In last week’s article we covered how gifts in general can fail. This week we will discuss the final way that a gift in a will can fail. This is a doctrine called ademption.
What is ademption?
Ademption occurs where the subject matter of a specific gift no longer forms part of the testator’s estate at the time of their death and therefore the gift fails.
Ademption can only occur with specific gifts as these are gifts of identifiable part of the testator’s estate. General gifts cannot fail for ademption as the executors should raise such funds to make the gift if the subject matter is not part of the estate. Similarly, demonstrative gifts cannot fail by ademption. If the specified fund does not exist or if there are not enough assets in the fund to make such a gift, the remaining will be treated as a general gift.
A general rule of ademption is that if the subject matter of a gift changes name or form, it does not cause the gift to adeem, however if the substance changes it does. Gifts of shares are useful to illustrate this rule.
A Will includes the following gift.
‘I give my shares in XYZ Ltd’
Between attestation and death, XYZ Ltd changes its name to 123 Ltd and reconstructed how its shares were organised. The gift would take effect as all shares the testator owned in 123 Ltd. Only the name and the form of the subject matter has changed. Its substance is still entirely the same.
Between attestation and death, XYZ Ltd is acquired by ABC Ltd and the testator is issued shares in ABC Ltd as compensation. The gift in the Will would fail. The substance of the gift has completely changed as the Testator now owns shares in an entirely different company.
When it comes to shares in companies, wording referring to another company which represents the same due to amalgamation, takeover or reorganisation will be included to bypass issues with change of substance.
Gifts will often be worded to be less specific, for example a gift may be worded to refer to all moneys from ‘all bank and building society accounts’ at death rather than money from a specific bank account. If a gift is of money from a specific bank account is made and such bank account is closed between attestation and death, there is a risk that the gift could adeem. However, a gift of money from all bank accounts would only fail if there are none at all in the estate at death.
For gifts of main residences, references to future main residences can be included to avoid the gift failing if the clients move. Abatement would only occur if there was no property in the estate which is used as a main residence.
Abatement and attorneys
Property and Financial Affairs Lasting Powers of Attorney can create some conflicts with abatement. There is a risk that an attorney may sell or dispose of property that was the subject matter of a specific gift, causing that gift to adeem when the Testator dies.
There is unfortunately very little that can be done to avoid this scenario. There have been a small number of cases where it has been held that moving money to a separate savings account did not cause the gift of the old savings account to fail, but these cases are limited to their own specific facts and were made after considerable hesitation.
Deputyships do not have a similar problem; the Mental Capacity Act 2005 prevents ademption from occurring where a deputy disposes of the subject matter of a gift.
Simultaneous lapse and ademption
Special rules apply where a Testator dies in a disaster which also destroys the subject-matter of a specific gift. If the death occurred before the destruction, the beneficiary will be entitled to any insurance claim proceeds. If the order is uncertain, it is presumed that the destruction has occurred first and the burden is on the beneficiary to prove that the Testator died before the destruction.
It should be noted that this would not apply if the Testator dies in an accident that also destroys his property, as a gift of property is the property and the land it stands on. Destruction of the building is merely damage of the asset.