Changes to Property between Will Execution and Testator's Death

Question 1

What are the bases for classification of a gift?

Answer 1

1. Classification by type of property (4 types)
2. Classification by type of beneficiary (2 types)

Question 2

What are the four types of testamentary gifts based on PROPERTY type?

Answer 2

1. Devise – A gift of real property
2. Bequest – A gift of personal property (Specific vs. General)
3. Legacy – A gift of personal property not sufficiently described to be specific (General Legacy vs. Demonstrative Legacy)
4. Residuary Gift – The remainder of the estate

Question 3

What are the two kinds of Bequests?

Answer 3

1. Specific bequest (Distinguishable from the rest of T’s estate at the time of the will execution, e.g., “I leave my blue 2015 Tesla Model S to Tom”)
2. Specific bequest of a general nature (Not distinguishable from the rest of T’s estate UNTIL death, e.g., “I leave my car to Tom”)

Question 4

What are the two kinds of Legacy gifts?

Answer 4

1. General legacy/gift/bequest (e.g., “I leave $10,000 to Tom”)
2. Demonstrative legacy (A gift of a sum of money payable out of a designated fund, e.g., “I leave $10k to Tom payable from my account at Chase Manhattan Bank”)

Question 5

What are the two types of testamentary gifts based on BENEFICIARY type?

Answer 5

1. Private gift – non-charitable beneficiaries
2. Charitable gift

Question 6

What is ademption?

**Frequently tested

Answer 6

Ademption, or ademption by extinction, is a common law doctrine used in the law of wills to determine what happens when property bequeathed under a will is no longer in the testator’s estate at the time of the testator’s death.

Question 7

What is the general rule on ademption by extinction?

Answer 7

The gift “adeems” (You get nothing!)

i.e., the gift fails – Beneficiary does not get the item and has no right to get a substitute gift or the value of the gift

Question 8

What are the exceptions to the general rule that a gift adeems when the property is no longer in T’s estate at the time of death?

Answer 8

1. Insurance proceeds – Beneficiary WILL receive insurance proceeds for lost/stolen/destroyed SPECIFIC gifts (N.B. Must be paid AFTER testator’s death)
2. Executory contract proceeds – Beneficiary WILL receive proceeds from an executory contract that are paid AFTER testator’s death
3. Proceeds from a sale by a guardian or conservator – Beneficiary will receive proceeds from SPECIFICALLY given property, but only if the proceeds are traceable

Question 9

What is ademption by satisfaction?

Answer 9

Beneficiary receives gifted property before testator’s death

(i.e., this is the will equivalent of advancement in intestacy)

Question 10

What is required for proof of an advancement?

Answer 10

Advancement must be:

1. In writing;
2. Made at the time of the gift; AND
3. Signed by the donor (testator) OR donee (beneficiary)

Question 11

What is the general rule on changes in value of testator’s property w/r/t SPECIFIC gifts?

Answer 11

Generally, appreciation and depreciation of specifically gifted property between will execution and death is IRRELEVANT

Question 12

What is the rule on gifts of securities in PUBLICLY-TRADED corporations w/r/t ademption?

Answer 12

Generally, shares of stock in public corporations are general gifts and DO NOT ADEEM;

BUT if T indicates that he actually owns the stock, then the gift is specific and subject to ademption.

(e.g., “I leave my 100 shares of MSFT to Tom” – this is specific! If T doesn’t own 100 MSFT shares at time of death, it adeems and Tom gets nothing. BUT IF “I leave 100 shares of MSFT to Tom” – this is general (no “my”!). If T doesn’t own 100 MSFT shares at time of death, Tom gets the value of those shares!)

Question 13

What is the rule on gifts of securities in CLOSELY-HELD corporations w/r/t ademption?

Answer 13

Always specific gifts; thus, subject to ademption

Question 14

w/r/t ademption, what is the rule on gifts of stock where the stock splits?

Answer 14

Treated as specific bequests for the purposes of the split

(N.B. It is irrelevant if testator used “my” language or whether the corporation is publicly-traded or closely-held)

(e.g., “I leave 100 shares of MSFT to Tom.” Before T dies, the stock splits and T dies owning 200 shares. Tom gets 200 shares. (The result would be the same even if T died not owning any shares!))

[N.B. The same reasoning applies to corporations that have mergers, takeovers, etc. and the stock is no longer the same as what is indicated in the will]

Question 15

In NY, what is the rule on exoneration of debts on specific gifts?

Answer 15

In general, debts on specifically gifted property are not exonerated (i.e., NOT paid off by other property in the estate).

(e.g., Homer leaves his house to Bart and his car to Lisa; the house is subject to a mortgage and the car is subject to a lien. Bart and Lisa take the gifts subject to those encumbrances)

[N.B. Testator can provide otherwise in the will, but must CLEARLY state his intent to exonerate any debts!]

Question 16

What is abatement?

Answer 16

Determining which gifts will fail when the property in the estate is insufficient to satisfy all the testamentary gifts

Question 17

Assuming the will is silent on the point, what is the order of abatement?

Answer 17

Gifts are knocked out to satisfy creditors in the following order:

1. Intestate property
2. Residuary property
3. General gifts
4. Demonstrative gifts
5. Specific gifts
6. Items that qualify for the estate tax marital deduction
   (i. e., If T’s estate owes money, it is taken from gifts to others in the order 1-6.)

Question 18

What is the rule on disclaimers?

Answer 18

Beneficiaries can disclaim gifts left to them in the will;

If B disclaims, the property passes as if B had predeceased T under the terms of the will.