A will (or trust) often leaves specific items — like stock — to named individuals. But what happens when that specific item no longer exists at the death of the owner? Well, let’s review the concept of “ademption.”
What is ademption?
The legal concept of ademption is straightforward. But understanding it requires us to first define a related term: “specific devise.”
A gift included in a will is a “devise” or a “bequest.” When included in a trust, the similar gift is usually called a “distribution.” A devise, bequest or distribution can be one of these types:
- Pecuniary — a money amount (“I leave the sum of $10,000 to my nephew, Brian”)
- Specific — a gift of an identified asset (“I leave my gold Cartier watch to my niece, Erin”)
- Residuary — the final distribution, after pecuniary and specific amounts have been distributed (“I leave the rest of my estate to my niece, Amy”)
So a specific devise (or specific bequest, or specific distribution in a trust) names a particular asset. It could be anything, really — the valuable watch, a sentimentally valuable cedar chest, a named account (“my savings account at Alliance Bank of Arizona“) — or a named stock (“all of my stock in Western Alliance Bancorporation“).
But what happens when the item named in the specific devise / bequest / distribution no longer exists at the death of the donor? Ah — that’s ademption. We’ve described it before, but haven’t seen a good case illustration in some years.
Can you give an example?
Yes, we can. In fact it’s easy. We just look to a recent Maine Supreme Court decision for a good explanation.
In 2003, Patricia and William Shea signed a joint revocable trust. It was called the Shea Family Living Trust. The trust left everything under the control of the surviving spouse upon the death of either of them. On the second spouse’s death, all of the couple’s interest in two named stocks were to go to Patricia’s nephews and nieces. The residue of the trust would go to William’s children.
In 2003, when they established the trust, Patricia and William owned General Electric stock. They also owned stock in a small bank, the Siwooganock Bank of New Hampshire.
William Shea died in 2006. Coincidentally, the Siwooganock Bank also reached the end of its life in that same year. It was bought out by Passumpsic Savings Bank (which later became Passumpsic Bank). The Shea Family Living Trust received $460,000 for its shares in Siwooganock Bank as a result.
Over the next twelve years, the trustee moved the Siwooganock Bank proceeds in and out of accounts with other trust assets. Later trust investments further confused the question of original source and made it difficult to trace the sale proceeds.
Patricia died in 2018.The successor trustee distributed the General Electric stock (which the trust still owned) to Patricia’s nieces and nephews. He then informed the nieces and nephews that they would not receive any other distributions from the trust.
So how does ademption work?
Patricia’s relatives insisted that the proceeds from the liquidation of the Siwooganock Bank stock belonged to them. Because the sale of the stock was involuntary (on Patricia’s part), they reasoned that she would have intended the proceeds to go as originally planned.
Ademption can be:
- voluntary (Patricia could have sold her bank stock, or the General Electric stock, for that matter).
- involuntary ( she wasn’t given any choice in the liquidation). It can be complete (as here) or partial (as it might be, for instance, if a piece of real property is partly taken by the government for a right of way).
- “by satisfaction” if, for example, the specifically devised property is given to the beneficiary before the owner’s death.
Generally, ademption principles apply to both wills and trusts. In Maine, that relationship is explicit by statute — as it is in Arizona.
In the case of Patricia and William’s trust, a trial judge agreed with the trustee. A presumption against ademption applies when the action is involuntary. But not indefinitely. Because the liquidation had been years before, and the property mingled with other trust assets, the ademption rules meant that Patricia’s nieces and nephews would receive no share of the proceeds.
So is that the end of the discussion?
Actually, no. The nieces and nephews still have a claim to make. Did Patricia actually intend that they should receive the value of the bank stock? They might be able to show that she did.
Patricia’s relatives had also asked the court to “reform” the trust to reflect Patricia’s actual intentions. They never got to make that argument, since the case was resolved on a motion for summary judgment. So the state Supreme Court remanded the case for further proceedings. If there is clear and convincing evidence that Patricia actually intended the bank stock proceeds to go to her nieces and nephews, they still might receive some or all of the sale value. Connary v. Shea, September 14, 2021.
Of course, the real message of Patricia’s and William’s trust case is clear: when there is a large change (like liquidation of a major asset included in a specific devise), it’s time to visit your estate planning attorney. In fact, life changes almost always accumulate rapidly enough to make such a visit appropriate every 5-10 years. If Patricia had talked with her attorney, the two of them could have figured out what her wishes might be and made necessary changes to clarify those wishes.
