Legacies — specific

  • A specific legacy occurs when there is a gift of a particular part of the testator’s property: Walford v Walford [1912] AC 658.
  • A gift is normally construed as specific if the pronoun ‘my’ precedes the gift (eg ‘my car’): Re Rose [1949] Ch 78.
  • A specific legacy will also include a gift of property which may be generic in nature such as shares, where the amount of shares are capable of being added to or diminished between the date of the will and date of death — the gift will pass those shares that exist at the date of death: McBride v Hudson (1962) 107 CLR 604.
  • A specific gift must be satisfied out of specific property — if that property ceases to exist at the date of death then the gift adeems: Re Clifford; Mallam v McFie [1912] 1 Ch 29.
  • If the subject matter of the gift remains in substance though changed in name and form the gift does not adeem: McBride v Hudson (1962) 107 CLR 604.

Legacies — general

  • A general legacy does not refer to the testator’s actual property, and as such it is immaterial whether the testator owns such property.
  • A gift expressed entirely without reference to property actually owned by the testator at the time of making the will is usually construed as a general legacy: Re Plowright [1971] VR 128.
  • If a gift is held to be a general legacy then the fact that the gift does not exist amongst the testator’s property at the date of death means that the executor must set aside sufficient funds from the estate to meet its value: McDonald v Irvine (1878) 8 Ch D 19.
    • If there are insufficient assets to pay general legacies then they abate ratably rather than adeem (in contrast to specific legacies).
  • A court will lean to construing a gift as general rather than specific so as to give the beneficiary at least part of the gift if there are insufficient assets: Re O’Connor [1948] 1 Ch 628.
  • Where the assets of the estate are insufficient to pay all general gifts but there is in existence a specific gift, a recipient may wish to argue the gift is specific and thus obtain its full value rather than a ratable proportion.

Legacies — demonstrative

  • Demonstrative legacies are hybrids containing elements of specific and general legacies.
    • Example — ‘I give to A the sum of $500 out of my bank account with the XYZ Bank.’
  • Demonstrative legacies are usually characterised as general gifts to be made out of a specific fund.
  • If the fund is exhausted at the date of the testator’s death the legacy is made good from the general estate: Paget v Huish (1863) 1 H & M 663; 71 ER 219.

Residuary gifts

  • The residue of the estate comprises property not explicitly gifted by the will.
  • The residue also includes failed gifts: Re Bagot [1893] 3 Ch 348.
  • A chose in action unless otherwise disposed of will fall into the residue.
    • This has included a winning lottery ticket purchased by the deceased that did not form part of a gift of the testator’s chattels: Szanto v Aston [2011] QSC 87.
  • There must be a valid disposition of the residuary, otherwise the residue will form a partial intestacy.
  • In the absence of contrary intention, all undisposed property will form part of the general residue.
    • A gift of property in the terms ‘such other property as I may own’ after specific gifts will form a residuary gift.
  • A clear intention must be shown before gifted property will be construed to be excluded from the residue: Wainman v Field [1854] Kay 507; (1854) 69 ER 215.
  • There is legislative provision for residuary gifts: Succession Act 2006 (NSW) (‘Succession Act’) s 42.
    • A gift that refers to the residuary real estate or refers to the residuary personal estate will be taken to mean a gift of residue of both real and personal estate subject to contrary intention shown in the will.
  • A gift of part of the residue that fails will accrue equally to those parts of the residue that do not fail, subject to any contrary intention shown in the will: s 42(2).
    • This avoids a partial intestacy.

Particular residue

  • A particular residue often occurs following a specific gift.
    • Example — ‘I give my billiard table to A, the rest, residue and remainder of my furniture to B’; the particular residue is the gift to B.
  • If a gift that is outside the particular residue fails, it falls into the general residue or passes on intestacy — it does not go to B.
  • There is no presumption that a particular residue is intended to pick up a failed specific gift of like property: Re Mason [1901] 1 Ch 619.
  • Where there is a specific gift followed by a general gift of the remainder of like property, then it is a question of construction whether the testator intendeds the particular residue to pick up the specific gift if it fails or whether the testator intends the failed gift should fall into the general residue: Estate of McGregor (1975) 11 SASR 424.

