The Disappearing Gift: How Ademption Can Rewrite a Will

When preparing Wills, a Will maker may have a clear intention of leaving a specific gift to a person — for example, they may wish to leave their home to a particular relative.

While this is great in theory, what happens when a particular gift listed in a Will is no longer owned by that person at the time of the Will maker's death? What are the implications and the effect on the distribution of the estate?

What is ademption?

A specific gift (for example, real estate, a vehicle or jewellery) may no longer be owned by the Will maker at the date of their death if, during their lifetime, it has been sold or lost. If this happens the gift is taken to have been 'adeemed'.

The legal doctrine of ademption sets out what happens in those circumstances.

If the asset is no longer owned by the Will maker, then the beneficiary cannot receive the gift as it was originally intended.

What impact can it have?

If a gift is adeemed, it may mean that the beneficiary receives no provision from the estate, whilst other beneficiaries will inherit a larger share of the estate than originally intended by the Will maker.

A common example of this occurs when a Will maker sells a property during their lifetime; a specific gift of that property will then fail, but there will be additional funds available to beneficiaries who receive those.

Disputes therefore often arise in cases where a Will maker has not updated their Will in years and gifts fail, particularly in blended families and estates involving significant property assets.

'Anti-ademption' legislation

There are limited exceptions in Victoria where the doctrine of ademption does not apply and a specific gift will not be taken to have failed.

In two cases, these are enshrined in statute, and occur when:

1. An Attorney sells a Will maker's property under an Enduring Power of Attorney;¹ and/or
2. An Administrator sells a Will maker's property, having been appointed by the Victorian Civil and Administrative Tribunal.²

Notwithstanding that the specific gift no longer exists, a beneficiary entitled to the asset under their Will — which has been sold by an administrator or attorney — would be entitled to receive the proceeds of the sale of that asset sold on behalf of the Will maker.

These are commonly known as the 'anti-ademption' provisions of the relevant legislation.

Consider a Will maker whose attorney or administrator is required to sell their former home to fund a refundable accommodation deposit for residential aged care. A beneficiary entitled to that home under the Will will be entitled to 'trace' the proceeds of sale through the refundable accommodation deposit.

If, however, these exceptions cause an unjust advantage or disadvantage to any beneficiary, the Court has the power to decide on remedying that advantage.³

It is worth noting that the attorney or administrator is not under an obligation to quarantine the proceeds of sale. If the proceeds are not clearly identifiable, this could be a tricky mathematical exercise for the estate distribution.

There are other exceptions to ademption, albeit not enshrined in statute. These include situations where:

1. A specific gift changes but remains substantially the same. For example, an investment bank account being changed to a term deposit account.
2. Specific gifts are replaced, with the intention that the replacement asset will be gifted. For example, a Will maker sells a specific car and intends for the new car to be gifted in its place.
3. Specific gifts are lost, destroyed or disposed of (not intentionally by the Will maker). For example, where a specific painting is destroyed through a fire or other natural disaster, a beneficiary may take insurance claim proceeds for the item as a traceable substitute.
4. Part of a specific gift fails. For example, where all shares are left to a beneficiary but some of those shares are sold, the gift of the remaining shares will not fail.

The Court's view

When tasked with considering whether ademption has occurred, the Court must consider the type of gift being made.

In Simpson v Cunning⁴, the Court considered whether a specific gift of property had been adeemed when real estate had been sold by the Will maker's attorney after the Will maker had lost capacity. In that instance, the Court held that ademption may be avoided:

1. Where the sale was a voluntary act by a testator;
2. Where the testator lacked capacity at the time;
3. The proceeds of the sale were identifiable; and
4. The Court was satisfied that the testator would have intended for a beneficiary to receive those proceeds.

This decision is now reflected in the 'anti-ademption' provisions in the Powers of Attorney Act 2014 (Vic).

More recently in Re Moran⁵, the Court was tasked with considering whether a gift of 'the real estate owned by me' as stated in a Will was a specific gift or a general gift. In that instance, the Court found that on its proper construction the gift made was 'generic in the relevant sense, as it carries any and all real estate owned by the deceased upon his death'. As such, the gift was not adeemed.

Whilst the Court does have the power to consider ademption issues, it goes without saying that this exercise could be costly to the Will maker's estate.

Key takeaway

A gift that originally seemed clear to the Will maker at the time of executing their Will could fail entirely without proper consideration, especially in cases where Wills are not reviewed regularly when assets change.

To minimise the risk of potential disputes and other construction issues which may arise as a result of a specific gift failing, a Will maker should:

1. Regularly review their Will and ensure it aligns with their intentions, and refers to current assets;
2. Consider leaving an overall percentage to a beneficiary rather than a specific gift;
3. Consider leaving special conditions in any Power of Attorney document addressing the sale of items which are specifically gifted in a Will — this may include a direction as to which asset should be sold to fund care; and
4. Obtain comprehensive legal advice about their estate planning generally.

For further information and advice, please contact our team on 9646 4477.