Gifts Under Wills

1. Gifts Under Wills

2. Legacies, bequests and devises • There are three main types of gift under a will. • Legacies and bequests are gifts of personal property and devises are gifts of real property. • Legacies can be general, specific (bequests), demonstrative or residuary. • Residuary legacies are the gift of the residue of the testator’s estate.

3. General Legacies • A general legacy is a gift off personal property from the testator’s estate but no particular part of the estate is marked as being intended to satisfy the legacy. • The most common example is a gift of money (pecuniary legacy). • A gift of a particular piece of property can in some cases be a general legacy, in which case the executors may have to buy property of that description if the testator did not own it at the time of death.

4. Specific Legacies • Specific Legacies or bequests are gifts of an identified piece of the testator's personal estate. • The property must be identifiable so that it can separated from the general. • Can include money in a specified bank account (which can also be passed on through nominating the account with the bank).

5. Demonstrative legacies • Demonstrative legacies are general gifts of a set amount which the testator indicates should be paid from a certain source. • This includes set amounts to be obtained from the sale of particular assets. • If the fund is not large enough then the balance is to be paid out of the general estate. • However if it appears that the testator intended the fund to be the only source of the legacy then any shortfall will not be made up out of the general estate.

6. Legacies examples • “the sum of $20,000 to my wife” – a general legacy. • “the sum of $20,000 on fixed deposit in my account at the ANZ bank to my wife” – a specific legacy. • “the sum of $20,000, to be paid out of the moneys in my account at the ANZ bank” – a demonstrative legacy.

7. Abatement • If the total assets in the estate after the payment of debts and expenses (which must be paid first) are insufficient to pay all the gifts in the will then the gifts will abate. • The class of legacy is important because it determines in which order the various gifts will abate. • Gifts in the same class abate rateably (ie in the same proportion as all gifts in that class)

8. Order of abatement • Residuary Legacies • General Legacies • Specific Legacies • Demonstrative legacies are treated as specific legacies in so far as the specific sum exists. The remainder abates with the general legacies.

9. Abatement example • A makes the following gift in his will: • “200,000 to my daughter B, to be paid out of the moneys in my BNZ account” • “$500,000 to my wife C” • “the residue of my estate to my son D.” • A’s assets upon his death (after paying all debts) were: • A house worth $200,000 • $100,000 in the BNZ account • Other assets worth $200,000.

10. Abatement Example • The proceeds form the sale of the house are added to the other assets, making a total pool of $400,000. • There will be no residue so the son’s residuary legacy abates entirely. • The demonstrative legacy to the daughter means that the $100,000 in the account will go to her. This leaves $400,000 to pay the remaining legacies totaling $600,000. • This shortfall of one third means the gifts to the wife and the remaining $100,000 are both reduced by one third.

11. Abatement Example – final result • The daughter B receives $100,000 in the account plus two-thirds of the remainder of $100,000, a total of $166,666.66. • The wife C receives two-thirds of $500,000, a total of $333,333.33. • The son D receives nothing (but could bring a Family Protection Act claim).

12. Devises • Gifts of land are called devises. • A general devise is a gift of all the land owned by the testator. • A specific devise is a gift of a specific piece of land • A residuary devise is a gift of all the land not otherwise disposed of by specific devises.

13. Ademption • If the testator does not own the property referred to in a specific legacy or devise then the specific gift will adeem. • The beneficiary of the adeemed gift is not entitled to any substitution for the ‘missing’ property. • Care should be taken when drafting the will to try and minimise the possibility of this occurring. One solution is to refer to the testator’s principal residential property rather than a named piece of land when drafting specific devises.

14. Lapse • If the beneficiary dies before the testator the gift may lapse. Normally the heirs of the beneficiary receive nothing. • However gifts to the testator’s children receive special protection, so that the grandchildren may take their parent’s share. • If the gift is to several people in succession (such as to a life tenant and a remainderman) then the death of an earlier person in the chain does not mean the later members’ gifts lapse.

15. Conditional Gifts • There are two types of conditional gifts: • Conditions Precedent – where the gift does not occur until the condition is met (eg. “to B on her becoming married”) • Conditions Subsequent – where the interest gifted comes to an end if the condition is not fulfilled (eg. “to B as long as she does not remarry”). • If the condition is not fulfilled then the gift falls into the residue.

