What happens when a gift in your Will fails?

Sometimes things just don’t work out and an inheritance doesn’t quite find its way to the nominated beneficiary. Read on to learn more.
What happens when a gift in your Will fails?

Imagine deciding that one of your most prized possessions is to be left to a loved one when you die. Maybe you’d like your dog to be given to your sister, or your house to be given to your daughter. No matter what you’re planning on gifting (or ‘distributing’, if we’re being formal) to your loved ones, chances are you’ll have stipulated the ins and outs of it all in your legal Will.

But what happens if when the time comes, your dog is no longer alive? Or you’ve already sold your house because you moved into an aged care facility? And what if you never removed the part about who gets ownership of your dog or your house from your Will?

In this guide, we’ll dive straight into the gifts you can leave in your Will, and what happens when they fail. Let’s do this.

What is a Testamentary Gift?

A ‘Testamentary Gift’ refers to something you own at the time of writing your Will that you’re wanting to give – as a gift, of course – to a loved one when you pass away.

This gift can be (but is not limited to):

  • Property, artwork, a car or jewellery (these are referred to as ‘Specific Gifts’)
  • An amount of money (this is referred to as a ‘Pecuniary Gift’)
  • A portion of a specific asset that can be shared amongst multiple individuals. Typically, this is the remainder of an estate after all costs, debts and taxes have been paid, and gifts have been distributed (this is referred to as a ‘Residuary Gift’)

How does a Testamentary Gift ‘fail’?

We kinda touched on it in the first paragraph of this guide, but a gift can fail if:

  • The person you chose as beneficiary of the specific gift dies before you.
  • A ‘Specific Gift’ is no longer owned by you (like the house you sold before moving into the aged care facility).
  • The person you’ve nominated as beneficiary is unclear.
  • The actual gift is unclear, or the description is unclear.

What happens if a Testamentary Gift fails?

Different things happen depending on:

  • The beneficiary’s circumstances (ie. Are they alive? Is it clear who is supposed to receive the gift?)
  • The gift (ie. Does it still exist? Is it clear what the gift actually is? And did the deceased still own it at the time of their death?)

Here’s a bit of info for a range of situations. Hopefully at least one of these feels relevant to you (but also, we hope that everything in your Will has been written so clearly – and that it’s been updated when circumstances have changed – so there’s no confusion whatsoever when you die).

If a beneficiary dies before you:

Any ‘Specific’ or ‘Pecuniary’ gifts will lapse and become part of the residue of your estate unless you’ve elected someone else to receive the gift(s) - like a back-up beneficiary.

On the other hand, if the deceased beneficiary was supposed to receive a ‘Residuary Gift’ and no other beneficiaries were supposed to share in that residue (or receive the balance of the estate) and the deceased doesn’t have any eligible children, the balance of the estate will be distributed to the ‘next of kin’.

So it’s not the end of the world if this happens, but it might mean your gift(s) are given to someone you mightn’t have chosen yourself.

If the gift and/or the beneficiary are unclear:

When a gift is described unclearly and/or the nominated beneficiary feels confusing, unclear and disputable, then the dispute will be determined by the Supreme Court. However, if everyone can come to an agreement about the distribution of the specific gift, you can generally avoid heading to the Supreme Court.

The rule of ‘Ademption’ and what it means

‘Ademption’ refers to the principle that if a gift isn’t owned by the deceased at their time of death, then the gift fails.

This can sound simple, because you’d think that if a gift doesn’t exist… then it simply doesn’t exist, and nobody can be upset about not receiving it. But this often isn’t the case – things can get pretty complicated if a Will has multiple beneficiaries and a gift (or more than one gift) is no longer in existence.

Here’s a story to illustrate:

In Rob’s Will, he left his car to his son, Ben, as a ‘Specific Gift’, and he left the residue of his estate to his daughter, Maya (a ‘Residuary Gift’). However, at the time of Rob’s death, he actually no longer owned the car he was leaving for Ben. He’d sold it three years prior, and hadn’t updated this information in his Will, nor had he chosen another gift to be given to Ben.

All of a sudden, this seems a little unfair. Why? Because now Maya is entitled to the residue of Rob’s estate and Ben potentially gets, well, nothing.

Because it’s assumed that the Will-maker was aware of this gift no longer being in his ownership after selling it, it’s assumed that Ben truly doesn’t receive a gift from his deceased father. Rob was lucid, well and responsible at the time of writing his Will and selling his car, so he should’ve known that selling it would impact his gift to his son.

Luckily, the courts have modernised over time and have decided that there are a few exceptions to the Rule of Ademption, protecting those who ‘miss out’ on receiving their failed gift (like Ben):

  • If the Will-maker lacked capacity at the time of the loss of ownership of the gift, and if they would have wanted the recipient of the gift to receive something from their Will. In the case of Ben and Maya, it’s likely their father would’ve wanted them both to receive gifts from his Will.
  • If the name of the gift has changed. For example, if the name of a company had changed between the date of the Will being written, and the date of the individual dying. In this case, the beneficiary will still receive the gift.
  • If the gift (or asset) is sold without the Will-maker’s permission. For example, if shares are sold. In this case, the beneficiary will inherit the proceeds of the sale.
  • If the Will-maker’s attorney sells the gift, the beneficiary will receive the interest in the proceeds of that sale.

Wrap up

We’ve said this many times before, but we’ll totally say it again: The best way to reduce drama and complexity around the distribution of your assets is to decide on who gets what. Stipulate as much as you can in your legal Will. We’d also recommend updating your Will regularly – when relevant – to ensure that at the time of your passing, everything is up-to-date and all gift and asset beneficiaries will receive exactly what they’re entitled to, and nothing they’re not.

Haven't written your Will? Ready to write yours in just 15 minutes? Start online today with Willed.

Disclaimer: The content of this blog is intended to provide a general guide to the subject matter. This blog should not be relied upon as legal or financial advice.

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