Interpretation of wills and failure of gifts - Ademption and abatement

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Overview

Ademption and abatement are key concepts in interpreting wills and managing estates. These principles dictate the handling of specific gifts and the distribution of assets when an estate's resources fall short. For those studying for the SQE1 FLK2 exam, understanding these concepts is vital. This article delves into ademption and abatement, covering their legal bases, relevant case law, and practical effects in modern estate planning and probate practice.

Ademption: When Gifts Disappear

Ademption occurs when a specific gift mentioned in a will is no longer part of the testator's estate at their death. This principle is rooted in common law, shaped by numerous judicial decisions.

Legal Foundations of Ademption

The doctrine of ademption stems from the idea that a testator can only bequeath property they own at death. This was established in Ashburner v MacGuire (1786) 2 Bro CC 108, where the court determined its role is to assess whether the gift still exists in the estate at the testator's death, rather than considering their intentions.

Key points about ademption include:

  1. Specificity of the gift: Ademption usually affects specific, not general, legacies.
  2. Timing: The existence of the gifted property is assessed at the testator's death.
  3. Intentions: The testator's intentions are generally not considered in ademption.

Types of Ademption

Ademption can occur in several situations:

  1. Sale or disposal: When the testator sells or disposes of the gift during their lifetime.
  2. Destruction: If the property is destroyed or no longer exists.
  3. Substantial change: When changes render the property unidentifiable as the gift.

Case Law Illustrations

Several cases highlight the application of ademption:

  1. Re Sloan [1908] 1 Ch. 815: Established that ademption can occur even if the testator becomes incapacitated and the property is sold by their attorney.

  2. Agar v Holme (1828) 1 Russ & M 581: Ruled that if a specific legacy of stock is adeemed by sale, the legatee receives no substitute or proceeds.

  3. Re Brannan [1948] 1 All ER 318: Demonstrated partial ademption, where a specific sum left in an account is only partially available at death.

Exceptions to Ademption

Exceptions to strict ademption include:

  1. Mental Capacity Act 2005: Section 67 states ademption doesn't occur if property is sold by a deputy under court orders or lasting power of attorney, unless otherwise ordered.

  2. Wills Act 1837, Section 24: Prevents ademption if the testator has a general power of appointment exercised by will.

  3. Contractual obligations: If a binding contract to sell property exists, but the sale completes after death, the gift is not adeemed, and proceeds go to the beneficiary.

Abatement: Sharing the Burden

Abatement reduces legacies when the estate's assets can't meet all gifts after paying debts. This ensures fair distribution among beneficiaries.

Legal Framework of Abatement

Abatement rules are mainly judge-made, though the Administration of Estates Act 1925 outlines the order for settling debts, leaving detailed abatement rules to be developed by case law.

Order of Abatement

Legacies typically abate in this order:

  1. Residuary legacies: Reduced first, shared among residuary beneficiaries.
  2. General legacies: Reduced next if residuary ones aren't enough.
  3. Demonstrative legacies: These monetary gifts, linked to a specific fund, abate after general legacies.
  4. Specific legacies: Abate last, shared among themselves.

Case Law on Abatement

Notable cases shaping abatement include:

  1. Re Bacon [1907] 1 Ch 475: Established that pecuniary legacies, without contrary will intention, abate proportionately.

  2. Re Blundell [1906] 1 Ch 116: Stated that residue gifts aren't general legacies and abate first.

  3. Re Blackman [1938] Ch 916: Showed some legacies won't abate if the will specifies they must be paid in full first.

Practical Aspects of Abatement

Executors and administrators must consider these factors:

  1. Valuation: Accurate estate valuation is necessary to determine if abatement is needed.
  2. Legacy types: Correctly classifying legacies ensures proper abatement order.
  3. Proportional reduction: Careful calculation is needed for each legacy's reduction when abatement applies.

Drafting Tips to Manage Ademption and Abatement

Effective drafting helps mitigate ademption and abatement risks:

  1. Substitution clauses: Provide alternatives for potential adeemed gifts. E.g., "I give my painting by Picasso to my niece Jane, but if I no longer own this, I give her £50,000."

  2. Abatement preference clauses: Specify legacy abatement order. E.g., "My sister Sarah's legacy is paid in full before others and doesn't abate rateably."

  3. Residuary planning: Structure the residuary estate to minimize abatement impact.

  4. Regular reviews: Encourage testators to update wills to reflect asset and intention changes.

  5. Clear asset identification: Use precise language for specific gifts, including alternatives, to prevent ademption.

Analyzing a Scenario

To explore ademption and abatement in practice, consider:

Testator T's will includes:

  • A specific legacy of her house to her son S
  • £100,000 to her daughter D
  • £50,000 to her friend F
  • Residue equally to S and D

Upon T's death, the estate includes:

  • The house, valued at £300,000
  • Bank accounts of £80,000
  • Debts of £40,000

Analysis:

  1. The house goes to S intact.
  2. After debts, £40,000 remains for pecuniary legacies.
  3. D's legacy reduces to £26,667 (£40,000 × 100,000 / 150,000).
  4. F's legacy reduces to £13,333 (£40,000 × 50,000 / 150,000).
  5. No residue remains for S and D.

Conclusion

Understanding ademption and abatement is crucial for effectively managing wills and ensuring testamentary intentions are honored. By drafting comprehensive and flexible wills, individuals can minimize disputes and safeguard the distribution of their estate. Mastering these concepts is essential for legal professionals and is a vital component of the SQE1 FLK2 exam preparation.