Ademption and Abatement

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Ademption

If the specifically devised property is not in the testator’s estate at the time of death (it could have been sold or destroyed), the gift is adeemed (i.e., it fails). This is also known as ademption by extinction. Ademption also applies if the specific bequest substantially changes in character. Demonstrative or general bequests are not subject to this doctrine, as it only applies to specific bequests.

EXAMPLE: Frieda made the following bequest in her will: “I devise to my cousin, Elsie, the rental property I own in downtown New Orleans, LA.” Despite this bequest, Frieda sold the building two years before she died and never changed her will to reflect this change in the property. She used the proceeds, $350,000 to invest in a single premium index annuity. If Elsie decides to bring an action against the estate for the money, she will lose. A specific bequest fails if the property is no longer in the estate at the time of the testator’s death. Here, Frieda sold the building, so there was no rental property to leave to Elsie. Also, she has no claim to the $350,000. See, e.g., Wasserman v. Cohen, 606 N.E.2d 901 (Mass. 1993).

An exception to this rule is if the testator’s estate received insurance proceeds derived from the loss of the property. In some jurisdictions these proceeds are payable to the beneficiary of the property if such proceeds are received by the estate representative. See, e.g., In re Baker, 435 N.Y.S.2d 482 (Sur. Ct. Westchester Co. 1980). In other states, the beneficiary is not entitled to the insurance proceeds.

EXAMPLE: Courtney’s will bequeaths her diamond ring to her niece, Marjorie. Before Courtney’s death, the ring is stolen. After Courtney’s death, $6,550 in insurance proceeds is paid to Courtney’s executor as reimbursement for the loss. In jurisdictions that follow the common law rule of ademption, Marjorie is not entitled to the ring because it was not owned by Courtney at her death. In addition, Marjorie is not entitled to the insurance proceeds because the will did not give her insurance proceeds. Consequently, the gift to Marjorie is adeemed. See, e.g., In re Barry’s Estate, 252 P.2d 437 (Okla. 1952).

To avoid this result, some states have enacted statutes to address the situation of who is entitled to insurance proceeds received after the testator’s death and whether they can serve as a substitute for the specific item that was either lost or stolen.

Another dicey area in ademption is with executory contracts. Specifically, when a testator enters into an enforceable contract to sell the property that is the subject of the specific bequest, the transfer is incomplete until the closing. If the testator dies in the interim, the property is no longer owned by the testator. As such, the gift adeems.

EXAMPLE: Terence’s will devises his home in Tampa, FL to his sister, Rhonda. Shortly thereafter, Terence entered into an enforceable contract to sell the Tampa home to a third party, Pierre. At the time of Terence’s death two weeks later, the contract was still executory. Under the doctrine of equitable conversion, the purchaser (Pierre) is deemed to own the Tampa home from the moment the contract becomes enforceable and the seller (Terence) is deemed to own only personal property; a right to compel payment of the remaining sale proceeds. Thus, Terence no longer owns the Tampa home at his death, and the gift to Rhonda is adeemed. Unfortunately, Rhonda is not entitled to the Tampa home or the remaining proceeds of the sale under the contract. See, e.g., In re Hill’s Estate, 564 P.2d 462 (Kan. 1977).

Ademption by satisfaction occurs when the testator gives away the specific property to the beneficiary during his lifetime. Whether this occurs depends on the testator’s intention. Ademption by satisfaction applies to general as well as specific legacies. Ademption can occur only when the testator has a will. A similar concept that was previously discussed is advancements, which refers to a similar scenario when the decedent dies intestate.

EXAMPLE: Connor makes a will leaving $100,000 to his son, Ian. During his four years in college, Connor paid $50,000 toward Ian’s tuition and living expenses. When Connor dies, Ian only gets $50,000 if Connor specifically documented that any money he paid for Ian’s education would be deducted from the general bequest.

Abatement

Some estates are too small to accommodate not only the administration expenses and creditors’ claims but also all the different types of bequests to beneficiaries. To allocate scarce resources, certain gifts are reduced or eliminated. This process is known as abatement.

The testator can make arrangements in the will to determine the order of abatement. If the testator has not made such provisions, states have rules that set the order of abatement. As previously discussed, the classification of the bequest is the key to arranging the order in which the gifts are abated.

At common law and in a few states today, all gifts of personal property, of whatever class, abate before dispositions of real property. See, e.g., Edmunds’s Administrator v. Scott, 78 Va. 720 (1884). In states that follow this common law rule of abatement, the order of abatement is:

1. Personal property (or money) passing by intestacy (if the will does not dispose of the entire estate for whatever reason), if any.
2. Next, personal property (or money) in the residuary estate.
3. Next, general legacies, which abate pro rata (a proportionate amount comes off each gift).
4. Next, demonstrative legacies.
5. Then, specific bequests of personal property, which abate pro rata.
6. Finally, real property but only after all personal property has been exhausted. Real property dispositions abate in the same order as personal property.

In most jurisdictions, there is no distinction between real and personal property. Rather, the order is the same, but it applies to both types of property. In comparison, the order of abatement would be modified as follows:

1. Real or personal property passing by partial intestacy.
2. Next, the residuary estate (both real and personal property) is abated.
3. Next, general legacies, which abate pro rata.
4. Finally, specific devises and bequests.

As previously discussed, demonstrative bequests are treated in a hybrid fashion, encompassing the rules for specific and general bequests. Specifically, demonstrative bequests are treated in the same manner as specific gifts, to the extent that the property from which the gift was to be satisfied is in the estate at the time of death. Yet, demonstrative bequests are classified like general legacies, and abate pro rata with general legacies, to the extent that the fund or property from which payment was earmarked is insufficient to satisfy the demonstrative legacy. In other words, if the source property is in the estate, the specific bequest does not abate.

EXAMPLE: Gigi’s will had the following provisions: $500 to each of her nephews, Bart and Justin; her 1997 Toyota Corolla to her brother, Richard; $2,500 on deposit at Citibank to her niece, Joy; and her residuary estate to her sister, Lucy. Her residuary estate was insufficient by $1,000 to pay all debts and expenses of her   estate. Given this deficiency and based on the order of abatement listed above, Lucy (residuary estate), Bart and Justin (general legacies) receive nothing. Joy will still receive the $2,500 (demonstrative legacy) and Richard will receive the car (specific bequest).

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