testator or testatrix (i.e. the maker of the will) at the time of their death.

A will takes effect not at the time in which it is made, but immediately before the testator/testatrix’s death – section 30 of the Succession Act 2006 (NSW), and as a result care needs to be taken to ensure that each asset referred to in a will remains an asset of the will maker’s estate at the time of their death.

There are a number of ways in which a specific gift can adeem, for example the gift may no longer exist at the relevant time (e.g. it has been physically destroyed or substantially changed) or it may have been sold or given away.

By way of example, a prized and valuable piece of clothing may have been destroyed in a house fire, or in a less dramatic example, the family home may have been sold. In either hypothetical, the specific gift fails because it no longer forms part of the estate and the law assumes that the will maker, being aware of both the specific gift in their will and the fact of the gift will not form part of their estate, intended for that beneficiary to receive nothing in place of that gift.

This assumption also generally extends to having the effect that the beneficiary of that specific gift is precluded from tracing the monetary proceeds of the gift they might have received from any disposal (to use the above examples, into any insurance payment of that piece of clothing or the proceeds of sale of the property).

It is important to note, however, that ademption only applies to specific gifts of property, which is a particular type of gift which relates to, as the name suggests, a gift under a will of a specific item of property, distinct from other types of gifts which may be declared in a will (including e.g. general, demonstrative, or residual gifts).

Exceptions?

Ademption can be safely avoided through a careful drafting process and by ensuring that your will is always up-to-date. Even so, there are a number of exceptions to, and circumstances where one may challenge, ademption, including:

1. Where a specific gift is sold by an attorney under an enduring power of attorney, section 22 of the Powers of Attorney Act 2003 (NSW) can operate to allow a beneficiary to trace their entitlement to any proceeds of sale of the property which was the subject of a specific gift to them. This may occur, for example, in circumstances where the will maker’s attorney has sold property in order to contribute to an aged care refundable accommodation deposit or to fund other more appropriate accommodation;
2. If the specific gift is disposed of without the will maker’s authority, or sold/transferred arising from a fraud on a power, in which case the Court may intervene to preserve that beneficiary’s entitlement – see e.g. Reilly v Reilly [2017] NSWSC 1419;
3. Rather than a substantial change, the change in gift has been limited to a change “in name and form only“, for example shares in a company which might be split or subdivided into shares in the same company, in which case the entitlement of a beneficiary in the original shares can be traced to the resulting shares – McBride v Hudson (1962) 107 CLR 604.

What can be done?

It is a good idea to review your will regularly, especially when circumstances change or when there is a major change in the law, to ensure that it remains current and accurately reflects your intentions.

Alternatively, if you are a beneficiary to a will and the estate has flagged the potential for a gift to have adeemed, it may be prudent to more forensically examine whether (1) that gift is capable of adeeming and (2) whether an exception to ademption may apply.

As noted above, specific gifts are not the only type of gift which can be bequeathed in a will. McCabes’ Private Clients and Litigation & Dispute Resolution groups have expertise in the drafting and interpretation of wills and other testamentary and estate planning documents. Please do not hesitate to contact us if the matters raised in this article are relevant to your circumstances and you require any advice.