What Is A Gift Over? (Vic)
When a testator creates a will, they nominate beneficiaries to inherit the assets of their deceased estate. A problem arises, however, if a named beneficiary predeceases the testator. The legal solution to this problem is for a testator to make a gift over in their will, naming a substitute beneficiary just in case the original beneficiary cannot inherit. There are often special conditions or contingencies attached to these bequests that a beneficiary must fulfil before they can inherit or so they can retain their inheritance. This article explains the role of a gift over in estate planning, with an illustration of the necessity to nominate a substitute beneficiary to avoid protracted litigation.
What Is A Gift Over?
A gift over can be any type of asset bequeathed in a will, including a legacy, real property, shares or even the entire residual estate. The term refers to the process of allowing a substitute beneficiary to “take over” the gift from the original beneficiary. This means that the substitute beneficiary is effectively a second recipient in the event that the primary beneficiary dies. A substitute beneficiary may be one individual or a category of people, such as the deceased’s children or grandchild.
The substitute beneficiary inherits if the primary beneficiary died before the testator or before attaining a vested interest. The Wills Act 1997 states that a beneficiary must survive for 30 days after the death of a deceased in order to be eligible to receive their gift. In the event that the beneficiary dies within that time, it is as if the beneficiary died before the deceased.
For instance, a common scenario is when a testator leaves their estate to their spouse with the proviso that the spouse must survive the testator for 30 days, otherwise any children inherit the estate. This is an example of a gift over. A gift over can also be used to accommodate the unlikely scenario that a testator’s children die within 30 days of them. As unlikely as it may seem that a child will not outlive their parent, it is important that a testator consider every eventuality, even tragic outcomes. In this situation, the testator can leave the estate to their spouse or surviving children, with a gift over to grandchildren conditional on them attaining a specified age.
When a gift over depends on a contingency, the gift will usually not take effect until the conditions are met. These contingencies are divided into conditions precedent (where an event must occur before the beneficiary can inherit) and conditions subsequent (where a beneficiary loses their bequest if an event occurs). These conditions might include a beneficiary reaching a certain age, someone behaving or not behaving in a certain way or certain achievements. For instance, it can be a condition precedent of inheritance that someone complete a certain course of study or a condition subsequent that they not be convicted of a felony. It is essential that these conditions are not impossible, contrary to public policy or to the rule of law.
Benefits Of Making A Gift Over
There are clear advantages to making provision for a gift over in a will. Naming a substitute beneficiary ensures that all of the property of a deceased estate is disposed of according to the wishes of the testator. If a beneficiary is not able to inherit, then the estate is partially intestate and the specific asset/s are subject to intestate succession provisions in the Administration and Probate Act 1958. In most cases, this means that the spouse of the deceased will inherit, a result that may be contrary to the wishes of the deceased.
In Re McHenry; Thompson v Attorney-General , the deceased left 90% of his estate to an organ donation organisation, with no gift over for a substitute beneficiary. The difficulty with administering this bequest was that the organisation had merged with another company and was subsequently operating under another name. The legal question was whether the renamed entity was able to inherit the gift, or whether it lapsed. The court noted that if the organisation had ceased operating, then there would be no choice but to let the gift lapse and have it pass to the residual beneficiary in accordance with the Wills Act 1997. In the end, the court found that as the donation service still operated, albeit under a different name, the gift had not lapsed. Importantly, the recipient organisation acted for the same charitable purposes that the testator intended to benefit.
The solicitors at Armstrong Legal can explain the benefits of including a gift over in your will for a substitute beneficiary. Alternatively, if you need to dispute an unfair condition of a gift over, our contested wills team can represent your interests in court. Please call 1300 038 223 or contact our offices to talk about your legal needs.