Administration of assets – overcoming difficulties faced by practitioners

After a person has made a will, circumstances can change which may affect how a person’s assets and legacy can be distributed to their stated beneficiaries. As it falls to the legal practitioner administering the estate to resolve these issues, we spoke to Declan Whittle, barrister-at-law and an expert in probate and succession law in a recent webinar to look at some of the issues practitioners may encounter and how to overcome them. To view a playback of the webinar with Declan Whittle visit our webinars page. The webinar covers the areas of abatement, ademption, disclaimers, lapse and advancements.

Nature of dispositions

Devise – real property

Legacy – personal property

Sub sets:

• Specific – Gift of a particular item that is distinguishable from all other things. Can be adeemed

• General – Not specifically identified eg. €1,000 to Joe Bloggs. Not adeemed BUT exhausted before specific bequests are utilised to discharge debts

• Demonstrative – Hybrid. General bequest from a specific source eg. €1,000 out of a specified fund. Not adeemed AND abate after general bequests BUT before specific bequests

• Pecuniary – A sum of money

In general –specific legacies may be adeemed but not abated, general and demonstrative legacies may be abated but not adeemed.

What is abatement?

Abatement is where you have insufficient assets to meet the bequests or legacies as set out in the will. If you have a certain amount of money but don’t have enough to pay all the debts and pay out the legacies, then you must reduce the amount of benefits pro rata to beneficiaries after you pay debts. As a fundamental principal, no beneficiary is entitled to anything until all the debts are paid and the question on abatement is where do those debts get paid from?

The application depends upon the nature of the legacies. A specific legacy will not abate with a general legacy, and remains untouched until the general legacies are abated. Practitioners may face potential issues when advising a personal representative who is also a beneficiary of a general legacy.

Abatement and the residue

In “Executors, Administrators and Probate” by Williams Mortimer and Sunnucks, page 1105 states:

A residuary legatee has no right to call upon any general legatee to abate. All property not specifically bequeathed must be exhausted before those legatees can be obliged to contribute anything out of their bequests”.

This can cause particular difficulty where real property is disposed of in the residue. In the absence of a contrary intention Charitable bequests will abate along with other non-charitable legacies.

How to calculate abatement

(Funds available for payments of debt)                                 x                    Value of legacy

_______________________________

(Total value of general legacies)

For a working example: if there is a bequest of €50,000 to six beneficiaries but only €200,000 available, the calculation works as follows:

(€200,000)

_____________________________                              x                    €50,0000       =          €33,333.33

(€300,000)

Each beneficiary will now receive €33,333.33 instead.

When general and demonstrative are exhausted, specific legacies may then be subject to abatement. Specific legacies will abate but only after everything else has been abated to zero.

Demonstrative legacies

A demonstrative legacy is where you have a bequest of a specific amount from a source, for example – shares.

In “Executors, Administrators and Probate” by Williams Mortimer and Sunnucks, page 1136 states:

For the purpose of abatement, a demonstrative legacy, whilst it remains such, is in the same position as, and abates with, specific legacies. The testator, in referring to specific parts of his estate for the payment of the particular legacies, is presumed to have intended those legacies as a preference to others that he has not so secured. When, however, the fund or estate out of which the demonstrative legacy was to be paid is exhausted, that legacy is not adeemed, as a specific legacy would be, but must abate proportionately with the other general legacies”

The rules of abatement are:

1. Residue goes first and;
2. General before specific

While abatement is where you don’t have enough money to pay debts, ademption is where the asset no longer exists at the date of death – in other words – the asset is gone.

Ademption

If a testator disposes of property during his or her lifetime, the specific testamentary gift is said to be adeemed. Voluntary is where the deceased disposed of the asset – for example, sold a house or property. Limited is where there is creation of a secret trust and the validity, intention, communication and consent must be examined. Involuntary is where there is a constructive trust / proprietary estoppel.

Potential conflict can arise when a personal representative claims an interest in the assets of an estate, as you cannot act as a personal representative and sue the estate.

