25 Oct A Wise Word on Gifts in Wills
For the most part, people make Wills because they want to give someone something on their death, but there are some considerations when deciding who to benefit, and what you intend for them to receive.
During your lifetime, your assets will change as you buy and sell real estate, change vehicles, spend money, get married, get divorced, have children or retire. When you decide that you want to gift a particular item to friend or loved one, you need to consider what happens if that item no longer exists, or if they cannot inherit the gift for whatever reason.
Let’s start with the basics of what is a “gift”.
A gift in a Will can be a Specific Gift such as a property, a piece of jewellery or a car, a Pecuniary Gift which is a defined amount of money, or a Residuary Gift which is the whole or a share of the balance of your estate after any Specific and Pecuniary Gifts (and any taxes or other liabilities) have been paid.
If you leave any sort of gift in your Will, you should discuss the possibility of it failing, so that an appropriate succession plan can be included. So what could happen to a gift for it to fail?
There are many reasons a gift may fail, for example:
- The beneficiary has died before you
- The description of the gift is unclear
- The beneficiary of the gift is unclear
- The Specific Gift is no longer owned by you at the date of your death (also known as Ademption); or
- The beneficiary disclaims their gift.
To avoid a gift failing because the beneficiary has died before you, you can plan for the gift to pass to their children (if any) if they are alive at your death. This is known as “per stirpes” and means “by branch or roots” and allows the gift to pass to the beneficiary’s heirs. If they don’t have children, you will need to specify what happens as doing nothing could mean the gift falls into your residuary estate and is redirected elsewhere.
Failing to correctly identify either a gift or a beneficiary can lead to expensive problems and lengthy delays. For example, if the subject of the gift is unclear, it could mean the beneficiary ends up with nothing. If the beneficiary itself is unclear, it could lead to litigation, and this is particularly important if the beneficiary is a charity. The Australian Charities and Not-for-Profits Commission website contains all the necessary details for registered charities to ensure that they are correctly identified, and you should also consider what would happen if the charity ceased to exist or had changed its charitable purpose.
Things get a little more complicated if you leave a gift, and that gift doesn’t exist at the date of your death. In most circumstances, the gift is likely to fail (known as ademption) but it depends on the particular wording of the gift. You will need to consider what you would want to happen if you no longer owned the item.
There are limited circumstances in which a gift will not fail in these circumstances. One of the most important exceptions is Section 22 of the Power of Attorney Act (2003) NSW. A Power of Attorney allows the Attorney to deal with your legal and financial affairs whilst you are alive. If the Attorney sells an asset which was the subject of a gift in a Will, it is possible that the beneficiary can retain an interest in the proceeds of sale of that asset. The law relating to exceptions to ademption is quite complex and it is best for you to try to avoid having to rely on these as much as possible by careful drafting of your will.
What happens if the beneficiary simply doesn’t want the gift? Every beneficiary is entitled to say “thanks but no thanks” but depending on the type of gift they were left, this could have significant unintended consequences. For example, if Jane Smith was left a Stamp Collection as a Specific Gift, and she chooses to decline it, the Stamp Collection would likely fall into the residuary estate and pass to the residuary beneficiaries. However, if Jane Smith is a residuary beneficiary (being the person who receives either the whole or a share in the balance of your estate), and she says thanks but no thanks, this could cause a partial intestacy, and the law would then decide in what order people would inherit.
It is best for you to obtain experienced legal advice in the structuring and drafting of your will Our Lawyers at Solari & Stock can provide advice and guidance in ensuring your will properly reflects your wishes and that who you intend to benefit from your estate does so with a minimum of fuss.
To request an appointment with one our experienced Wills and Estate Team contact Solari and Stock on 8525 2700 or click here to request an appointment.
Article written by Rebecca Exley.
Photo by Joanna Kosinska on Unsplash