Absolute Gifts (NSW)
When a testator prepares their will, they may choose to leave specific gifts for individuals. This could be something with sentimental value, such as leaving a family heirloom to a relative, or something practical, such as leaving a motor vehicle to a friend without a car. An absolute gift is bequeathed outright to the chosen beneficiary and the recipient can then do whatever they wish with the asset. By contrast, a testator has a great deal more control over how a recipient uses a gift left in trust.
What Is An Absolute Gift?
An absolute gift is the most straightforward type of testamentary bequest. When this type of gift is included in a will, the executor is able to simply transfer the property from the deceased estate to the beneficiary without imposing any conditions. This type of bequest is suitable when the testator has no particular preference for how the gift is used after their death and the beneficiary is a capable and responsible adult who can manage their own financial affairs.
Advantages To Absolute Gifts
There are distinct advantages to making absolute gifts in a will. An absolute gift is a staple of a simple will, which is easy and inexpensive to prepare. The wording of an absolute gift is easy to understand (for instance, “I give to my niece Alice my jade and gold ring…”), and a testator can feel assured that the executor can pass the gift to the intended recipient with little effort or expense to the estate.
When Should A Testator Not Give An Absolute Gift?
There are instances when an absolute gift is not the right approach. There is no asset protection in an absolute gift and the value of the gift may be a liability in a family court proceeding or during bankruptcy. Depending on the value of the bequest, an absolute gift may not be the most suitable form of bequest for children or vulnerable people who cannot manage their own financial affairs. For instance, an absolute gift of a piece of costume jewellery may be entirely suitable for a young child, but leaving an absolute gift of real estate to a child may result in the child’s parents having to assume responsibility for property maintenance costs and other unintended consequences.
An alternative to an absolute gift is a testamentary trust that is administered by a trustee, separating the ownership of the gift from the right to benefit. An example of this in practice is a testamentary trust where a trustee retains legal ownership of a piece of real estate, while the beneficiary receives the benefit of either living in the property or perhaps receiving the income generated by rental income. In this scenario, the testamentary trust would give the testator the comfort of a measure of control in the lives of their vulnerable loved ones.
Another alternative to an absolute gift is to give a “life interest” or “right to occupy” a property. This is often a good solution for a testator who has competing interests, such as a person who has remarried and has children from a previous relationship. The testator can give their new spouse a life interest in their assets, but make provision that their children will receive these assets on the eventual death of their spouse.
When a testator leaves a life interest in their will, the asset is held in trust for the person’s benefit for their lifetime. The life tenant receives any income that the asset generates during their lifetime. Upon the death of the tenant, the asset is transferred to the residual beneficiary nominated in the original will. A right to occupy, on the other hand, allows the specified person to live in the home subject to conditions: for instance, the beneficiary cannot rent to someone else or receive income from the property. Upon the death of the occupant, the property is transferred to the beneficiary appointed in the will.
The recent case of Marlow v Croft  demonstrates the importance of carefully specifying the type of gift in a will. The testator had children from a previous marriage and owned the marital home in his sole name. The testator used a kit to create his will, leaving the residue of his deceased estate to his widow. The will also specified that the widow could “stay” at the family home and that it was not to be sold until her death. It was unclear from this provision whether the testator intended to leave the family home as an absolute gift or merely a life interest.
After the testator’s death, his widow moved out of the home to live interstate with a relative and the house was put up for sale. The Supreme Court was then tasked with deciding what should happen to the proceeds of the sale, given that if the provision was merely a life interest, the wife would not be entitled to the proceeds of sale. The court determined that as there was no direction as to what should happen to the house after his wife’s death, the provision was not a life interest. The wife, as residual legatee, was the owner of the home. In light of this conclusion, the court found that despite the ambiguous language used in the will, the testator likely intended to make an absolute gift to his wife.
As this case shows, using the wrong language in a will can lead to confusion and expensive litigation. Leaving absolute gifts in your will can be a straightforward and easy way to bequeath your assets, but it is important that these provisions are drafted properly. The experienced solicitors at Armstrong Legal can advise you on the best approach given your particular circumstances. Please call 1300 038 223 to discuss your testamentary needs, or contact our offices to make an appointment.