If the contract for the sale was executed after the will was written: specific devise is adeemed, proceeds fall to residue. If the contract for the sale was executed before the will was written, specific devise may not be adeemed and the devisee may become entitled to the converted value. It must be examined whether the will showed an intention to pass on the proceeds of sale.

Wardship

If a person makes a will and bequeaths a property to a beneficiary and subsequently is made a ward of court and in the course of wardship, there is an order made for the sale of the house to pay for the care of the person, there will be no ademption in that case. This is due to Section 67 of the Lunacy Regulations (Ireland) Act 1871, which states;

On any moneys being raised by sale, mortgage, charge, or other disposition of land made in pursuance of any of the foregoing provisions, the person whose estate is sold, mortgaged, charged, or otherwise disposed of, and his heirs, next of kin, devisees, legatees, executors, administrators, and assigns, shall have such and the like interest in the surplus moneys remaining after the purposes for which the moneys have been raised shall have been answered as he or they would have had in the estate if no sale, mortgage, charge, or other disposition thereof had been made, and the surplus money shall be of the same nature and character as the estate sold, mortgaged, charged, or otherwise disposed of; and the Lord Chancellor intrusted as aforesaid may make such orders, and direct such conveyances, deeds, and things to be executed and done (which may and shall accordingly be executed and done), as may be necessary for the effectuating this present provision, and for the due application of the surplus moneys”

Following normal rules, if property is sold before the person dies, it doesn’t exist at the date of death, it is adeemed, the proceeds go to the residue and not to the beneficiary named on the will. But section 67 changes that and states that if the sale is completed in the course of wardship then the proceeds of sale will retain the same character as the original bequest, making it an exception to ademption. In this case it doesn’t adeem and the beneficiary under the will retains the proceeds of the sale. The proceeds will be net, after the discharge of the purpose for which the sale took place (i.e. care and maintenance).

Lapse

Lapse occurs where the beneficiary predeceases the testator.

The property, the subject matter of the gift, will fall to be distributed;

1.In accordance with the residuary clause or

2.In accordance with the rules of intestate succession in the absence of a residuary clause.

An exception to this is Section 98 of the Succession Act 1965 which states the Doctrine of Lapse will not apply, (unless a contrary intention appears from the will – i.e. substitutional gift) if;

1. The predeceased beneficiary is a child or other issue of the testator
2. The predeceased child / issue leaves issue of his own surviving the testator.

Disclaimers

Disclaimers should be approached with caution due to the follow on effects they may cause regarding succession and tax. If a beneficiary decides to disclaim from an estate, they lose the right to extract a Grant of Representation (as they will no longer be a person having a beneficial interest). This does not affect a named executor on a will.

A disclaimer must occur before the benefit is taken. You cannot take a benefit, realise it may involve complications or issues you’d rather not have to deal with and disclaim then. If you try to disclaim in favour of somebody, this would be an applied acceptance by you and would have tax consequences; it is an assignment, rather than a disclaimer. You either disclaim or you don’t.  Neither can you partially disclaim a bequest.

A disclaimer can be set aside if it’s suspected that the disclaimer is being used to avoid paying debt. For example, in a 2011 case Held by the High Court (LaffoyJ.), that disclaimers were void by virtue of the Provisions of s. 10 of the Act of 1634 it was upheld;

That the necessary or probable result of the defendants disclaiming their respective shares of the estate of the deceased on intestacy was to delay, hinder and defeat the payment of the debt due by them to the plaintiff as the assignee of the deceased’s judgment against them and that therefore fraud had been proved as an inference of law

For full details, further examples and case law on disclaimers you can watch back Declan Whittle’s hugely informative webinar on www.erinresearch.ie/webinars (dated 22 October 2020).

Erin Research is an Irish firm of international probate genealogists, specialising in tracing missing beneficiaries and unknown next-of-kin to estates worldwide. We also verify family trees for solicitors to ensure safe and accurate distribution of estates, and can assist in obtaining probate indemnities to ensure peace of mind for you and your clients. For more email [email protected]