ADEMPTION: CRACKS IN THE IDENTITY THEORY PROVIDE OPPORTUNITIES
By Bruce L. Stout
The rule of ademption has existed for almost as long as there have been wills. The general rule of ademption is that if property constituting a specific bequest or devise is no longer in the decedent's possession at his or death, then neither the asset nor its cash equivalent passes to the beneficiary.
Most jurisdictions follow the identity theory - where the sole issue is whether the asset is in the estate - established in the English case of Asburner v. Macquire, 29 Eng. Rep. 62 (Ch.1786), rather than the intent theory - where the sole issue is the testator's desire.
Many courts and some legislatures, however, have been concerned that a mechanical application of the identity theory is often contrary to the testator's intention. For this reason, courts have begun to create exceptions to the general rule and to reach conclusions consistent with the testator's intention, generally without rejecting the holding of Asburner.
With this basic background on the law of ademption, consider the following example. A client is upset that a testator had bequeathed to him a certain valuable asset that, on the testator's death, could not be found. Counsel for the executor explained to the client that he was not entitled to the monetary equivalent of the asset because of the principle of ademption. The wants to know if there is any way around this apparently unjust result. The starting point in analyzing the client's problem is recognition that certain theories can convince a court that the client should obtain the monetary equivalent of the asset that is no longer present in the testator's estate. Stated simply, under certain circumstances a court can be persuaded to look beyond the identity theory. Counsel should consider the following possibilities:
1. Is the bequest or devise general or demonstrative rather than specific?Conclusion
The principle of ademption does not apply to general or demonstrative legacies and devises (including all residuary bequests and devises), but only to specific legacies and devises. If a gift under a will can be characterized as something other than a specific bequest or devise, the principle of ademption will not apply.
To avoid an ademption, courts often have bent over backwards to label a bequest as general or demonstrative. Although the word "my" as in "my Ford Motor Company stock" or "my gold ring," generally will result in a finding that a certain bequest is specific, courts have deemed many other bequests or legacies that may appear specific as general or demonstrative. For example, a bequest of "100 shares of Ford Motor Company" or "a gold ring" often is found to be a general bequest because the executor can satisfy such legacy from the assets of the estate. The distinction is that the executor cannot buy "my 100 shares of Ford Motor Company stock," but can buy "100 shares of Ford Motor Company stock."
Demonstrative legacies are those payable out of a fund or out of other estate assets if that fund fails. If a $1,000.00 bequest is directed to be paid from a particular account and the account is either not in existence or unable to satisfy the entire legacy at date of death, courts often will label the bequest demonstrative and thereby imply an intent on the part of the testator that, if necessary, the money be paid fully out of the general assets of the estate to satisfy the bequest.
2. Is the change in the asset one of form rather than substance?
Even if the asset clearly has changed from the original state described in the will, courts will allow the asset to pass to the specific legatee if the change has been one of form but not of substance. The classification of a change in a particular asset is not always clear. For example, illustrative changes in "form" only when an ademption has not been found to occur include the specific bequest of notes that have been renewed or extended, items described by location when the location is immaterial, an interest in a company that has changed form (corporation to partnership or proprietorship to corporation), stock in a corporation that experiences a "non-drastic" reorganization, consolidation or name change, two strands of pearls that have been restrung to make one strand and a malpractice action to a wrongful death action.
Examples of a change in substance resulting in an ademption include bank accounts that were invested in bonds, a mink coat made into a mink stole, land transferred for a mortgage note, a Packard automobile exchanged for a Lincoln automobile, a life insurance policy converted to cash and bank accounts turned into certificates of deposit. Numerous examples illustrate that precedent or conflicting precedents do not clarify whether a particular change is one of form rather than of substance.
3. Was the death of the testator immediately before or simultaneous with destruction or loss of bequest?
Some courts have held that a specific bequest of an automobile is not adeemed if the testator dies in the accident in which the automobile is destroyed. See, e.g., In Re MacDonald's Estate, 283 P.2d 271 (Cal. Ct. App. 1955); In Re Buda's Will, 197 N.Y.S.2d 824 (N.Y. Sur. 1960). In these cases, the legatee was entitled to the sum the insurer paid based on the value of the car before the accident. The same principle allowed a devisee to receive the proceeds of fire insurance on a house in which the decedent died. These cases are generally referred to as "common disaster" cases. The Uniform Probate Code provides, and some courts hold, that the beneficiary would recover any proceeds unpaid at the death of the testator on fire or casualty insurance on the property. If the decedent receives the insurance proceeds before death, an ademption generally is found to occur unless the will provides otherwise. Of course, the specific legatee or devisee is left with nothing if an uninsured asset was destroyed before death.
4. Did the testator's guardian conservator or agent sell or transfer the asset?
If the testator became incompetent after execution of the will and a guardian has sold property of the testator that was specifically bequeathed under a will during the testator's incompetency, a question may exist as to whether an ademption has occurred. A strict application of the identity test described earlier would result in an ademption.
The majority rule in these cases is that a sale by a guardian of an incompetent operates as an ademption only to the extent the proceeds of the sale have been expended for the benefit of the testator. Proceeds that are not so expended and are traceable to the property are paid to the specific legatee or devisee. Court opinions on this question vary widely, however. Some courts follow the identity rule without question; others assume that the testator, if competent, would not have intended such a result and therefore no ademption has occurred. See Jeffrey F. Ghent, Annotation, Ademption or Revocation of Specific Devise or Bequest by Guardian, Committee, Conservator or Trustee of Mentally or Physically Incompetent Testator, 84 A.L.R. 4th 462 (1991).
