What Happens to Property Left in the Will That was Disposed of Before Death?

Ademption

Property which has been left as a gift in a will, but is no longer owned by the will-maker at the time of death is governed by a legal term known as “ademption”. Ultimately, ademption provides that if a gift no longer exists in the same form within the estate, it is no longer available to the beneficiary.

Ademption occurs if the property has been disposed of either through inter vivos gifting, sale, theft or loss. Or, if the property has substantially changed from how it was described in the will. For example, if the will refers to shares in a particular company, but that company has been taken over by a different company, it falls foul to the ademption rule and is no longer available to the beneficiary.

Current Law

In Victoria, ademption as a principle is not ruled by statutes such as the Wills Act 1997 (Vic) or the Administration and Probate Act 1958 (Vic). Instead, it is part of the common law. To determine whether ademption has occurred, the Court is required to ask two questions:

  • Is the gift a specific or general gift?
  • If it is a specific gift, is the gifted property still in the Estate at the date of death?

A specific gift is something which has been described in a way that separates it from other assets disposed of within the Will. For example – the property of 125, Wills Street, Victoria 3000; or, “my car”.

A general gift is usually a specific “value” which will be paid by the executor out of the estate. For example, an amount of money.

If the gift is specific, and no longer part of the Estate because it has been disposed of by one way or another, the gift fails; the beneficiary receives nothing and cannot receive the cash equivalent of the gifted property.

Unlike many other aspects of Will interpretation, this rule is clear and unforgiving. The Courts do not look at it on a case-by-case basis. It is simply based on the notion that the will-maker intended for the beneficiary to receive nothing because they were aware that once disposed of, the specific gift no longer forms part of the estate.

Ademption Example

Ms Admin has four children and owns three properties. In her will she leaves one house to one daughter Willice, another house to her other daughter Esther, her third house to one son Probe and the residuary of the estate to her second son Testate (Testate was the least favourite of her children, and they had been estranged for 15 years).

Prior to her death, Ms Admin sells the house which had originally been bequeathed to her daughter Esther and moves into a nursing home. The proceeds of the sale of the home unit are paid as a bond to the nursing home.

The Court would determine that pursuant to the common law ademption principle, as the gift was specific (it was separated from all other assets), and no longer part of Ms Admin’s estate, Esther receives nothing.

Her least favourite child Testate will receive the bond refund as part of the residuary estate, and Willice and Probe’s entitlements to the other two properties are unaffected.

Esther’s only course of action would be to try and launch a Part IV claim, claiming that she has not been adequately provided for.

Principles and Exceptions

Like all laws, there are of course principles and exceptions to the rule so to try and reduce the risk of unfair or unexpected outcomes occurring when the rule is applied.

Principle 1: Gifts are presumed to be general rather than specific.

This means that all gifts are presumed to still form part of the estate, unless the contrary is demonstrated.

For example, in the case of Moylan v Rickard [2010] QSC 327 a “legacy equal to 15% of the market value of the house property” was held to be an amount of money and therefore a general gift, rather than a share in the house. Accordingly, the beneficiary still benefited despite the property having previously being disposed of.

Principle 2: If property has changed in name and form only, then ademption will not occur

This means that if the property is still substantially the same thing that was identified in the will, just under a different name or structure, then the beneficiary will still benefit. Prime examples are where money has been moved from one bank account to another; stocks or shares have been subject to a corporate name change; or an expensive fur coat has been “converted” in a scarf.

Exception 1: Ademption rule will not apply when the property is disposed of by a wrongful act of a third party

These are cases where an unauthorised or otherwise fraudulent act has lead to the disposition of property without the knowledge of the will-maker. The exception can be traced back to an old English case of Jenkins v Jones (1866) LR 2 Eq 323, or seen more recently applied in RL v NSW Trustee and Guardian [2012] NSWCA 39. A prime example here is where a power of attorney sells a property, but the conditions for the exercise of this power have not been met.

Exception 2: Ademption rule will not apply when the property is lawfully sold on behalf of a will-maker by an administrator (guardian) of an estate as appointed by VCAT – Section 53 of the Guardianship and Administration Act 1986 (Vic).

Where a VCAT appointed administrator is making decision, the person on whose behalf they are acting has usually lost the capacity to make a Will. As a result, the will-maker does not have the capacity to change their will to reflect the new circumstance, and in some circumstances may even be completely unaware of the sale. As a result, the statutory allows for the beneficiary to have the same interest in any money or other property arising from or received in respect of any sale, mortgage, exchange etc should the property not have been subject to the sale, mortgage, exchange etc.

By way of example: Ms Admin has four children and owns three properties. In her will she leaves one house to one daughter Willice, another house to her other daughter Esther, her third house to one son Probe and the residuary of the estate to her second son Testate (Testate was the least favourite of her children, and they had been estranged for 15 years).

Prior to her death, Ms Admin loses the capacity after making her Will. State Trustees are appointed by VCAT as the administrator of her Estate, and sells the house originally bequeathed to Esther to pay the bond at the nursing home.

Due to s 53, on Ms Admin’s death Esther will receive the refunded nursing home bond, as well as any other proceeds of sale that have not been spent on Ms Admin’s care. The rest of the children’s entitlements remain unaffected.

Exception 3: Ademption rule will not apply when the property is lawfully sold on behalf of a will-maker by an administrator or person acting under an enduring power of attorney *uncertain*

It has been suggested that a similar provision to s 53 of the Guardianship and Administration Act be introduced for persons acting under an enduring power of attorney. Traditionally, under the common law, the actions of financial attorneys are not considered an exception to the ademption rule. However, in recent years Victorian judges have recognised such exception, and called for legislative reform to clarify the issue – see Simpson v Cunning [2011] VSC 466.

The issue requires urgent legislative intervention to resolve any doubt. In the meantime, I would follow Re Viertel [a Queensland decision] and recognise a further exception to the ademption principle whenever there is an authorised sale by an attorney in circumstances where: (1) the deceased lacked testamentary capacity; (2) the Court is satisfied that the deceased, if possessed of testamentary capacity, would have intended the donee of the asset in the will to have the remaining proceeds of sale; and (3) the remaining proceeds of sale can be identified with sufficient certainty” – Justice Hargrave.

The policy reason behind such an exception is that as the law is at current, it may influence the behaviour of a financial power of attorney to make decisions which do not benefit the will-maker, but benefit themselves. For example, if the power of financial attorney knows the terms of the will, they may retain property gifted to them rather than sell the property so to increase the residuary of the estate.

However, since Justice Hargrave’s reasoning in Simpson v Cumming, the  Re Viertel has not been followed in Queensland. The New South Wales Court of Appeal has also rejected the existence of such an exception. Thus, the existence of the exception remains contentious and uncertain.

If you have any further questions, or believe you should be entitled to property disposed of prior to death. Please do not hesitate to contact the team at Hentys Lawyers today. We can help you Contest and Challenge wills as well as Dispute estates.

 

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