Paul Anderson | November 2012 | Corporate & Commercial
The recent decision of RL v NSW Trustee and Guardian has limited the exceptions to the doctrine of ademption.
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 on the Will of any disposition of property made in his or her lifetime after the making of the Will.
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Exceptions to Ademption Restricted
The recent NSW Court of Appeal decision of RL v NSW Trustee and Guardian has limited the exceptions to the doctrine of ademption which had been expanded by recent single judge decisions.
General principles If a specific asset is given by a Will and the asset does not exist at the time of death of the testator, the gift is said to be adeemed. The result at common law was that the beneficiary of the gift received neither the asset nor compensation in lieu thereof. This was seen to be potentially unjust so that the common law developed a number of exceptions, namely: •
Where the gifted asset ceased to exist by reason of the actions of a person without lawful authority, e.g. Power v Power which was discussed in a paper on this website in July 2011. In that case a property was sold by an enduring attorney but the power of attorney required a medical practitioner to first “certify” that the principal was “no longer physically or mentally able to sign documents”. This had not happened. The court held that the property had ceased to exist by reason of the actions of a person without lawful authority and the doctrine of ademption did not apply.
•
Where the gift has changed “in name and form only” and “is substantially the same thing”. An example is the old English case of Oakes v Oakes where the Will left a gift of shares in a railway company. By the time of death, the shares had been changed into stock. It
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Exceptions to Ademption Restricted
was held that the gift had not been adeemed and the beneficiary was entitled to the stock on the basis that the shares and the stock “were substantially the same thing”.
Re Viertel Recent cases have tried to expand circumstances where ademption did not apply. A good example is the 1996 Supreme Court of Queensland decision of Thomas, J in Re Viertel. In that the case the testator’s Will left her house to named beneficiaries who were also her attorneys appointed under an enduring power of attorney. The residue of the estate was left to another beneficiary. The attorneys sold the house during the testator’s lifetime at a time when she had clearly lost mental capacity and the attorneys clearly had lawful authority to sell the property. The proceeds of sale still existed in a separate bank account.
1. The deceased lacked mental capacity; 2. 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 3. The remaining proceeds of sale can be identified with sufficient certainty.”
RL v NSW Trustee and Guardian PBL was 95 years old and suffering from advanced dementia. Her assets included a lockup garage. Under her Will made in 1999 the testator left the lock up garage to A and the residue of her estate to RL and RL’s two siblings. In 2006 the guardianship tribunal appointed RL as PBL’s financial manager. In 2009 the garage was sold by RL and the proceeds placed into a separate bank account.
If the doctrine of ademption applied, the proceeds of sale would fall into residue and pass to the residuary beneficiary.
PBL was still alive so that strictly consideration of the applicability of the doctrine of ademption was premature.
However, Thomas, J reasoned that the testator would not have wanted the house to be sold and if asked would have expressed the view that the proceeds should pass to her attorneys.
The court found that section 83 of the NSW Trustee and Guardian Act, 2009 (dealt with in greater detail below) authorised the holding of the proceeds in a separate account. However, the court also took the opportunity to consider the application of Re Viertel.
Subsequent decisions Re Viertel was subsequently followed in a number of single judge decisions but was never considered by an appellate court until RL v NSW Trustee and Guardian. A good example is the 2011 Victorian Supreme Court decision of Simpson v Cunning which was discussed on this website in June of this year. In that case, Hargrave, J said he would follow Re Viertel and “recognise a further exception to the ademption principle whenever there is an authorised sale by an attorney in circumstances where:
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Paul Anderson | November 2012
The court rejected Re Viertel as binding authority. Campbell, JA delivered the leading, lengthy judgment. In NSW “the only circumstances in which it is legitimate for the proceeds of sale of a specifically given item of property to pass to the intended donee of the property, other than where the sale has been effected without authority or in some other fashion wrongfully, is where the specifically given asset has not been changed in substance.” The result was that without section 83 the doctrine of ademption would have no application and the proceeds of sale of the garage would pass to RL and her two siblings on PBL’s death.
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Section 83 Section 83 of the Trustee and Guardian Act 2009 is in the following terms: “1. Any managed person and any beneficiary of a managed person has the same interest in any surplus money or other property arising from any sale, mortgage or disposition of any property or other dealing with property under this Act as the managed person or beneficiary would have had in the property the subject of the sale, mortgage, disposition or dealing, if no sale, mortgage, disposition or dealing had been made. 2. The surplus money or other property arising as referred to in sub-section (1) is taken to be of the same nature as the property sold, mortgaged, disposed of or dealt with. 6. In this section, “beneficiary of a managed person” means the beneficiary under a Will of the person or an executor, administrator or assign of the managed person.” Campbell, JA traced the history of this section back through previous legislation to 1830.
Powers of Attorney Section 22 of the Powers of Attorney Act, 2003 is in almost identical terms, namely: “1. 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 the 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.
disposed of by a financial manager relying upon section 83 or by an attorney relying on section 22. In relation to assets sold pursuant to power of attorney, it is hard to envisage circumstances in which the doctrine of ademption can apply except where an enduring attorney has been appointed prior to 16 February 2004.
Conclusion This case has certainly clarified the application of the doctrine of ademption. The doctrine has no application where section 83 of the NSW Trustee and Guardian Act or section 22 of the Powers of Attorney Act applies. Otherwise, the doctrine will apply except where an asset has been sold without lawful authority or the nature and form of the asset when compared to its proceeds on sale is substantially the same.
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Paul Anderson | November 2012
In each of the decided cases, the proceeds of sale were still in existence retained in a separate account. Presumably, the beneficiary would have no remedy if the proceeds had been spent. However, leaving aside situations involving managed estates and powers of attorney, the doctrine still has application to a testator who remains in control of his or her affairs and is of full capacity. If PBL had been of full capacity at the time of the sale, the gift by her Will would have been adeemed. Such a testator should be aware that if he or she sells an asset during her lifetime the doctrine will apply to the proceeds. The testator needs to change his or her Will to make clear that the beneficiary of the asset is now entitled to the proceeds of sale of the asset and also needs to retain the proceeds in an identifiable form.
2. The surplus money or other property arising as referred to in sub-section 1 is taken to be of the same nature as the property sold, mortgaged, charged, disposed of or dealt with.” Section 22 was a new provision enacted on 16 February 2004. The result is that the doctrine of ademption will have no application where assets are lawfully
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For more information, please contact: Paul Anderson Special Counsel T: 02 8257 5742 M: 0418 491 395 paul.anderson@turkslegal.com.au
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Paul Anderson | November 2012
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