What happens when an item gifted under a Will or Trust is no longer owned at the time of death?
Sometimes when estates are being probated or a Trust is being administered, a problem arises because a beneficiary is supposed to receive a specific item of property but the deceased person no longer owns that item at the time of death. A Will or Trust cannot give away what they do not control. Does this situation mean the named beneficiary is out of luck? Well, in some cases, it depends…
Consider an example where David establishes his Will which includes the following provision: “I leave to my nephew my 100 shares of XYZ stock.” At David’s death, the nephew receives the stock if David still owns it. But if the stock has been sold before David’s death, in most instances, the gift will lapse or fail-meaning that the nephew does not receive the stock or anything in its place. In the law, this is known as “ademption” and in some cases it is referred to as “ademption by extinction.” In effect, the gift is extinguished.
Florida recognizes the law of ademption but in some cases applies an exception. If the gifted item is no longer owned but can be traced to an existing asset owned by the deceased person, the existing asset may be substituted in place of the missing item. However, this only applies if the evidence reflects that the person did not intend by his disposal of the item to alter the intended gift described in his Will or Trust.
So, by example, consider if David’s Will contained a provision as follows: “I leave to my niece, Mary, my Savings Account ending in -2233 at Acme Bank.” If, at the time of David’s death, he no longer owned that particular savings account, would Mary get anything? If the savings account was gone but David owned a certificate of deposit (CD) at that same bank and if it can be shown that the savings account monies were deposited into that CD, then an exception could be made so that Mary would get the CD. However, this would only apply so long as there was no evidence suggesting that David intended to delete the gift to Mary. What if David told his banker that he was closing the savings account because he did not want Mary to receive it? Unfortunately, this can become an evidentiary matter and can require a hearing–not always the best of results.
When making specific gifts in a Will or Trust, you should consider the possible ramifications if the gifted item is no longer owned by you at the time of your death. Often, it may make more sense to leave a percentage or a dollar amount of your estate rather than a specific asset or property. That way, you do not have to worry if you’ve gotten rid of the property. An experienced estate planning attorney can advise you on these decisions.