Exceptions to Ademption Clarified

Paul Anderson | June 2012 | Corporate & Commercial

The recent Victorian decision of Simpson v Cunning considers an additional exception to the principles of ademption of a gift by Will by a later disposition before the deceased’s death.

Who does this impact?

Persons making Wills and attorneys operating under a power of attorney.

What action should be taken?

Persons making Wills should consider the impact of any disposition of property made in his or her lifetime after the making of the Will.

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Exceptions to Ademption Clarified

The recent Victorian Supreme Court decision of Simpson v Cunning has clarified the exceptions to the principles of ademption of a gift by Will.

In general terms, ademption of a specific gift by Will occurs when, by the time of the testator’s death, the property concerned no longer exists or is no longer the testator’s to dispose of. A simple example would be if a testator by Will dated 1987 gave his property at Hornsby to his son but then proceeded to sell the property in 1990 and spend the proceeds without changing his Will thereafter. There is no longer any property on which the Will can operate after his death and the gift is ineffective.

However, there are exceptions to the general rule.

Facts Muriel Creswell died on 20 October 2009 aged 78 years.

She left a Will dated 24 March 1998, under which the deceased gave her house to her son and the residue of her estate to her grandchildren in equal shares.

In July 2003, she executed a codicil to her Will appointing her solicitor, Mr Simpson, as her executor, but otherwise leaving the Will unchanged. In November 2006 she also executed a power of attorney in favour of Mr Simpson.

Her mental capacity declined over the coming years to the point where she needed to enter full time care. This required the furnishing of an accommodation bond which in turn necessitated the sale of her house.

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In May 2007 Mr Simpson visited the deceased at her home in an attempt to get instructions.

The judge, Hargrave, J, reached the following conclusions in relation to this meeting: “Based on this visit, he believed that the deceased did not want the house to be sold.

However, he formed the clear opinion that the deceased was not capable of making decisions or providing instructions with regard to any of her affairs generally. Accordingly, he made the decision that he should act as he saw fit in the administration of the deceased’s financial affairs and should not take her wishes into account.

Taking the evidence as a whole, and in reliance upon the plaintiff’’s considerable experience in dealing with elderly people as part of his probate practice, I accept that this was a decision made responsibly and in good faith. I accept the plaintiff’s evidence that the deceased was unable to make an informed decision as to what was in her best interests at this time and that, had the issue arisen, she lacked testamentary capacity.”

Mr Simpson exercised his power as the deceased’s attorney and sold the house. The proceeds, after payment of the accommodation bond, were paid into a separate bank account.

Following the death of Mrs Creswell, there was a partial refund of the accommodation bond which was paid into the separate account. The balance of the account was currently $450,000.

The issue for the court was: had the gift of the house to the deceased’s son been adeemed with the result that he would receive nothing and the balance of the separate account would be divided among the six grandchildren?

Legal Principles The judge noted that there is a difference in the law in this area between England and Australia.

In England, a stricter approach has been taken since the 1908 case of Slater v Slater.

However, in Australia a more liberal approach has been taken in several single judge decisions in NSW, WA, Victoria and Queensland. Most recently, in the 2011 NSW case of Power v Power, Gzell, J catalogued a number of

exceptions to the general principle. These applied where the deceased ceased to own the property because of: >> Fraud or tortious act unknown to the testator; >> Unauthorised act of an agent; or >> A disposition of the property without the testator’s knowledge and against his apparent wishes.

The case of Power v Power was the subject of a paper on this website in July of last year.

The judge also pointed out that in Victoria there was a statutory exception to the principles of ademption in Section 53 of the Guardianship and Administration Act, 1986 where there is a sale by an administrator. There is no similar exception for a sale pursuant to power of attorney. The judge’s comment was as follows:

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Exceptions to Ademption Clarified Paul Anderson | June 2012

“In my opinion, there is no sound reason why a sale by an administrator, appointed to fill a gap where there is no enduring power of attorney, should lead to a different result than a sale by an attorney in like circumstances. In either case, there has been an authorised sale of the relevant asset without the knowledge of a deceased who lacked testamentary capacity.”

Decision The judge found that there was an additional exception to the ademption principle which applied when: >> There is an authorised sale by an attorney; >> The deceased lacked mental capacity; >> The court is satisfied that the deceased, if possessed of testamentary capacity, would have intended the donee of the asset in the Will to have the remaining proceeds of sale; and >> The remaining proceeds of sale can be identified with sufficient certainty.

Further, the exception should apply whether or not the attorney knew of the terms of the Will.

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Exceptions to Ademption Clarified Paul Anderson | June 2012

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The judge recognised that the additional exception requires the Court to give effect to the testator’s personal wishes in circumstances where he or she no longer has the capacity to decide what should be done. However; “That does not involve supplanting the testator’s wishes with those of the attorney or the Court.

Rather, it involves the Court in an assessment of the testator’s likely wishes if given a choice, when mentally competent, to alter his or her Will in circumstances where the relevant property must be sold to further his or her interests.”

Result The gift to the son had not been adeemed and he was entitled to the proceeds remaining in the separate bank account.

Conclusion On a practical level, a person making a Will should review its terms if he or she subsequently disposes of assets during the person’s lifetime.

The testator then has an opportunity to amend the Will so as to give the proceeds of the disposition to the beneficiary or make some other provision for that beneficiary.

The case provides some hope for a beneficiary whose gift has at first sight been adeemed.

However, this must be recognised that even this hope will be lost if, as in many cases, the proceeds of sale have been dissipated or no longer exist.

For more information, please contact: Paul Anderson Partner T: 02 8257 5742 M: 0418 491 395 paul.anderson@turkslegal.com.au

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