DO YOU HAVE A WILL OR A PLAN?

When a person has a Will drafted leaving a specific asset or a specific amount of money to a friend or family member, he often gives little thought to what will happen if he doesn’t have the specific asset when he dies or if he doesn’t have a sufficient amount of money to satisfy the dollar amount that he bequeathed. Yet, the failure to think about such issues could have significant effects upon the ease with which his estate is settled.

For instance, few people think they will ever need long-term care, so they fail to plan for the likelihood of needing such care. Assume the following facts: Mr. Smith goes to his attorney and has a Will drafted. In his Will, he leaves his house to his one son, Henry, who doesn’t have a house and who Mr. Smith believes would benefit the most from his house. Mr. Smith leaves $20,000 to his brother, $10,000 to his church, and $1,000 to a friend. He leaves his gold watch to his grandson, who has always admired the watch, and the remainder of his estate to his other son, James.

Let’s further assume that when Mr. Smith went to his lawyer to have the Will prepared, his house was worth about $250,000 – no mortgage – and the remainder of his estate was worth about $270,000. In other words, when Mr. Smith went to his lawyer, he was treating his two children – his sons, Henry and James – equally, because Henry was to receive a house worth $250,000 and James was to receive cash of about $250,000.

Two years after Mr. Smith wrote his Will, he slipped and fell down the stairs of his house. He broke his hip and was taken to the hospital. At the hospital, he underwent surgery for his broken hip. In total, he spent five days in the hospital, then was discharged to a rehabilitation center.

Mr. Smith received thirty-six days of rehabilitation, after which it was determined that while he would not benefit from rehabilitation any longer, he also could not return home. He entered the long-term care, custodial wing of the rehabilitation center – that is, a nursing home – and remained in the nursing home for sixteen months before he died.

In total, Mr. Smith spent $220,000 on his care before his death. His house was sold, because he no longer lived in the house and the proceeds of sale were co-mingled with his other, cash assets.

The question now becomes, who gets what? Mr. Smith didn’t own his house at the time of his death, so Henry cannot inherit the house. Mr. Smith is left with about $280,000 of the $500,000 in assets that he had when he drafted his Will, so who will take of those assets?

Since the house no longer forms a part of Mr. Smith’s estate – he sold the house during his life and co-mingled the proceeds of sale with his other assets – Henry cannot take the house. This is called “ademption.” There is no specific provision in Probate Code governing this form of ademption. The common law would say that Henry’s devise fails; in other words, Henry does not take of the estate, since he was left the house and the house no longer exists.

As for the remainder of the estate, the grandson will receive the gold watch. The bequest of the gold watch is a “specific devise,” and as such, takes priority over all of the other bequests. The bequests of specific dollar amounts – the $20,000, $10,000, and $1,000 bequests – take priority over the bequest of the residue of the estate to the son James. These are “general bequests” and general bequests take priority over residuary gifts.

Finally, James takes the remainder – or residuary – of the estate, or about $250,000.

So, James continues to receive the share of the estate that Mr. Smith believed he would receive, while Henry is left out in the cold, literally and figuratively.

Be careful. Having a Will drafted is nice. Having a plan is better.