The rule of ademption appears to provide the guardian with an undue amount of power. Under ademption principles, a guardian could simply give preference to one legatee over another in determining which assets of an incompetent testator should be sold. Query whether under an appropriate set of facts a beneficiary of a specific legacy could sue the guardian for intentional interference with his or her inheritance.
5. Did the testator own other property fitting the bequest or devise at the time of his death?
If a testator devises "my home place" and then sells it, an ademption technically occurs under the general principles discussed above. However, if the testator bought another "home place," some courts have been willing to conclude that no ademption occurred because the asset was in existence at the testator's death. The same result has occurred in cases involving diamond brooches and automobiles that were the subject of specific bequests. See, e.g. Estate of Cooper, 237 P.2d 699 (Cal.Ct.App.1951); McIntyre v. Kilbourn 885 S.W.2d 54 (Mo.Ct.App.1994); Waldo v. Hayes, 89 N.Y.S. 69 (N.Y.App.Div.1904).
6. Is the ademption only a pro tanto ademption?
The current rule is that a gift or sale of part of a specific legacy or devise is held a pro tanto ademption and, therefore, the part of the legacy remaining in the testator's estate passes to the specific legatee and not the residuary estate. For example, when a testator sold some, but not all, of the corporate stock, specifically bequeathed, the bequest is adeemed to the extent of the securities sold but remains valid for the securities the testator retained until death. Domzalski v. Domzalski, 5 N.W.2d 672 (Mich.1942); In re Henderson's Estate, 94 N.Y.S.2d 693 (N.Y. Sur.1950).
7. Was the transfer of a specifically bequeathed asset valid?
For an ademption to have occurred , the transfer or conveyance before the death of the testator must have been effective. Any such transfer or conveyance could be invalid for at least four reasons:
- A transfer by an insane person, or by one under the undue influence of another, does not adeem a specific bequest or devise.
- If a contract of sale is unenforcement under the Statute of Frauds, it does not operate as an ademption.
- The person making the sale or transfer must have authority to do so. Thus, for example, if the agent procured by fraud a durable power or attorney, the sale or transfer of the testator's property under that power is not valid and an ademption has not occurred.
- Any gratuitous transfer must comply with all the requisite elements demanded for gifts generally to be effective in this context.
A conveyance that is voidable by the grantor for these or other reasons generally may be voided by a beneficiary and, therefore, an ademption would not result.
8. Does the bequest provide for the assets, or the proceeds therefrom, to be paid to the legatee?
If the testator states he or she gives "my stock or the proceeds" to a particular legatee, then the testator has effectively anticipated and drafted around the principle of ademption, and the beneficiary will receive the proceeds from the bequest. See, e.g. Dean v. Tusculum College, 195 F.2d 796 (D.C. Cir.1952); In re Estate of Thornton, 481 N.W.2d 828 (Mich.Ct.App.1992).
9. Is the document of transfer a will?
The doctrine of ademption is applicable only to property disposed of by will. If property passes by a revocable trust, the doctrine does not apply. This result is important because nonprobate vehicles increasingly serve as will substitutes. By contrast, if a pour-over will contained specific bequests or devises and those assets were transferred later to revocable trust, an ademption would be found to occur because those assets are no longer part of the probate estate.
10. Is the will valid?
A beneficiary frustrated by the principle of ademption may attempt to contest the will if he or she would receive a greater portion of the estate under the applicable law of intestacy. Of course, ademption does not apply to intestacy. Depending on the facts, event the threat of a will contest may result in the beneficiary's receipt of some portion of the cash equivalent of the property he or she would otherwise have received as a specific legatee or devisee.
11. Did sale or transfer of assets occur after the testator's death?
The testator's personal representative, or any other person, cannot work an ademption of the testamentary gift by any act done after the death of the testator.
12. Did the testator live in Wyoming?
Wyoming appears to be the only jurisdiction that does not apply, at least in some form, the principle of ademption. Douglas v. Newell, 719 P.2d 971 (Wyo.1986).
The lawyer must recognize that some of the theories described above may be successful in escaping the grasp of the principle of ademption, but others will not. As with any probate matter, state law always controls.
Ademption of a bequest or devise may create malpractice liability for the testator's counsel. For example in Stangland v. Brock, 747 P.2d 464 (Wash.1987), a devisee brought an action against a lawyer and his firm who had prepared the decedent's will and real estate contract. The devisee argued that the lawyer had an ongoing duty to explain to the testator the effect on his will of proposed sales of property. The devisee believed this was especially the case when the same law firm, but not the same lawyer, prepared the contract selling the real estate in question. The court rejected the devisee's claim over a strong dissenting opinion.
To circumvent both malpractice suits and dissipation of estate assets through legal fees, testators and lawyers should avoid ademption altogether. An ideal approach would be to encourage clients to review their will annually. Aside from tangible personal property, a more realistic approach is for the lawyer to convince the client that specific bequests are not necessary. Simply put, a beneficiary will appreciate a monetary sum or a percentage of the estate just as much as Ford Motor Company stock. Will drafted with that thought in mind will avoid many unintended consequences and minimize the number of disputes concerning the principle of ademption.Probate & Property Magazine is published six times annually and is included in section members' annual dues.