In estate planning, the term ademption refers to a situation in which a gift given in a will by a testator cannot be transferred to a beneficiary because the gift no longer exists or has already been transferred by the time of the testator’s death. A testator is the person who leaves his or her property to others in the will. How the bequest in the will is handled in cases of ademption depends on the type of property involved and the circumstances under which the gift was transferred.
Ademption can happen through the transfer of the gift to the intended beneficiary by the testator during his or her lifetime. For example, a man could decide to give his old car to his granddaughter while he is still alive. If in his will there is a term leaving the same car to her, the gift is said to be satisfied. This is referred to as ademption by satisfaction. In some situations, the testator may indicate that gifts made in this way are supposed to satisfy a gift made in the will.
On the other hand, a testator could write a will and leave some property to a beneficiary, and then later sell this property or gift it to someone else during the testator’s lifetime. If the testator fails to change his or her will to reflect the property’s sale, then the gift of the property cannot be satisfied and the beneficiary will not receive a substitute gift in place of the missing property. This is known as ademption by extinction.
Ademption works differently when it comes to gifts of money. For example, if the testator leaves a set amount of money to a beneficiary, say 100,000 dollars, and the testator dies with a bank account balance of less than 100,000 dollars, the testator’s estate would still be required to transfer this sum of money to the beneficiary. The estate may have to sell other property or get the money from other accounts to fulfill the gift.
Under Michigan law, if the ademption of a gift is due to a sale by the testator that has not been finalized at the time of the testator’s death, the money due to the testator on that sale shall be transferred to the beneficiary. So, the beneficiary in a way steps into the shoes of the testator in this regard. This also applies to situations in which the property to be left to the beneficiary is destroyed and there is an insurance payout. The insurance money goes to the beneficiary. However, if it is clear that the testator changed his or her mind about leaving the gift to the beneficiary, then the beneficiary does not get to keep the proceeds of a sale or an insurance policy.
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Everyone who executes a will should take steps to update it often to ensure that the terms of the will can be honored without creating confusion. If you are looking for legal assistance in drafting or updating your will or setting up a trust, you should contact Resnick Law, P.C., to speak to the experienced estate planning attorneys in Bloomfield Hills and Detroit, Michigan.
(image courtesy of Maique Madeira)