What follows is a revised edition of this morning’s blog which inadvertently created confusion between the principles of Abatement and Ademption. I apologise for any confusion caused by the initial version.
On Monday, I blogged on the payment of debts of an estate and the steps that an estate trustee ought to take to protect him or herself from any personal liability. Today’s blog is a sequel of sorts (it would have been posted yesterday but a Groundhog Day tie-in was too good to resist).
The issue today is Ademption and Abatement, words that will only be found in a law dictionary. Ademption occurs when a specific gift of personal or real property in a Will is no longer in existence at the date of death, in which case the gift fails. If specific legacies of cash can be partially satisfied (as detailed below) from the funds remaining in the estate after payment of debts, then there is an Abatement of such legacies.
For greater clarity, where there are debts to be paid, the residuary beneficiaries take the hit first. If the debts can be paid and still leave something in the residue, than the specific cash legacies can be paid in full. However, when the residue is exhausted by the payment of debts, and there is a shortfall between the amount remaining and the amount required to fully fund the specific cash legacies, the principle of abatement dictates that these legacies are reduced on a pro rata basis.
The situation gets considerably more complicated if an executor is faced with a cash poor estate and a Will that contains combinations of cash legacies, gifts of real estate, gifts of personal property, and gifts of personal bank accounts (sometimes called general or demonstrative legacies). In such a case, good legal advice is critical.
David M. Smith
David M. Smith – Click here for more information on David Smith.