Grandpa told Sally he was going to leave her $40,000 for college in his will. Now Grandpa has passed away, and the executor tells Sally she doesn’t get the $40,000 that she was expecting. What happened?
The chances are that Sally's $40,000 bequest was attacked, not by the killer bees, but by the killer "A’s”…
Age may be a barrier to taking the principal of a bequest if the beneficiary is not sui juris. “Sui juris" is a Latin phrase that is used for clarity of the legal meaning. Sui juris means, “in their right,” and it refers to beneficiaries who enjoy full rights under the law and do not share them with a guardian. Beneficiaries who have not attained the age of majority (age 18 in Pennsylvania) are not sui juris; they cannot make contracts or transfer land. If Sally is under age 18, she won’t receive the $40,000. It may be paid to a court-appointed guardian for her. Perhaps the will authorizes payment of the $40,000 to a custodian for Sally under the Uniform Transfer to Minors Act. Also, adults who are incompetent are not sui juris. Again, a guardian may be required to receive a bequest directed to an incompetent beneficiary.
The word "adeem" means to take away. A legacy in a will is adeemed if the property that is the subject of the legacy no longer exists. Let’s suppose Grandpa left Sally his IBM stock in his will. At the time he made the will, the IBM stock was worth $40,000. After he signed the will, Grandpa sold the stock to pay for medical bills. Then he passed away, not having changed his will. What happens? It depends.
If the bequest of IBM stock was a specific bequest, which means that Grandpa’s will specified, "I leave my shares of IBM stock to Sally," then Sally gets nothing. Grandpa, by selling the stock, is adeeming the bequest to Sally.
On the other hand, if Grandpa’s will simply says, “I give $40,000 worth of IBM stock to Sally,” this is considered a general legacy, not a specific one. His intention is that the executor buys the stock if it is not owned at his death. Sally is entitled to receive either IBM stock purchased by the executor or its equivalent value in cash.
What is the difference? A specific legacy or bequest includes words of ownership or identification. A bequest of “my IBM stock” refers to specific shares. A bequest of “IBM stock” does not. Much turns on the little word "my." If Grandpa had made a specific bequest of the stock, then Sally gets nothing. If he had made a general legacy of it, then Sally gets the $40,000.
What if Grandpa became incompetent before he died, and his attorney-in-fact, acting under a power of attorney, sold the IBM stock? Then, Sally is entitled to receive the equivalent value from the estate; the legacy is not adeemed even if it was a specific bequest.
These rules and interpretations are very difficult and confusing. For obvious reasons, they often result in litigation. It's hard for Sally to understand that the difference between her getting $40,000 and getting zero may be the word “my” in Grandpa’s will. For this reason, it is a bad idea to leave specific stocks, bonds or bank accounts to a beneficiary. It is recommended that you leave your beneficiaries either dollar amounts or fractions or percentages of your total estate. Cash is never adeemed since it is just part of the cash holding of a person, and one $50,000 chunk of it cannot be distinguished from another $50,000 chunk.
Abatement is the reduction or elimination of bequests to pay debts, expense of administration and taxes. Payment of the decedent’s debts, the expenses of administration of the estate, and taxes of all types are required to be paid before any beneficiaries receive assets from the estate. Usually, a will specifies which fund or funds bear the burden of these payments. If the will does not provide, state law determines where the payments come from. Usually, all of these costs are paid from the residue of the estate, which is often the biggest portion of the estate's assets. If the residue is insufficient, specific bequests of money or property to beneficiaries abate – they are reduced by the payment of expenses and taxes.
Let’s assume Grandpa left $40,000 to Sally and the residue of his estate to George. His total estate was $100,000, but he and his estate owed debts and taxes amounting to $80,000. Before the executor pays the debts and taxes, it looks as if Sally gets $40,000, and George gets the $60,000 residue. The executor first uses the residue to pay the debts and taxes. The entire $60,000 that would have gone to George is taken for these payments; the entire bequest of the residue to George is abated. Then, there is still $20,000 worth of debts and taxes due. It comes out of Sally’s $40,000 bequest. Her bequest is abated to the extent of $20,000, and she still receives the remaining $20,000.
Advancements are like an advance on your salary. If a parent has given $10,000 to one child and not to others, the $10,000 is assumed to be an “advance” on the child’s intestate share of the estate only if it is declared to be an advancement in writing. Where there is a will, a similar analysis applies. If Grandpa leaves a $40,000 bequest to Sally and, before he dies he gives her $30,000 for college tuition, she may only receive $10,000 under the will. The $30,000 is treated as an advance if it can be shown that this was Grandpa’s intention. The bequest is considered “partially satisfied” by the lifetime gift.
If someone says they will leave you $40,000 and give you $30,000 as an advance on that gift, then only $10,000 is left of the original pledge. If Grandpa states in his will that the gift was or was not an advancement, then his word is what governs. If he is silent on such gifts, then another beneficiary may know about the gift and petition the court to consider the lifetime gift as an advancement or partial satisfaction of the bequest. Whether or not the $40,000 bequest is reduced will depend on what can be proven to be Grandpa’s intention.
So, here's a word to the wise. Wait until that inheritance check is in your hands before going on a shopping spree or taking that dream vacation.