Interest and income

  • General legacies bear interest but not income, and specific legacies bear income but not interest: Permanent Trustee Co (NSW) Ltd v Royal Prince Alfred Hospital (1944) 45 SR (NSW) 339.

Ademption

  • Ademption is where the subject matter of a specific gift ceases to exist by the time of the testator’s death: Re Clifford; Mallam v McFie [1912] 1 Ch 29; Brown v Heffer (1967) 116 CLR 344, 348.
  • The intention of the testator is irrelevant — all that matters is that the gift is of a specific piece of property that has ceased to exist: Johnson v Maclarn [2002] NSWSC 97.
  • There will be no ademption if the gift merely changes form and not substance: McBride v Hudson (1962) 107 CLR 604.
  • Where a testator gifts property now owned by them personally, but owned by a company in which the testator holds all the shares, the gift will be construed as a gift of the share in the company: Hendry v Perpetual Executors & Trustees Association of Australia Ltd (1961) 106 CLR 256; Re Balcock [1968] 2 NSWR 697; Re Cobcroft [2015] NSWSC 346 [24].
  • Where a testator leaves property to a beneficiary and then enters into a contract of sale of that property which is incomplete at death, the beneficiary receives neither the property nor the proceeds of sale: Fairweather v Fairweather (1944) 69 CLR 121.
    • But where a testator contracts to sell property and then leaves the property by will, the beneficiary is entitled to the benefit of the testator’s contractual rights.
      • The court presumes the testator intended the beneficiary to have some benefit in relation to the property.
  • There is authority indicating that where the property is gifted by will and subsequently sold by the unauthorised act of an agent there is no ademption: Orr v Slender; Estate of Orr (2005) 64 NSWLR 671.
    • The basis of this decision is that the testator did not intend the gift to adeem by an unauthorised act.
    • This principle has been extended further to cover situations where the gifted property has been sold by an attorney under an enduring power of attorney once the testator has lost capacity: Re Viertel [1997] 1 Qd R 110; Ensor v Frisby [2009] QSC 268; Power v Power [2011] NSWSC 288; Simpson v Cunning [2011] VSC 466. But see RL v NSW Trustee and Guardian [2012] NSWCA 39.
    • Where there is an enduring power of attorney granted after 16 February 2004, a gift will not adeem where the subject matter is disposed of by the attorney and the beneficiary under the will is able to receive the proceeds unless the court orders otherwise: Powers of Attorney Act 2003 (NSW) ss 22–23.
  • Where property is required to be sold pursuant to a management order (under which a person’s is estate is under management), a gift will not adeem where its subject matter is disposed of in order to support the managed person and a beneficiary retains their interest in the surplus of the proceeds of sale: NSW Trustee and Guardian Act 2009 (NSW) s 83; RL v NSW Trustee and Guardian [2012] NSWCA 39.

Abatement

  • General gifts do not adeem if there are insufficient assets to pay them in full — they abate ratably.
  • The ratable abatement is subject to any direction of the testator that certain gifts are to take priority — this must be clearly stated and it is not sufficient that the priority rests upon the fact that the gift is to be applied to a particular object or purpose: Duncan v Watts (1852) 16 Beav 204; 51 ER 756.

Expenses

  • Expenses are the costs associated with the maintenance and preservation of the property that forms the gift.
  • In the case of a specific gift, the expenses fall to the beneficiary and not the general estate, contrary to subject intention shown in the will: Re Rooke; Jeans v Gatehouse [1933] 1 Ch 970.
  • Expenses relating to general, demonstrative and residuary gifts are borne by the general estate.
  • A beneficiary is liable for the expenses relating to a specific gift from the date of death of the testator unless the gift is disclaimed.
  • In the case of a general gift, the beneficiary is only liable for expenses from the date the property passed to them: Re Collins’ Will Trusts [1971] 1 WLR 37.
  • The costs of transferring or conveying specific property is an expense which must be borne by the beneficiary and not the general estate: Lloyd v Frape (1922) 23 SR (NSW) 11.

Accessories

  • A gift is always construed to include not only the subject matter of the gift but also the rights and benefits essential to the enjoyment of that gift: Pearson v Spencer (1863) 3 B & S 761; 122 ER 285.
  • Accessories are not only implied from the terms of the gift, but a consideration of the surrounding circumstances may reveal that the testator intended the beneficiary to have the full benefit of the gift: Phillips v Loar [1892] 1 Ch 47.
  • Examples of accessories include:
    • The growing of crops: Re Bergins Will [1922] VLR 686.
    • Curtilage to the user of a house: Re Mercer [1953] OWN 765.

