When crafting a Will, it is important to ensure that your wishes are accurately reflected and will be carried out upon your death. One aspect often overlooked is the potential for ademption, a legal concept that can disrupt the distribution of specific gifts outlined in your Will. Attwood Marshall Lawyers Legal Practice Director, Jeff Garrett, joins Robyn Hyland on Radio 4CRB to discuss what ademption is in the context of estate planning and the alternative strategies available to ensure that your beneficiaries receive the assets you intend them to.
What is ademption?
Ademption refers to a specific gift or bequest outlined in a Will that becomes null and void when it ceases to exist at the time of the Will-maker’s death.
Ademption can occur when the asset has been sold, lost, or destroyed before the testator passes away. As a result, the intended beneficiary of that gift misses out. The law of ademption operates in such a way that the beneficiary’s entitlement to the gift is effectively extinguished.
Can ademption apply to all types of assets?
Ademption is not limited to specific categories of assets. It can apply to real estate, vehicles, artwork, jewellery, and other personal items. It can also apply to stock portfolios and bank accounts, just to name a few.
Certain personal items may be less prone to being sold, making them more likely to reach the intended beneficiaries. However, when it comes to significant assets like the family home or a bank account, the potential for ademption becomes more evident.
One situation where ademption often arises is when a long-held family home is sold to fund an older person’s entry into an aged care facility as their health deteriorates or they can no longer live independently at home. Perhaps that person had children or grandchildren that they wanted to pass the property down to. They may have drafted their Will to reflect their wishes, leaving the property to their chosen beneficiary. But, the person’s health declined, they lost the capacity to make financial decisions for themselves, and their Power of Attorney then stepped in to make the difficult decision to sell the property to fund that person’s move to aged care to ensure the person is looked after.
Once that property is sold, the gift in the Will fails, and the beneficiary who intended to receive the property will miss out.
The consequence of this scenario is that once someone has lost the capacity to make decisions for themselves, they are unable to update their Will. This means if there is a significant change to that person’s circumstances and assets must be sold, that person cannot update their Will to reflect their change of circumstances.
It is often the case that the attorney appointed under an Enduring Power of Attorney is not aware of the terms of the Will at the time they are making such decisions.
Can a Power of Attorney be held liable for selling an asset intended for a beneficiary?
A Power of Attorney is granted significant powers and is authorised to make decisions on behalf of the principal, ensuring that their best interests are met.
If a Power of Attorney acts in good faith, following the instructions of the principal, or if they had a justifiable reason for selling an asset that ultimately deprived a beneficiary of the intended gift, they will likely have a valid defence against any potential liability.
However, there is a remedy under Queensland legislation in the Powers of Attorney Act 1998 which states that if an attorney sells a property that has been left to someone in a Will, then the beneficiary who has missed out as a result of that conduct, can come back and claim the value of that gift that was made to them from the estate.
The compensation payable will be based on what the court deems appropriate, and any compensation awarded must not exceed the value of the lost benefit.
If a beneficiary who has missed out on their entitlement due to ademption wishes to seek compensation, in Queensland, they must make a claim within six months of the date of death and issue court proceedings within nine months of the date of death.
In New South Wales, proceedings must be filed within 12 months of the date of death. Each state and territory have their own legislation which outlines the rights of beneficiaries and time limitations that apply to bringing an action against an estate.
Mr Smith drafted his Will ten years before his death. At the time he completed his estate plan, he owned three properties, each designated for a different beneficiary.
One of the properties was gifted to the person also named executor in the Will.
Upon his passing, the executor assumed his role and stepped in to administer the estate. However, what awaited the executor was the discovery that two out of three of the properties had been sold since the time Mr Smith had drafted his Will.
As a result, the beneficiaries of the two properties that had been sold unwittingly missed out on the gifts that were intended for them.
Ironically, the lawyer who had prepared the Will for Mr Smith had also acted for him for the sale of the properties. However, for one reason or another, the Will had never been updated to reflect that the properties had been sold.
How to avoid ademption
To avoid ademption in a Will, it is important to explore alternative strategies that can help protect your intended gifts and ensure they reach the people you want to benefit from them.
Here are a few strategies to consider:
- Update your Will regularly: The general recommendation is to update your Will every three to five years. However, it is important to update your Will if anything significant changes in your circumstances, including if assets are sold, lost, or destroyed. You should also update your Will if the circumstances of your intended beneficiaries, or executor, have also changed, such as your beneficiaries getting married, divorced, having children, or a shift in their health.
- Avoid specific gifts: Instead of leaving specific assets to beneficiaries, consider leaving a percentage of your estate. This provides flexibility, as the executor can distribute assets of similar value or nature to the intended beneficiaries, ensuring no one misses out. If you do wish to leave a specific gift, make sure that it is marked for the beneficiary and that you communicate your intentions clearly to your chosen executor and also the attorney you appoint as your Power of Attorney during your lifetime to ensure the item or asset will not be sold.
- Establish a trust: You may choose to set up a trust to hold and manage specific assets. By transferring ownership to the trust, you can ensure the assets remain intact and bypass the risk of ademption.
- Have your Will drafted properly by an experienced estate planning lawyer: An estate planning lawyer will be able to provide personalised advice about your assets, circumstances, and your intentions to help you formulate the best strategy to ensure your estate will be passed on as you intend. An estate planning lawyer will also be able to ensure alternative provisos are factored into your plan in the event property or assets are sold to ensure the beneficiary still receives their share of the inheritance.
Attwood Marshall Lawyers – helping people plan for the future and preserve their wishes
At Attwood Marshall Lawyers, our lawyers understand that no two families are the same and everyone’s estate planning objectives are different. Writing a Will is an extremely personal task. It is important to get advice to ensure that your wishes can be fulfilled and that what you want to happen to your estate ultimately will.
Our Wills and Estates team practises exclusively in Succession Law and estate planning and can assist with drafting Wills, setting up testamentary trusts, drafting Enduring Powers of Attorney and Enduring Guardianship documents.
We also have a dedicated team of lawyers who practice exclusively in estate administration and can assist executors in their role.