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Ademption – The Loss of a Gift

What happens when a Will leaves a specific gift to a beneficiary (like a house or car) and the gift no longer exists when the will maker dies?

The law of Ademption applies in cases where a gift to a beneficiary cannot be made as the gift in question no longer exists in the estate of the Deceased as at the time of their death. Ademption is different to the concept of a “Notional Estate”. A Notional Estate applies to assets which, in most cases, are moved into family trusts or self-managed superfunds. Part 3.3 of the Succession Act (NSW) deals with such assets whereby they have been transferred to another person, or trust, without fair payment (or consideration). The section is designed to effectively “look behind” the intention and purpose of such transactions, which may be little more than tax minimisation strategies. Whilst a person, when still alive, may not “own” the asset, it is still, broadly speaking, within that person’s control. Victoria, Western Australia and South Australia do not deal with Notional Estates in their respective contested estate legislation.

Ademption deals with assets that are no longer in the person’s control and have been “legitimately” sold. Whilst a will maker may include their house as a gift to a beneficiary in their Will, the house may need to be sold at a later date for financial reasons prior to the will maker’s passing. For example, where the will maker needs to move into nursing care, the will maker’s house may need to be sold to facilitate funding for the nursing facility. In some cases, it may be necessary for only some of the sale proceeds to be used for this purpose. The balance of the sale proceeds should fall back into the will maker’s estate. The general premise of Ademption, in this case, is if the balance of the proceeds of sale remain in the will maker’s estate soon after their death and can be identified as having been derived from the sale of the will maker’s house, then those funds are to pass to the beneficiary who would have otherwise received the house.

Ademption is a problematic issue for people who are named as a Power of Attorney (“the Attorney”) by an an elderly parent to look after that parent’s legal, financial and health care needs. The term “Attorney”, as used in the various Australian state acts, is another word for “Proxy” and should not be mistaken with the American use of the word to refer to a lawyer. Notwithstanding that an elderly person may require assistance with their financial affairs, this does not mean that they lack mental capacity in relation to making decisions regarding those affairs. In such circumstances, an Attorney may be held to have exercised their power improperly by “forcing” the sale of such property, if they have not taken reasonable steps to ascertain whether the will maker was able to give proper instructions to effect a sale of their home. In this situation, a beneficiary of the will, after the death of the will maker, may have recourse against the Attorney for wrongfully exercising their power and disposing the gift which the will maker would not have otherwise intended. This becomes increasingly problematic where the Attorney was appointed for a specific purpose under the empowering document and not one for which the power was exercised, either wrongfully, unknowingly or unintentionally, as happens from time to time.

In the matter of Simpson v Cunning [2011] VSC 466, the Court formulated a “three limb test” to be applied to an Attorney exercising their power as in the above circumstances. The test requires an Attorney to provide proof of the following:

  • The Deceased lacked testamentary capacity at the time of the sale;
  • The Court is satisfied that the Deceased, if possessed of testamentary capacity, would have intended the beneficiary of the asset in the will to have the remaining proceeds of sale;
  • The remaining proceeds of sale can be identified with sufficient certainty.

It is also not uncommon for a will maker to forget to update their Will as time passes, so as to accommodate changes in their personal circumstances. In these cases, bequests of real or personal property which have long since been disposed of by the will maker may still be referred to in the Will, despite the fact that the will maker has legitimately sold those assets. This is a common complaint amongst beneficiaries seeking to be compensated for that loss. However, there is no right of a beneficiary to such compensation where the will maker has disposed of the gift during their lifetime and that the proceeds of such sale cannot be traced. In these circumstances, the Court will uphold the Ademption doctrine and the gift will be deemed to have failed.

Image Credit – Rido ©

Written by Alun Hill on March 2, 2017

Alun Hill is the Division Head of the Contested Estates division of Armstrong Legal. He has worked on a wide range of estate litigation matters including family provision, probate and administration, will validity claims, estate administration disputes, equitable estoppel, superannuation claims and will construction. He has appeared in estate litigation matters in the Supreme Court of New South Wales, the New South Wales Court of Appeal, the Supreme Court of Victoria and the Queensland District Court. In 2018 Alun was named by Doyles as one of the Leading Wills & Estates Litigation Lawyers in NSW. View Alun’s profile

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