Rights of Beneficiaries Giving or Receiving Gifts in a Will

You may find a lot of terminology used in this blog article that you’re not overly familiar with.  To assist you, we’ve included a short set of definitions at the end.

So you wish to leave someone a gift in your Will?  Or alternatively you have been left something by a loved one or relative in their Will.  What are the dangers and risks associated with gifting in a Will?

Firstly you need to work out what type of gift you wish to leave or have been given.

• a gift of realty (land) by Will is called a devise;
• a gift of personalty (personal property) is called a legacy (or sometimes a bequest)

There used to be substantial differences between devises and legacies but there is virtually no legal difference now.  There are however five types of legacy and the classification between them does have some consequences.

The different types of legacy:

1. Specific legacy

A “specific legacy” is a gift of a specific thing.  What marks a gift as specific is that its subject-matter is an identifiable part of the estate as at the date of death.

So there are two kinds of specific legacy:

(i)   Specific property as at the date the Will was written; for example, “my house at 8 Smart Street Adelaide” or “my cat Patches”.  The risk of such specific legacies is that they may cease to exist by the time the death occurs.  The house at 8 Smart Street may have been sold or the cat may have died.  If that occurs the legacy is said to be adeemed; that is, taken out of the Will. The beneficiary loses his or her interest.

(ii)  Specific property as at the date of Death. For example, a gift of “any house I own in Adelaide” or “all my cats”.

They are not liable to ademption in the same way as the example above because they are defined differently.

1. 2.     General legacy

A general legacy does not allocate any particular property or fund as the subject of the gift.  In fact the gift may never have formed part of the estate; for example, a gift of a BMW car to Richard.  There may never have been such a car but the effect of this gift in the Will is to require the executor to purchase a car of this description for the beneficiary.

1. 3.     Pecuniary legacy

This is a gift of money and is generally quite broad; for example $20,000 to Alice.

1. 4.     Demonstrative legacy

This is a general legacy paid out of a specific fund; for example, $10,000 out of my CBA bank account.  If the bank account has less in it than the figure stated (or has ceased to exist entirely at death), the beneficiary receives what balance is left in the account and any balance required to pay the gift in full can be paid out of the residue (other assets) of the estate.

The intention with this gift is that it shall be paid initially from the specified account or fund and any balance from the residue.  As it is not specific legacy, the gift cannot be adeemed simply because the fund no longer exists.

1. 5.     Residuary legacy

This is the gift made up of what remains after the payment of all debts, liabilities, expenses and other legacies. In essence it is the balance of the estate which may be directed to certain beneficiaries.

Beneficiaries have no immediate right to assets left to them in a Will while the executor is in the course of administering the estate. Once the duties of administration have been completed it is the executor’s duty to transfer the legacies to the beneficiaries.

It’s important to know that gifts made to beneficiaries can fail in certain circumstances.

One of them raised above is the case of ademption; the specific gift no longer exists.  Another common reason is that of abatement which means that there are insufficient funds in the estate to pay all of the debts, liabilities and legacies in full.  If that occurs the executor must follow a strict path as to what gifts fail first.  The gifts fail in the following order:

a)     Residuary,

b)     General and pecuniary legacies,

c)      Specific and demonstrative legacies.

All legacies within each category abate (are reduced) proportionally.  Here’s an example of how it might look.

A Will makes the following gifts;

• $10,000 out of a CBA account to Roger;
• $10,000 to each of Mary and Bob’ and
• the residue or balance of the estate to Graham.

After payment of the funeral account and other liabilities of the estate there is only $20,000 left in the CBA account for the executor to distribute.

Graham’s interest in the residue will be the first gift that fails. So, unfortunately Graham gets nothing from the estate.

Mary and Bob will each only receive $5,000 as there are still insufficient assets to meet all of the remaining gifts.

Finally, as Roger’s gift is specific he will receive the entire $10,000.

Some definitions that might help you with our blog post today:

Legacy

A bequest or gift made in a Will Specific legacy

An identifiable asset; my cat Patches or my car I own at my death General Legacy

An identifiable asset that may not currently form part of the estate Pecuniary Legacy

A gift of an amount of money Demonstrative Legacy

A gift of something that is derived from a specific fund or account Residuary Legacy

The balance of the estate Ademption / Adeemed

Where the item gifted no longer exists and therefore fails to pass to a beneficiary Abatement

How gifts are used to pay off estate debts and liabilities when there are insufficient funds to meet all debts and gifts made in a Will

So as you can see, there’s a fair bit of information contained in this article and it can be a complex area of law particularly if you’re not familiar with dealing with Wills.  If you’d like some more information on “gifting” in a Will or perhaps like to clarify what we’ve shared with you today, why not get in touch directly with the writer of this article, Andersons Solicitors Senior Associate in Wills and Estate Planning, Greg Welden.

Please note, this Blog is posted in Adelaide, South Australia. It relates to South Australian legislation.