Lapse

  • Lapse occurs where a beneficiary predeceases the testator: Elliot v Davenport (1705) 2 Vern 521; 23 ER 935.
  • If a gift lapses it does not pass to the estate of the beneficiary — it falls into the residue of the estate or passes on a partial intestacy.
  • A testator cannot declare the doctrine of lapse will not apply or that a gift is to vest on execution of the will.
  • There are many exceptions to the doctrine of lapse:
    • Succession Act s 41.
    • Class gifts.
    • Joint tenancy.
    • A commorientes provision.
    • Substitutional gifts.
    • An accruer clause
    • Gifts in discharge of a debt.

Succession Act s 41.

  • Deals with the situation where a testator makes a gift to their issue but the issue predeceases them, leaving issue of their own (ie child dies, grandchild survives).
  • Succession Act s 41 applies if:
    • a testator makes a disposition of property to one of their issue (as an individual or member of a class), and
    • under the will the interest does not come to an end on or before the issue’s death, and
    • the disposition is not a disposition to the testator’s issue without limitation as to remoteness, and
    • the issue does not survive the testator for 30 days (or a period specified in the will).
  • If the issue of the original beneficiary survive the testator for 30 days (or other period specified in the will) they will take the original beneficiary’s share of property: s 41(2).
    • This does not apply if contrary intention appears in the will: s 41(3).
      • A gift to persons as joint tenants on its own indicates a contrary intention: s 41(5).
  • s 41 prevents the gift from lapsing so that it passes to the issue of the deceased beneficiary as if that person had died intestate leaving only issue surviving.
    • This contrasts with the former s 29 of the Wills, Probate and Administration Act which caused the gift to pass into the estate of the deceased beneficiary and not to their issue except where provided for in the will or in the case of intestacy: Re Basioli [1953] Ch 367.
  • The gift must not be one that is determined on the death of the beneficiary — s 41 excludes life estates, joint tenancies and contingent gifts.
  • The issue of the original beneficiary (grandchildren of the testator) must survive the testator for 30 days.
    • This includes issue en ventre sa mere (a foetus recognised as a child then alive) provided they are born alive and remain so for 30 days: s 3(2).
  • s 41 applies to wills made after 1 March 2008, and to wills where the testator and original beneficiary die after this date.

Class gifts

  • If a member of a class predeceases the testator, the class will be construed as those members living at the time of death of the testator.

Joint tenancy

  • A gift to two persons as joint tenants where one predeceases the testator means the survivor take the gift absolutely unless both joint tenants predecease the testator.
    • This is not the case where the gift is to two or more persons as tenant in common, as the death of one means their share lapses.

A commorientes provision

  • This is a provision making a gift contingent on a beneficiary surviving the testator for a specified period.
  • It is inserted specifically to overcome the problems of simultaneous deaths.

Substitutional gifts

  • These are gifts such as ‘to A, but if they predecease me, then to B.’

An accruer clause

  • This applies where there is a gift to several persons with a proviso that should one die, their share accrues to the remaining shares.
  • A lapsed share will, in the absence of a contrary intention, accrue equally to the surviving shares — even if the original shares were given in unequal proportions.

Gifts in discharge of a debt

  • There is some authority to suggest that gifts in discharge of a debt will not be subject to the doctrine of lapse and will pass to the estate of the beneficiary even if they have predeceased the testator: Re Leach; Chatterton v Leach [1948] 1 Ch 367.

