Often, there is considerable time between the time that a testator executes a will and dies. During that time, the testator may have acquired more property or disposed of it, or it may have increased or decreased in value. Hence, there is often a significant difference in probate property and the property that the testator devised. The law has developed a number of rules, depending on the type of gift, to determine how such property should be distributed.
How the law deals with gifts depends on the type of gift. A specific gift is a specific item that is given to a specific person, such as "I bequeath my car to my son."
A general gift is a gift of a specific value, such as $100, but it is general because any $100 will do. Only the value of the property matters, not its identity.
Demonstrative gifts are general gifts from a specified source, such as "$100 from my savings account."
Residuary gifts are given to the residuary beneficiaries of the estate, which are all of the gifts that are not specifically disposed of in the will. Although no specific words are required, a common phrase used for the disposal of the residuary gifts is "I give the rest, residue, and remainder of my estate to…"
Sometimes the testator, while still alive, transfers a specific gift to someone else rather than to the beneficiary of the gift in the will. The doctrine of ademption determines if the beneficiary gets anything.
Under the common law doctrine of ademption, there was an irrebuttable presumption that the testator intended to revoke the gift; hence, the gift is said to be adeemed, and the beneficiary gets nothing.
The identity approach to ademption, applied in most jurisdictions, require that the executor search the probate estate to see if the gift can be identified; if the gift cannot be found, then the property is considered adeemed. The court will generally not take extrinsic evidence to determine why the property cannot be found or what the intention of the testator was. This bright line rule is applied whether the transfer was voluntary or involuntary because it is efficient. This approach is rationalized because it would reduce administrative expenses and reduce fraud. The modern trend is to apply ademption to will substitutes as well, especially to living revocable trusts.
Because some courts have considered ademption to be a harsh doctrine, avoidance rules have been developed to avoid ademption. One way to avoid ademption is to characterize a gift as a general gift rather than as a specific gift. If the beneficiary can convince the court that the gift is s a general gift, then the executor of the estate must purchase the gift to give to the beneficiary.
If a gift changed in form but not substance, then the beneficiary should receive the gift. For instance, if the beneficiary was gifted the money in a savings account at Bank A, but the testator transferred the account to Bank B, then the avoidance doctrine would give the money in the savings account at bank B to the beneficiary. However, if the testator took the money out of a savings account and bought a certificate of deposit, then this would be considered to be a change of substance rather than form, and, hence, it would be adeemed.
Part of the avoidance doctrine is to construe the gift at the time of the testator's death. For instance, if the testator gave a beneficiary a car and didn't specify the car, then the beneficiary should get the car that the testator owned at the time of his death, even if it is different from the one that he owned when he executed the will. However, if the gift in question increased in value between the time the will was executed and the testator's death, then the court will be reluctant to give the enhanced gift to the beneficiary.
Another rule to avoid ademption, presented in UPC § 2-606, is the outstanding balance doctrine that provides that if the gift is transferred but there is an outstanding balance due to the testator, including the balance of any purchase price of the sale of the property, fire or casualty insurance proceeds, or property acquired by foreclosure or obtained in lieu of foreclosure, or property that was acquired as a replacement for specifically devised real property or tangible personal property because of a transfer, then the balance should go to the beneficiary of the adeemed gift.
If the testator was incapacitated, and property was transferred by a conservator or by an agent with a durable power of attorney, then many states specify by statute that all specific gifts are deemed to be general gifts, where the executor must pay the pecuniary value of the gift to the beneficiary. One reason that ademption is generally upheld is because the law presumes that it is up to the testator to change the gift when the gift is transferred. However, if the testator lacks testamentary capacity, then it is presumed that the testator can no longer change his will and his guardian may be unaware of his testamentary scheme. UPC § 2-606(2)
A gift of stocks can change for a number of reasons, including:
Under common law, if the gifted stock splits, then the beneficiary receives the additional shares if it was a specific gift but not a general gift. The modern trend is to consider the gift of stocks as a gift of a percentage of the company: hence, there is no distinction between a general or specific gift, only that the beneficiary should receive all the shares. It can also be argued that most people know that a gift of stocks can change, so unless the testator provided otherwise in the will, the beneficiary should receive all of the shares.
UPC § 2-605 states that any distributions of cash such as interest accrued, rent, or cash dividends declared payable as of the record date before the testator's death, do not pass to the beneficiary, and this is also common law.
Under common law, if the testator gives an inter vivos general gift to his child, then, unless otherwise specified in the will, the gift is considered to be an advancement of the gift, and, therefore, when the will is probated, the gift is considered to be adeemed by satisfaction. The ademption by satisfaction doctrine differs from the advancement doctrine in that advancement deals with gifts given by a decedent who died intestate.
However, the modern trend, as stated in UPC § 2-609, is to not treat inter vivos gifts as an advancement on their inheritance, even if the beneficiary is a child of the testator, unless there is a writing indicating otherwise. The writing could, of course, be in the will itself, but it could be another document written by the testator contemporaneously with the gift or by the donee, who could provide the writing at any time.
However, if the donee fails to survive the testator, then the inter vivos gift will be treated as a complete or partial satisfaction of the gift.
When a will devises property with a mortgage or lien attached, jurisdictions differ in whether the beneficiary should receive the property free and clear of all liens and debt or whether the beneficiary must take the property as is. While the presumption of common law is that the beneficiary should take the property free of liens and debt, the modern trend is that the beneficiary should take the property with its debts and liens. UPC § 2-607
Sometimes the will bequeaths more property than is available for distribution because:
In these cases, the abatement doctrine determines which gift is reduced first. The general rule is to reduce the gift to residuary beneficiaries first, then general gifts, and then specific gifts. Some, however, have criticized this order as probably being contrary to the intent of the testator, since the residuary beneficiaries often receive most of the property, and the residuary beneficiary is often the surviving spouse.
Some states have resolved some of the criticism by passing statutes that require the courts to consider testamentary intent in deciding in how to apply the abatement rules. If there's a conflict between the abatement rules and testamentary intent, then testamentary intent should prevail. UPC § 3-902