Last week, Jason Allan blogged on the principle of ademption. I thought I’d take the opportunity blog on the similar, but distinct, principle of abatement.
Whereas ademption refers property devised in a Will ceasing to exist at the date of death, abatement refers to the reduction of legacies that occurs when, after payment of debts, there are insufficient assets in the Deceased’s estate to satisfy all of the gifts provided for in the Will in full. As a result, absent a contrary intention in the Will, the beneficiaries will receive their bequests at a reduced amount, if at all.
The type of legacy provided for in the Will determines the order in which the gifts will abate. The order of abatement is as follows:
- First, residuary personalty;
- Second, residuary real property;
- Third, general legacies, which include pecuniary bequests from the residue;
- Fourth, demonstrative legacies, which are bequests from the proceeds of a specific asset or fund, such as a bank account, which does not form part of the residue;
- Fifth, specific bequests of personalty; and
- Sixth, specific devises of real property.
The assets at each level will abate rateably until they have been exhausted, at which point the assets at the next level will start to abate.
Keep this in mind when planning your clients’ estates. I recently had a case where the assets in the estate were a home and some bank accounts. Because of debts, the cash assets ended up being exhausted. At the end of the day, one beneficiary walked off with a $250,000.00 home. The others got nothing. One wonders if this is what the testator had intended.
Have a great day!
Sometimes an estate trustee may get more than she bargained for.
A case in point may arise when an estate has entitlement to various pieces of artwork in an assortment of jurisdictions. How does the estate trustee locate the artwork? What constitute sufficient efforts to locate such assets? How is it valued?
All of these questions raise significant issues for the estate trustee. The advent of the internet has provided new tools to anyone making a global search for artwork. The Lost Art Internet Database is such an example. This website is a project of the German government’s central office for the recovery of lost art. Not surprisingly, a large share of such art was seized from Jewish owners by the Nazis.
In all likelihood, the estate trustee of the estate of the late Max Stern has had recourse to this website in an effort to locate lost assets to which the estate is entitled. As recently reported in the Toronto Star, the late Max Stern was the owner of an art gallery in Germany from 1913 until 1934 when he was forced to sell his holdings by the Third Reich. He escaped to Montreal in 1937 where he set up an art gallery. Upon his death in 1987, Stern named Concordia University, McGill University, and the Hebrew University of Jerusalem as the beneficiaries of his estate. The estate trustee, operating as the Max Stern Art Restitution Project, has since located many pieces originally stolen from Stern’s German gallery.
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During Hull on Estate and Succession Planning Podcast #49, Suzana Popovic-Montag and Jordan Atin discuss considerations and techniques to ensure the proper use of inheritances. Some of these techniques include staggered inheritances, incentive trusts and charitable foundations.
Joint accounts are a common tool in estate planning. Where accounts are held by two individuals jointly, both hold an equal and undivided share. When one dies, their interest terminates, and the surviving joint owner is left with the entire account. This results in numerous benefits from an estate planning perspective. However, it often also results in numerous lawsuits. The latest issue of Law Times includes an article which considers the controversial subject of joint accounts.
In “Awaiting Certainty on Jointly Held Assets,” Christopher Guly considers the debate over how to adjudicate challenges to jointly held accounts. He examines two decisions of the Ontario Court of Appeal, Saylor v. Brooks and Pecore v. Pecore. Both were recently heard by the Supreme Court of Canada.
The facts in Saylor and Pecore are somewhat similar in that both involve challenges brought by beneficiaries to accounts that were jointly held between a Deceased and his daughter. In both cases, the beneficiaries argued that the Deceased did not intend for the surviving daughter to acquire the entire account and that the funds should be returned to the Deceased’s estate.
In considering the beneficiaries’ claims, the Court diverged from the historic reliance on presumptions. In the past, a transfer of money or property between strangers was presumed to be a loan, while a transfer between a father and his wife and/or children was a presumed gift. Of course, the presumptions only operated as starting points and were rebuttable.
In Saylor and Pecore, the Court ruled that it must first consider the totality of the evidence and determine the intention of the Deceased at the time the joint account was created. Only if intention cannot be clearly determined will the Court then turn to the presumptions.
Sounds simple? Well, as Guly points out by reference to discussions with practitioners, including Ian Hull, the decisions raise numerous concerns. Namely, what evidence do you use to prove intention? What if you do not have available evidence? How much evidence is necessary to avoid the presumption?
I will be interested in reading the Supreme Court’s answers to these difficult questions.
For more background information on legal issues surrounding joint accounts, check out Ian and Suzana’s previous blogs found in the "Joint Accounts" category on the blogpage.
Thanks for reading.
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During Hull on Estates Episode #24, we discussed the issue of disclosure of information by trustees to beneficiaries. We referred to the cases:
- O’Rourke v. Derbyshire,  A.C. 581 (H.L.); Re Ballard Estate (1994), 20 O.R. (3d) 350 (O.C.G.D.); Fox v. Fox Estate (1996), 10 E.T.R. (2d) 229 (Ont. C.A.); and
- David Steele’s article, “Beneficiary’s Right to Know”, 4th Annual Estates and Trusts Forum, LSUC.