Satisfaction

  • The doctrine of satisfaction holds that in certain cases equity will presume a gift in a will satisfies an earlier obligation or an earlier inter vivos gift has satisfied the gifts contained in the will.
  • The most obvious application is where a testator owes a debt to another person and bequeaths to that person and amount greater than or equal to the debt.
  • In these cases equity presumes the intention was to satisfy the gift, subject to any contrary intention by the testator — if the beneficiary accepts the gift they are said to discharge the gift: Royal North Shore Hospital v Crichton-Smith (1938) 60 CLR 798.
  • As a result the debtor must elect whether to take the gift under the will or claim as creditor against the estate.
  • A direction to pay debts generally has been held to rebut the presumption of satisfaction such that a creditor is entitled to the gift and the debt: Chancey’s Case (1717) 1 PW 408; 34 ER 448.
  • The doctrine of satisfaction will not apply if the bequeath is of lesser value than the debt.
    • This includes contingent gifts, gifts that are uncertain in value (such as a share of the residue), gifts which enjoy a lower order of payment, gifts of a different kind to that owed, or gifts payable after the due date of the gift.
  • The doctrine of satisfaction will also apply in cases where two gifts are given to the same person — the question will be whether the gifts are cumulative or substitutional.
    • In the absence of contrary intention of the testator, if the gifts are given by the same instrument they are prima facie substitutional if they are of the same amount: Garth v Meyrick (1779) 1 Bro CC 30; 28 ER 966.
      • They are prima facie cumulative if they are of a different amount, or a different nature, or given for a different motive: Curry v Pye (1787) 2 Bro CC 225; 29 ER 126.
    • If, however, they are given by different instruments (eg a will and a codicil), they are prima facie cumulative if they are of the same amount: Hooley v Hatton (1772) 21 ER 349.

Election

  • Where a testator gifts property they do not own to a third party, and the property belongs to a beneficiary under the will who also receives under that will, the beneficiary must decide whether they accept the gift and allow their own property to pass to the third party, or disclaim the gift and retain their own property: Melliday v McMahon (1901) 1 SR (NSW) 6.
  • If the beneficiary wishes to retain the gift and their own property, they will be liable in equity to compensate the third party.

Performance

  • Where a person makes a promise to another that they will leave them a gift in their will and the will contains the specific gift or a comparable gift, the testator is presumed to have fulfilled the promise.
  • The gift must be comparable to that which is promised otherwise the doctrine will not apply and the promisee will be entitled to both the debt and the gift.

Conversion

  • Conversion occurs when there is a direction in a will that property is to be converted from one species into another — a direction to an executor to call in and convert property into money for distribution.
  • There must be a direction to convert and not just a mere power or discretion to convert.

Remoteness of vesting — the rule against perpetuities

  • The rule against perpetuities requires gifts to vest within a specified period and not be held in abeyance for excessive periods.
  • The rule achieves the public policy of tying property up in trusts for too long.
  • There are rules:
    • The common law (old) rule.
    • The statutory (modern) rule.