16. Disclaimer • It is open for the beneficiary to refuse to accept the gift. • When a gift is disclaimed it falls into the residue (or the pool to pay general legacies if these have abated). • Examples may be leasehold property on unattractive terms or company shares that have a liability for calls still outstanding.

17. Gifts subject to a charge • Since 1 February 2002: • Charges existing at the date of death pass with the property, so beneficiaries take the property subject to the charge. • However any charge over personal chattels passed to the surviving spouse can be paid out of the estate.

18. Personal chattels • ``Personal chattels'', in relation to any person who has died, means all vehicles, boats, and aircraft and their accessories, garden effects, horses, stable furniture and effects, domestic animals, plate, plated articles, linen, china, glass, books, pictures, prints, furniture, jewellery, articles of household or personal use or ornament, musical and scientific instruments and apparatus, wines, liquors, and consumable stores,

19. which immediately before his death were owned by him or in which immediately before his death he had an interest as [debtor under a security interest as defined in the Personal Property Securities Act 1999], or as purchaser under a hire purchase agreement within the meaning of the [Hire Purchase Act 1971, or under an agreement that would have been such a hire purchase agreement had it been made at retail]; but does not include any chattels used exclusively or principally at the death of [the deceased] for business purposes or money or securities for money:

20. Section 34 34. Charges on property of deceased to be paid primarily out of the property charged— (1) Where a person dies possessed of, or entitled to, or under a general power of appointment by his will disposes of, an interest in property, or where an interest in property passes by survivorship on the death of a person, and at the time of his death the interest is charged with the payment of money, whether by way of mortgage, charge, or otherwise, and the deceased has not by will, deed, or other document signified a contrary or other intention, the interest so charged shall, as between the different persons claiming through the deceased, be primarily liable for payment of all amounts charged thereon; and every part of the said interest, according to its value, shall bear a proportionate part of the amounts charged on the whole thereof: .

21. [(1A) However, subsection (1) does not apply to an interest in any personal chattels if a person dies possessed of or entitled to the interest and it passes under the will or on the intestacy of the person to the person's husband or wife, or to a surviving de facto partner of the person.]

22. (2) Such a contrary or other intention shall not be deemed to be signified— (a) By a general direction for payment of debts or of all the debts of the testator out of his personal estate, or his residuary real and personal estate, or his residuary real estate, or his residuary personal estate; or (b) By a charge of debts upon any such estate— unless that intention is further signified by words expressly or by necessary implication referring to all or some part of the charge on the interest in property.

23. (3) Nothing in this section shall affect the right of a person entitled to the payment with which the interest in property is charged to obtain payment or satisfaction thereof out of the other assets of the estate or otherwise.

24. Timing of gifts • The executor has a year form the time of the testator’s death to organise the estate. • If the gifts remain unpaid after the year is up then the beneficiaries are entitled to interest from that point on. • The will may provide that interest is payable from the time of the testator's death.

25. Per Capita and Per Stirpes • Per Capita divisions are simple divisions by head count. Each of the beneficiaries receives an equal share in the gift. • Per Stirpes divisions divide the gift by family and share it equally between the member of each family. • So for example if the testator had two children, A & Z, and A had one child B while Z had 4, V,W,X and Y then under a per stripes division B would receive four times what each of B’s children would get whereas under a per capita division each grandchild would share equally.

26. Satisfaction by Advancement • Gifts during the testator’s lifetime to a particular beneficiary are presumed as being an advancement of that beneficiary’s share in the estate. • If this has occurred, the gift is taken into account and that beneficiary’s is reduced. • This process is called Hotchpot. • If the gift occurred before the will was written it will be presumed that the testator did not intend the beneficiary to be disadvantaged.

27. Hotchpot example • A in her will leaves $500,000 to X, Y and Z to share equally. • After the will was signed A gave $100,000 to X. • On A’s death the $100,000 is brought into Hotchpot and the total pool is notionally set at $600,000 with each child to receive $200,000. As X has already received $100,000 she will only receive another $100,000 with Y and Z receiving $200,000 each.

28. Donatio Mortis Causa • Conditional gifts of personal property made in contemplation of death. • Three requirements: • The gift was made when the donor was in contemplation of death; • There must have been actual or constructive delivery of the property gifted; • The gift must be made under circumstances showing that it is to take effect only if the donor in fact dies thereafter.