Ademption defined
Ademption occurs when the property that the Will leaves to someone is not in the decedent's estate when the decedent dies. The bequest is said to adeem, and it lapses.
A brief review of Will provisions that transfer property
The generic term for a Will provision that leaves something to a person is called a bequest. If the property bequeathed is personalty (such as cash, securities, cars, collectibles, jewelry and heirlooms), it is called a legacy and the person receiving it is a legatee. If the property is real estate, it is called a devise and the person receiving it is a devisee. If the Will provision at issue says "I leave the rest, remainder, and residue of my estate to X," it is called a residuary bequest. Here's where it can get tricky: If the Will says "I leave 100 shares of ABC Corp. stock to X," it is considered a general bequest and the beneficiary would receive the date of death value of 100 shares of that particular stock. However, if the possessive "my" is added and the Will says "I leave my 100 shares of ABC Corp. stock," it is considered a specific bequest and the beneficiary would receive the testator's 100 shares of that particular stock if he owned it at the time of death.
By its nature, therefore, ademption applies only to specific bequests (i.e., specific legacies of personal property or specific devises of real property) where identifying the specific asset intended is important - not to general, residuary or demonstrative bequests. This makes sense since it follows that an ademption would be relevant if "the 1964 red Corvette I inherited from my grandfather," or "123 Main Street," are no longer owned by the testator at the time of his death, while ademption would not be relevant to a bequest of $1,000 or "the residue of my estate".
There are two kinds of ademption
Ademption by extinction means the property is not in the testator's estate at the time of death because it was transferred, substantially changed, or destroyed before the testator's death. Let's say your father leaves you his comic book collection in this Will, but after he signs his Will he sells the collection and invests the proceeds in an emu ranch. Upon his death, you get neither the comic book collection nor the emu ranch nor the value of these assets. The bequest would adeem by extinction.
Ademption by satisfaction means that the property is not in the testator's estate because it was already intentionally transferred by the testator to the beneficiary. In our example, if your father gifted you his comic book collection during his life, that bequest would adeem by satisfaction. Ademption need not totally eliminate the bequest - there can even be partial ademption under certain circumstances.
The test for ademption turns on the physical existence of the property, not intent. According to the traditional view of ademption this did not matter; knowledge or intention by the testator was irrelevant. The important question was not whether the testator intended to extinguish a specific gift by disposing of the property, but simply whether the property was part of the estate when the testator died. However the testator's intent is relevant in will construction regarding whether an alternate gift was intended, or whether a bequest was meant to be general disposition rather than a specific fund.
Anti-ademption statutes
Some states have anti-ademption statutes which prevent a bequest from adeeming. For example, New York's Estates, Powers and Trusts Law (EPTL) 3-4.3 provides that property conveyed by Will, if altered but not wholly divested, does not revoke such bequest, but the estate in the property that remains in the testator passes to the beneficiaries. Similarly, Section 3-4.4 provides that a conveyance made by a committee or conservator, during the lifetime of its incompetent or conservatee, of property that had been specifically bequeathed in that individual's will, does not cause the bequest to adeem. EPTL 3-4.5 provides that insurance proceeds paid after the testator's death on property that had been specifically devised are to pass to the intended beneficiary of the property (note that this applies solely to proceeds paid after the testator's death).
In Wisconsin, state law attempts to abolish the common law doctrine of ademption by extinction, by, for example, awarding beneficiaries the balance of the purchase price of the item sold (subject to some limitations). In Virginia, ademption occurs with respect to most forms of property, but if the property at issue is stock certificates where the issuer of the stock has been bought out by another company and that the stocks have been swapped for stock in the new company, the bequest will not adeem. Similarly, if the shares of stock that existed at the time the gift was made have split (for example, where the holder of 500 shares receives a reissue of 1,000 shares each having half the value of the original), then the beneficiary of that bequest will be entitled to the number of shares that exist after the split.
In an Alabama case where the testator devised his real property - including all right, title, and interest in and to real property acquired by inheritance or otherwise from his predeceased wife - to a single individual, and the testator then sold part of the inherited realty and took back a purchase money mortgage, the court held that under the applicable anti-ademption statute, the devisee would receive the outstanding balance on the mortgage. In states lacking an anti-ademption statute, this type of tracing would not occur and the devise would adeem.
Analysis and recommendations
Needless to say, the possibility of ademption can be anticipated when a Will is drafted and appropriate wording used to avoid ambiguities. To avoid confusion and any ambiguity regarding whether something will be adeemed, it is prudent to use the phrase "if owned by me at the time of my death" in the Will when referring to the asset being bequeathed. Similarly, ademption will not occur if a testamentary gift of property is expressed to give the property or any proceeds of its sale, transfer or other form of disposition. On this view, the gift of property would likely extend to the proceeds of the sale of the asset and would almost certainly overcome any possible ademption. The issue could be placed beyond doubt if such a clause were expressed as applying not simply to the proceeds of the sale but also to any insurance, bond, deposit, surety, interest or license that accrues by reason of the sale and investment of the proceeds of the property. If a testamentary gift is expressed in such terms, the beneficiaries would take whatever remains of the proceeds of sale on the death of the testator.
DISCLAIMER: Like other estate planning concepts, ademption is a complex concept with many nuances, exceptions, and complicated rules. Many circumstances can affect the outcome, including fire, theft, or act of a third party, sale by the committee or guardian of an incompetent, and insurance. Consultation with a professional familiar with these concepts is strongly advised.
0 comments:
Post a Comment