Common law — the old rule

  • A future interest must vest within 21 years of the death of the last life in being or, if there is no life in being, within 21 years from the date the instrument creating the interest takes effect: Cadell v Palmer (1833) 1 Cl & Fin 372; 6 ER 956.
  • A child en ventre sa mere at the end of the perpetuity period and born alive extends the perpetuity period by the gestation period.
  • A child en ventre sa mere at the date the instrument takes effect and later born alive becomes a life in being.
  • It must be able to be determined conclusively at the time the instrument takes effect that the gift will vest within the perpetuity period — there can be no wait and see; it requires certainty not probability.
  • ‘Vest’ means the ability:
    • To ascertain the persons who are entitled.
    • Of the interest to vest in interest within the period and not simply vest in possession.
    • To ascertain the quantum of each persons’ entitlement.
  • Provided a gift vests within the perpetuity period it does not matter how long the interest is to last.
  • Lives in being may be expressed or implied.
  • Lives in being must be a class of which the membership is fixed at the testator’s death and therefore cannot expand.
  • An express life in being is one selected by the testator.
    • The selection must be such that the classis capable of being ascertained in such a way that it is possible to determine the date of death of the last member of the class: Hardebol v Perpetual Trustee Co Ltd [1975] 1 NSWLR 221.
  • An implied life in being is one which is implied from the circumstances of the gift as being that much the testator intends the perpetuity period to be measured: Hardebol v Perpetual Trustee Co Ltd [1975] 1 NSWLR 221.
    • In these cases the lives in being must be closely connected with the vesting contingency.
  • Class gifts create special difficulties for the perpetuity rule.
    • A class gift is a gift to a group of persons uncertain in number at the time of the gift, but to be ascertained in the future so that the quantum of each share is dependent upon the number of persons who ultimately satisfy the description of membership.
    • A true class gift means that if one potential member cannot take the share, the share accrues to the remainder of the class.
    • A class gift is distinguished from a series of individual gifts to the members of a class, in which case the class is quantified at the time of the gift as if each had been given a separate gift — if the gift fails, it does not accrue to the remainder of the class.
    • A class gift could cause problems as it would have to be held in abeyance until no further members could come within the class.
      • The class is taken to close at the period of distribution, which is normally at the time the first member of the class becomes entitled to call for their share in possession.
        • The class is limited from this time to those member then existing and any person born thereafter who would have been a member is excluded: the rule in Andrews v Partington (1791) 3 Bro CC 401; 29 ER 610.
          • The rule can be excluded by express intention such as by the use of the term ‘whenever born.’
    • The class closing rules were explained in Re Bleckly [1951] 1 All ER 1064, 1068–1069 (Evershed MR):
      • A gift ‘to the children of A’ is construed as limited to the children of A existing at the time of the testator’s death and excluding those born afterwards unless A has no children at the testators death, in which case the class remains open to comprise all children of A, whenever born.
      • A gift ‘to B for life, then to the children of A’ is construed as limited to the children of A existing at the time of B’s death and excluding those born afterwards, and B’s death is the point of distribution, unless A has no children at B’s death, in which case the class remains open to comprise all children of A, whenever born.
      • A gift ‘to the children of A on attaining 21 years’ limits the class to any children of A who are aged 21 years or more living at the time of the testator’s death; if no children have attained 21 the class closes when the first child of A reaches 21 years.
      • A gift ‘to B for life, then to the children of A who attain 21 years’ limits the class to include children of A then living and excluding those born afterwards; if no child has attained 21 years at B’s death, the class closes when the first child of A reaches 21.
    • The class closing rules do not affect the rule against perpetuities, so that all potential members of the class must satisfy the perpetuity rule at the testator’s death.
  • Where a gift would breach the perpetuity rule only because it specified an age greater than 21 years, it became possible to read the age down to 21: Conveyancing Act 1919 (NSW) s 36 (now repealed).

The modern rule

  • The modern rule applies to testators dying on or after 31 October 1984, or inter vivos gifts taking effect on or after this date: Perpetuities Act 1984 (NSW) (‘Perpetuities Act’) s 4(1).
  • If the will was executed before 31 October 1984 and the testator dies with that date, a gift that is invalid under the modern rule will still be valid if it complies with the old rule.
  • A gift must vest within 80 years of the testator’s death: Perpetuities Act s 7(1).
  • It is no longer necessary to be certain at the time of the testator’s death that the gift will best in time — it is possible to wait and see until events have precluded vesting within the 80 year period: Perpetuities Act s 8.
    • If a gift would fail because of the age at which a beneficiary would take then the age may be reduced to save the gift and bring it within the rule, after waiting to see if it will come within the rule without reduction: Perpetuities Act s 9(1).
    • If a gift would fail because a potential member of a class would not be entitled to a vested interest within the rule, but there is a member of the class who because of the reduction of age principle would satisfy the rule, the remaining members of the class or potential members can be excluded if their presence would breach the rule: Perpetuities Act s 9(4).
    • ‘Wait and see’, ‘reduction of age’ and ‘exclusion from class’ principles must be applied in that order: Perpetuities Act s 10.

Remoteness of vesting — accumulation

  • Prior to 1800 income could only be accumulated for the perpetuity period: Thelluson v Woodford (1799) 4 Ves Jun 227; 31 ER 117.
    • This was considered too long; the period was limited by the Accumulation Act 1800, 39 & 40 Geo 3, c98 (‘Thelluson’s Act’) and enacted in NSW as ss 31 and 31A of the Conveyancing Act 1919 (NSW).
    • Under Thelluson’s Act accumulations were permitted only if the testator selected one of the permitted periods, being:
      • The life of the settlor.
      • 21 years from the death of the settlor.
      • The infancy of a person living at the settlor’s death or the infancy of any person who, if they attained the age of 21 years, would be entitled to receive the benefit of the income under the trusts contained in the will.
    • Accumulations in excess of Thellusson’s Act but within the perpetuity period were void as to the excess so that the excess passed as if there had been no accumulation clause.
  • s 18 of the Perpetuities Act repealed Thellusson’s Act for dispositions taking effect on or after 31 October 1984 so that the accumulation period is now the modern perpetuity period.