The Annihilation of Your Assets – Estate Planning

I am always looking for quality articles to help my clients and here is a great guest post today from Bryan Mitchell of  Mitchells Solicitors in Brisbane on how poor drafting of your will or a lack of a regular review of assets mentioned in a will may leave your intended beneficiaries out-of-pocket. While not focusing specifically on SMSF matters, your will is a very important part of overall wealth management.

Annihilation of your Assets

The doctrine of ademption

What happens to assets listed in a will that no longer exist when the will-maker dies? It might sound like an obscure question, but in fact it is becoming more common as the population ages. Often, the biggest asset people own as they age is their family home. And sometimes, they can no longer live in that home and must move into assisted living. It’s common practice to sell the family home to pay for that care. All well and good until the older person eventually passes away, and the will is found. The beneficiaries discover that the deceased has left them the property held at 182 Birkdale Rd, Birkdale. Where is that asset? the lawyer asks. It was sold to pay for the nursing home, the beneficiaries say. It no longer exists. So swings into action the doctrine of ademption, which means that a specific gift fails if its subject matter has ceased to exist as part of the testator’s property at death. The doctrine of ademption operates on the assumption that if the property cannot be found, the gift cannot take effect. What ruffles the feathers more is the case of real property: a specific testamentary gift of real property will fail if it is sold before death, even if the proceeds from the sale can be traced. The beneficiaries are not entitled to the proceeds of its sale. So the children who might have expected to inherit the Birkdale property now stand to inherit nothing. The only exception is where an agent or attorney through fraud or an unauthorised transaction sells or transfers the asset. Sometimes there may be right for a beneficiary who has missed out to make a claim for compensation even where there has been no fraud or unauthorised transactions, but that is another topic.

Bryan Mitchell - Solicitor

Bryan Mitchell – Solicitor
(07) 3373 3633

Ban v The Public Trustee of Queensland [2015] QCA 18 Ms Ban and Mr ADF had been friends for a long time. As Mr ADF aged, he became unwell as his cognitive function declined and he was eventually diagnosed with dementia. Ms Ban held the Power of Attorney for Mr ADF for personal and financial matters. At around the same time that Mr ADF was hospitalised in a confused and disoriented state, he entered into a contract of sale for a property at Park Ridge. The property was sold for $2.25 million and the funds were placed in an account in the names of Ms Ban and Mr ADF. When Mr ADF passed away, his will revealed that the Park Ridge property had been mentioned specifically. In fact, the will stipulated that the Park Ridge property was gifted to the Queensland State Government, and that the property was not to be sold until the fifth anniversary of his death. Ms Ban used the funds for her own benefit, including her wedding, a political campaign, and home renovations.Because she was convicted and fined for misappropriating the funds, the doctrine of ademption will not stand. The beneficiaries of that gift (in this case, the state government of Queensland) could get compensation or make a claim on the estate. Hay v Aynsley [2013\ NSWSC 1689 The willmaker, Mrs Brook, had three adult children, Peter, Louise and David. Her husband, Mr Brook, pre-deceased her by three years. Prior to his death, he was granted a power of attorney for his wife in need. Upon his death, the Power of Attorney was granted to Louise and David jointly. David also pre-deceased his mother, leaving Louise with sole Power of Attorney authority for her mother. Mrs Brook suffered from dementia, lacked legal mental capacity and Louise acted for her mother under the authority of the Power of Attorney. She decided to sell land owned by Mrs Brook at Soldiers Point in 2011, collected net proceeds of the sale of $360,000 and placed the money in a bank account, accruing interest. Mrs Brook died in 2012 and the will was granted probate. However, specific stipulations within the will gave rise to questions of what the willmaker would have wanted. Mrs Brook, in her will, gave a property to her daughter Louise, at Round Corner. She also gave the property at Soldiers Point to her son, David. The remainder of the estate, which was minimal, would be shared in one-third equal shares to Peter, Louise and David. A further stipulation allowed that if any of Mrs Brook’s children should die before she did, that their share of the estate would be held in a trust for her grandchildren. The question we are looking at in this case is whether the sale of the property at Soldiers Point adeemed the gift to David, who himself had passed away, and whether David’s own heirs were due to receive both the value of the property plus the one-third share of the remaining estate. The judge ordered that the Soldiers Point gift was adeemed (ceased to exist) by virtue of the sale of the property and that the residual estate, including the proceeds of the sale and accrued interest, would be broken up in thirds. In this case, the children of the late David Brook miss out on the value of the property of Soldiers Point, receiving only a third of it. This is how the doctrine of ademption can cause heirs to receive much less from a will that perhaps the will-maker intended. How can I avoid the doctrine of ademption? Reassuringly, it’s not difficult to ensure the ademption won’t apply. The use of back-up clauses is especially useful. For example, if the intent is to give the property at Birkdale, have a back-up clause that applies if the gift fails, providing for a sum of money or a share of the estate. The important issue to remember here is that though ademption is an obscure doctrine that very few people have heard of, it still applies.  And it is not a rare occurrence.  Therefore, it is vitally important that people:

  • Do not write-up their own wills
  • See a specialist who understands the doctrine of ademption
  • Have a will that is clear, concise and thorough

For those who prefer to watch and listen then hear more from Bryan on the Doctrine of Ademption. Are you looking for an advisor that will keep you up to date, access to quality professionals and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

Tel: 02 98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

Image courtesy of Mitchells Solicitors – Brisbane Phone for a FREE Consultation  – (07) 3373 3633

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