Exceptions to principles of ademption by TurksLegal

Exceptions to principles of ademption By Paul Anderson | July 2011 Area of Expertise | Business & Property

Summary The recent case of Power v Power considers 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? Attorneys should review the wording of the Power of Attorney under which they are appointed. Persons making Wills should consider the impact of any disposition of property made in their lifetime after the making of the Will. The recent Supreme Court decision of Power v Power provides a good summary of the law of ademption, and more importantly, relevant exceptions. 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 Mrs Weir died on 6 December 2008. Under her Will dated 23 September 2003 she appointed the plaintiff, her son-in-law Martin Power, as Executor and left her half interest in a property at Wollongbar to Martin’s wife, Stephanie, who was also the deceased’s daughter. The residue of her Estate went to her grandchildren. The Wollongbar property was owned equally by Mrs Weir as tenants in common with the Estate of her late husband who had predeceased her. On 20 June 2002, Mrs Weir had granted an enduring Power of Attorney to her son, Andrew Weir. On 27 July 2006 Andrew Weir, pursuant to the Power of Attorney, and Ian Perkins, as Executor of the Will of the deceased’s husband, sold the property. As at 15 September 2010, what remained of the sale proceeds of Mrs Weir’s half share in the sum of approximately $185,000 was still held in a St George Bank account. These facts squarely raised the issue of whether the gift to Stephanie Power under the Will had been adeemed or not.

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Exceptions to principles of ademption by Paul Anderson

The Power of Attorney contained a condition or limitation in these terms: This Power of Attorney shall only be used upon my treating Medical Practitioner certifying that I am no longer physically or mentally able to sign documents or look after my own affairs. Andrew Weir took no legal advice before acting under the Power of Attorney. He obtained a letter dated 27 January 2006 from his mother’s treating Medical Practitioner, Dr Chiu, in the following terms: I am the attending doctor for this lady who resides in a nursing home. Over the last 12 months, we have noticed significant deterioration in her mental state and recent testing show [sic] that she is suffering from significant dementia. She has reached the stage which I feel that she may not be capable of looking after her own affairs. The evidence as to the deceased’s mental capacity as at 27 July 2006 when the property was sold was confused. For example, the deceased scored 8 out of 30 in a mini health state examination on 20 December 2005 but scored 21 out of 30 on 9 October 2006. There was also contradictory evidence by various members of the family as to her mental state.

MEDICAL OPINION The Power of Attorney contained the condition that it was not to be used unless the deceased’s treating Medical Practitioner gave a certificate that the deceased was no longer able to sign documents or look after her own affairs. In the view of Mr Justice Gzell, there had to be strict compliance with this condition. A medical opinion was not enough. It required certification. Further, in his letter Dr Chiu said that the deceased “may not be” capable of looking after her affairs. This was not sufficient. The judge concluded that Andrew Weir had no authority under the Power of Attorney to join in the sale of the Wollongbar property.

GENERAL LAW In Brown v Heffer (1967) the High Court set out the general rule in relation to ademptions, namely that ademption of a specific gift by Will occurs where the property the subject of the gift, is at the Testator’s death no longer his to dispose of. However, there are exceptions, one of which involves agents. There is a long line of authority to the effect that a bequest will not be adeemed where an agent has disposed of the property the subject of the bequest outside the terms of his authority and without the knowledge of the Testator. In such event, the bequest could be traced into the sale proceeds or their reinvestment. Mr Justice Gzell followed this line of authority. Since Andrew Weir had no authority to sell the property pursuant to the Power of Attorney, the judge ruled that the sale proceeds in the St George Bank account would pass to Stephanie Power in substitution for the specific devise in the deceased’s Will.

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Exceptions to principles of ademption by Paul Anderson

Acquiescence It was also submitted that Stephanie Power had acquiesced in the sale of the Wollongbar property and should not be allowed to take the benefit of an exception to the ademption principle. His Honour found that the term “acquiescence” could be used in three senses, namely:

• The action of a plaintiff over a long period of time, with full knowledge of his rights, refraining from exercising his rights in • •

circumstances where it can be properly be inferred that he had abandoned them. A type of laches that involves prejudice to the defendant or a third party; and A type of estoppel. His Honour gave an example based on the 1866 case of Ramsden v Dyson. There it was said that if a stranger begins to build on land supposing it to be his own, and the real owner, perceiving his mistake, abstains from setting him right, and leaves him to persevere in his error, a court of equity will not afterwards allow the real owner to assert his title to the land.

His Honour found that on the facts, none of these three uses of the phrase “acquiescence” applied and rejected the submission that Stephanie Power had acquiesced in the sale of the Wollongbar property.

Powers of Attorney Act, 2003 For the sake of completeness, the reader should be aware of the provisions of the Powers of Attorney Act, 2003, particularly Section 22 which specifically deals with ademption. However, this Act does not apply to Powers of Attorney executed before 16 February 2004 as was the case in Power v Power. The question before the judge therefore had to be determined at general law. However, Section 22 provides as follows: Any person who is named as a beneficiary under the Will of a deceased principal who executed an enduring Power of Attorney has the same interest in any surplus money or other property arising from any sale, mortgage, charge or disposition of any property or other dealing with property by the Attorney under the Power of Attorney as the named beneficiary would have had in the property, the subject of the sale, mortgage, charge, disposition or dealing, if no sale, mortgage, charge, disposition or dealing had been made. It would appear that the same judgment would have been reached under Section 22 as under the general law as found by Gzell, J.

Conclusion The main lesson to be learned from the case is that an Attorney must be certain that any condition or limitation on his authority in a Power of Attorney has been strictly fulfilled before he takes action relying on the Power of Attorney. At 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 his Will so as to give the proceeds of the disposition to the beneficiary or to make some other provision for that beneficiary.

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Exceptions to principles of ademption by Paul Anderson

For more information, please contact: Paul Anderson Partner T: 02 8257 5742 paul.andersont@turkslegal.com.au

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