Ademption of specific bequests

Ademption occurs when a specific gift in a Will fails because the gift is not an estate asset at the testator’s date of death. In this situation, the beneficiary won’t receive the gift and won’t be entitled to trace the proceeds of the gift, if any. However, the law does allow for some relief from the rule of ademption.

RL v NSW Trustee and Guardian

In RL v NSW Trustee and Guardian [2012] NSWCA 39, Justice Campbell extensively reviewed the law concerning the issue of ademption of a specific gift in a Will. In the particular case, the testatrix was a protected person, an order having been made by the Guardianship Tribunal pursuant to section 83 NSW Trustee and Guardian Act 2009.

The Court of Appeal considered the line of cases stemming from Re Viertel [1996] QSC 66 which held that if the property of an incapable person was disposed of pursuant to an Enduring power of attorney, the disposition would not affect an ademption of a specific gift of that property in the Will of the incapable person. In other words, by giving relief from ademption, the beneficiary could trace in the assets of the estate the proceeds of sale of the asset.

Following his review of the law as to ademption, and whilst the comments were obiter, Justice Campbell concluded that when the attorney sold the property the subject of the specific gift, the sale would have effected an ademption of that gift were it not for the existence of statutory power in section 83 NSW Trustee and Guardian Act 2009, and that Re Viertel does not represent the law.

In the appendix to the decision, Justice Campbell traced the history of ademption including the early English cases and legislation, and the statutory power in the Powers of Attorney Act 2003 in which section 22 now provides legislative relief.

NSW Trustee and Guardian v Bensley

The Supreme Court decision of Justice White in NSW Trustee and Guardian v Bensley & Ors [2012] NSWSC 655 recently followed and applied the Court of Appeal.

Unlike RL v NSW Trustee and Guardian where the testatrix was still living, in Bensley the Court was concerned with the Will of a deceased person which contained a specific gift of a property to a niece of the deceased which had prima facie adeemed.

At the time of her death, her attorney, who was the NSW Trustee and Guardian appointed by power of attorney executed 5 March 1998, had sold the property and applied the proceeds in part towards an accommodation bond. The testatrix suffered severe dementia at the time of the sale.

The sale proceeds could be identified in the estate assets, and Justice White was asked to consider whether the gift of the property had adeemed.

Statutory relief from ademption

The Court considered statutory provisions including:

1. Section 83 NSW Trustee and Guardian Act 2009 – which provides:
   1. any managed person and any beneficiary of a managed person has the same interest in any surplus money or other property arising from any sale… of any property… as the managed person or beneficiary would have had in the property the subject of the sale … if no sale … had been made.
   2. the surplus money or other property arising as referred to in sub-section (1) is taken to be of the same nature as the property sold…
2. Section 48 Protected Estates Act 1983 (repealed and replaced by the NSW Trustee and Guardian Act 2009):
   1. any protected person… and any other person being an heir… devisee, legatee… of a protected person… shall have the same interest in any surplus money or other property arising from any sale… of any property… as the person would have had in the property the subject of the sale… if no sale… had been made.
   2. the surplus money or other property arising as referred to in sub-section (1) shall be of the same nature as the property sold…
3. Section 22 Powers of Attorney Act 2003:
   1. any person who is named as a beneficiary under the will of a deceased principal who executed an enduring power of attorney has the same interest in any surplus money or other property arising from any sale… of any property… by the attorney under the power of attorney as the named beneficiary would have had in the property the subject of the sale… if no sale… had been made.
   2. the surplus money or other property arising as referred to in sub-section (1) is taken to be of the same nature as the property sold…

In Bensley the Court found: “The proceeds of sale of the property are a change of the asset in substance.” At the date of death, the property was not an asset of the estate, and the gift failed by ademption.

None of the various statutory provisions referred above applied as no application or order had been made to the Guardianship Tribunal or the Court for orders declaring the deceased a managed person nor had any application been made pursuant to the Protected Estates Act declaring the person a protected person.

Section 22 Powers of Attorney Act 2003 only applies to Powers of attorney created after 16 February 2004.

Whilst the Court of Appeal findings on ademption were obiter, the NSW Supreme Court has now followed Justice Campbell of the Court of Appeal.

In practice

Specific gift accompanied by gift of sale proceeds in will  

If a client confirms his or her intention to leave a specific gift in a Will, and does not wish that gift to adeem should the property the subject of the gift be subsequently sold by the testator’s attorney, the gift in the Will should be accompanied by the gift of proceeds of sale of that asset.

Updated power of attorney

Further, it may be wise to review existing Powers of attorney and if executed prior to 16 February 2004 to consider executing a fresh Power of attorney.

Statutory will

In the case of those persons no longer having capacity to execute a new Will or Power of attorney, consideration should be given to an application to the Supreme Court for the making of a statutory Will pursuant to Chapter 2 Part 2.2 Succession Act 2006 in which the gift of the proceeds of sale was included in the Will of the incapable person to reflect the intentions contained in the Will which are likely to be thwarted by the sale of the property.

This article was written by Matthew Payne, Partner and Christine McPhilips, Special Counsel.

Publication Editor: Matthew Payne, Partner and Philip Davis, Special Counsel