When a gift is not a gift

Wills, Estates & Succession Planning 12 November 2018

There are a number of considerations when preparing your Will: you must consider who to appoint as your Executor, the beneficiaries of your estate and the Guardians of your infant children.

You may also wish to make specific gifts to family, friends or charities. Whether it be your wedding ring to your eldest daughter, an antique clock which is a family heirloom to your son, financial gifts to grandchildren or close friends or bequests to charity, leaving such gifts may not be as simple as you first thought.

Here are some matters to consider if you wish to include gifts in your Will:

1. Do you own the asset or item?

You cannot gift an asset or item if it is owned by someone else. This may arise for example where you consider you own a property but it is actually held within a Trust or Self-Managed Superannuation Fund, or it is held jointly.
If you hold assets jointly, they will pass to the surviving owner on your death, therefore, any direction you include in your Will would be ineffective. The same may arise where you gift an item, such as a piece of jewellery, which you do not own.

In these cases, the gifts are likely to be ineffective and those assets or items will pass in a manner contrary to your expectations. It is therefore key to clarify ownership when preparing your Will.

2. What if the asset no longer exists when you pass away?

This scenario arises where a testator may have included the gift of a particular item in their Will, such as a piece of jewellery, but they have given it away or sold it during their lifetime. Another example may arise where a property needs to be sold to pay an accommodation bond to enter aged care.

In both of these examples, any reference to that item or asset in that person’s Will would be affected. In the case of the jewellery, it is likely the gift will simply fail (known as “ademption”), meaning that the gift cannot be given so the named recipient will miss out.

In the case of a gift of property, the law may provide an opportunity to trace the proceeds of the sale of the property so the beneficiary is “compensated” for not receiving the expected gift of property. This, however, will not assist if the testator wished the beneficiary to receive the property to provide them with a roof over their head from the remainder of their lifetime.

It is therefore important to turn your mind to the gifts included in your Will, to update your Will if those assets change and to seek legal advice to ensure your wishes can practically be achieved.

3. How is the asset or item identified?

If you are considering including specific gifts in your Will, take some time to consider how these gifts are described. A gift of “my silverware” might seem clear to you, but to an eager beneficiary, it might be construed to mean anything silver in your home, which is likely to be entirely inconsistent with your wishes.

It is preferable to be specific in describing the gift. Where possible, we ask clients to provide photographs of the items and record the beneficiaries’ names on those photographs. This simple task can save confusion for beneficiaries and difficulties for your Executor after your death.

4. Which charity do you intend to benefit?

If you are considering making a bequest to a charity, it is critical to ascertain accurate details of that charity to ensure it receives the bequest after your death.

In Victoria, there are examples of charities having been incorrectly described in Wills which has resulted in lengthy and expensive litigation in determining the intended beneficiary. Charities may also change names and structure, which can cause difficulty if the charity has merged, branched out, rebranded or ceased to exist at the time of your death.

If you wish to leave a bequest to a charity in your Will, be clear about the organisation you wish to benefit and ensure you update your Will if you become aware the charity has undergone a change. In addition, you may wish to consider including a substitute charity in your Will, to whom the bequest shall pass if the first named charity no longer exists.

If you are considering leaving a specific gift in your Will, turning your mind to these matters will ensure your wishes are followed after your death and save your family and loved ones heartache or difficulty in administering your estate.

If you require advice or further information in relation to any of the matters discussed in this article, please contact our Wills, Estates and Succession Planning team on 03 5273 5203.

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