by Ryan L. Broedlin, Esq.
Do you have a will that leaves specific items or lumpsum payments to certain members of your family or close friends? Or are you considering having a will drafted that does so? If so, you are not alone: specific and general bequests like these – gifts of specific property or lumpsum cash payments – are a common and well-intentioned part of estate plans. While seemingly harmless, we find that this type of drafting can wreak havoc on an estate plan in a number of different ways and confuse and defeat the best of intentions. To illustrate how this can happen, we’ll use the example of Mr. Smith.
Mr. Smith is a widower and the loving father of two children who now each have two of their own: three grandsons and one granddaughter, each of whom Mr. Smith loves and adores. A successful man, he has always intended that the bulk of whatever he may leave behind go to his children but after many wonderful years watching them grow up, he also wants to provide for his grandchildren. Rather than calling an attorney that specializes in estate planning, Mr. Smith goes to the attorney he recently used for the purchase of his new home. That attorney drafted – and Mr. Smith executed – a will that leaves his assets to his family as follows: $15,000 to each of his three grandsons; his old sports car valued at roughly $15,000 to the granddaughter (he had always bonded with her over love of that car; what better way to keep it in the family?); and residuary of the estate is left to his own children.
When Mr. Smith executed this will, it looked clear that there would be more than enough money for the gifts to his grandchildren to be made while leaving a substantial sum to the Mr. Smith’s own children. The intervening years, however, were a bit tough. Between home repairs, medical bills, and other unexpected costs, Mr. Smith’s once-hefty bank accounts were substantially depleted. Health issues also robbed him of the ability to drive that sports car he loved so much and it was eventually sold to help with the medical bills. All told, after costs of administration, Mr. Smith’s estate includes only $30,000 of cash to be distributed. Even though there is not enough to fully satisfy Mr. Smith’s intentions, surely everyone can at least get something, right? Wrong.
First, it is important to note that, under New Jersey, New York and Pennsylvania law, specific and general bequests must be satisfied before any residuary beneficiary can participate in a distribution from Mr. Smith’s estate. As a result, the $15,000 gifts to the grandsons and the gift of the sports car to the granddaughter get distributed before Mr. Smith’s own children take anything. While there is not enough to give each grandson a full $15,000, they do get to share in whatever is available on a pro rata basis, leaving each grandson with a cool $10,000; not Mr. Smith’s exact intention, but still pretty good. Then, the executor of his estate would simply hand the keys to the sportscar to Mr. Smith’s granddaughter, but wait: it’s gone and the money from its sale was spent long ago. At least some of the money that went to the grandsons can be diverted to the granddaughter, right? Wrong again. When the object of a specific bequest has been sold, destroyed, or otherwise disposed of, the gift will adeem and the intended beneficiary takes nothing (there are some exceptions to this rule, but none apply here). Finally, there is simply nothing left in the estate to distribute to Mr. Smith’s children so they too receive nothing.
As you can see, the effect of the specific and general bequests to Mr. Smith’s grandchildren was to almost completely frustrate Mr. Smith’s intended plan. His children – who should have taken the bulk of his estate – get nothing, his grandsons get less than Mr. Smith had hoped, and his granddaughter – who Mr. Smith wanted to treat the same as his grandsons, also gets nothing due to the sale of the car.
This result could have been avoided with some very simple changes to Mr. Smith’s will. Indeed, had he consulted an experienced estate planning attorney, that attorney would likely have advised Mr. Smith of the pitfalls of gifting the cash and car the way he had hoped and to instead look at his estate as a pie that he could divvy up amongst his children and grandchildren in different sized pieces. For example, Mr. Smith could have assigned percentages to leave the biggest piece of the pie to his own children while giving smaller, but still meaningful, pieces to his grandchildren. In doing so, each of them would have received something from his estate – a far better result than what actually occurred. Additionally, had it still been around, the sports car could have been used to satisfy the gift to his granddaughter as an “in kind” distribution, thus ensuring that all of Mr. Smith’s intentions were fully met. At the very least, an individual that absolutely wants to make gifts of specific property in his or her will should revisit those documents often to 1) ensure that the specific items of property gifted are still in his or her possession and 2) review whether his or her estate will have the funds necessary to make sure the intended beneficiaries – usually the residuary beneficiaries – can take under the will.
Ultimately, this is a prime example of how not hiring an attorney that specializes in estate planning to prepare your last will and testament can have some tough consequences. If your will has any specific or general bequests that may need changing – or if you have been considering setting your will up like Mr. Smith’s – please call The Murray Firm, LLC at (908) 204-3477 to schedule a free consultation to discuss.
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