The case of Brown v. Labow, 69 Cal. Rptr. 3d 417 (Cal. Ct. App. 2007) (PDF) is an interesting one in that it highlights some of the confusion surrounding the difference between specific and general bequests and the dramatic effect that a few small words can have on what your beneficiaries receive.
In Brown, a father created a revocable grantor trust which made gifts of stock in a closely held corporation to his two sons. Subsequently, the father was declared incompetent and the probate court appointed a professional conservator who was then appointed as the successor trustee of dad’s trust.
The successor trustee sold the assets of the corporation but the court held that the gift of the stock was not adeemed by the sale because there was no evidence that the settlor intended an ademption in these circumstances[.]
On the surface this result seems odd given the definition of Ademption.
Ademption is a term that applies when property bequeathed under a will is no longer in the decedent’s estate when the testator dies… You can’t give away what you don’t own right? (Be careful to distinguish Ademption from Lapse, which is different even if only marginally so).
Well, for devises of specific items of property, called specific gifts, the property is adeemed, and the gift fails. If, for example, the will bequeathed the testator’s car to a specific person, but the testator did not own the car at the time of his death, the gift would be adeemed and the beneficiary would receive nothing. Seems simple enough. However, a general devise or general gift – gifts of cash amounts – are never adeemed. If there is not enough cash in the testator’s estate to satisfy the gift, then other assets in the residuary estate are sold to raise the necessary cash.
Some property lies in a gray area, and this is where the Brown case lies. In such cases the testator’s intent must be determined before one can determine whether any property should pass to the subject beneficiary/beneficiaries. For example, where the testator bequeathes “500 shares of stock” in a company, this may be read as a general devise (that the estate should convey the stocks to the beneficiary), or it may be read as a specific devise, particularly if the testator used a possessive (“my 500 shares”). Such a gift is a demonstrative gift. Demonstrative gifts (as I understand them) are usually deemed to be a hybrid of both specific and general gifts. If one were to bequeath “500 shares of stock,” most states would deem that to be a demonstrative gift. The resultant gift to the heir receiving “500 shares,” would be the date of death value of 500 shares of that particular stock but maybe not any specific shares of stock at all. Thus where if the property leaves the estate after the testator has been declared incompetent ademption may be prevented.
I think this is a good decision by a court on a difficult topic… This stuff drove me crazy in law school. This and Lapse vs. Anti-Lapse. ugh.
Thanks again to Professor Beyer for bringing this case to my attention.