What is a Testamentary Gift?
A testamentary gift is a gift given through a final will and testament. This means that the gifts are not given or handed over until the gift giver is dead and their will is placed in execution.
The gift receiver, called the ‘donee’ in legal terms, gets legal ownership of the gift after the giver (known as the donor) expires.
Types of Testamentary GiftsThere are two different terms for testamentary gifts. These are devise and a bequest.
A testamentary gift is called a devise when the gift is of physical assets like land.
A testamentary gift is called a bequest when the gift is personal property.
The majority of US state laws and courts do not differentiate between the two terms, but a few still make the distinction.
Problems with Testamentary Gifts
A fundamental problem with testamentary gifts is that you need to remember that assets in your will have the potential to change in value over time.
A recent example in the UK is Skillett v Skillett, passed on 8 February 2022. The beneficiaries of the will were left with different assets. The will was made in 2011. The donor left a smallholding to one child and £50,000 to three other children.
At the time of the will being drafted, the value of the smallholding was approximately £50,000. Everything else was divided equally into four shares amongst the four children.
By the time the testator (the person who made the will) passed away in 2017, the worth of the smallholding had increased to £110,000. The will was contested by the other son to claim that the testator had not intended for the inequality in value to occur and did not understand what he was doing.
The court passed a judgement rejecting the circumstances of a change in the value of the assets after execution of a will. This is a reminder to testators to account for unprecedented changes in circumstances of their assets from the time of the will to their actual death.
Points to Note for Testamentary Gifts in Wills
The Skillett v Skillett case shows how specific distributions can affect the actual worth of the gifts in the will. Some points to follow should help avoid such issues:
Dividing your estate by using fractions of the total worth, or percentages, is a better distribution method or mentioning actual amounts. This helps protect against changing asset worth.
Having a periodic review of your will is a good decision. Reviewing your will and its benefits for all included will mean that you are aware of everyone’s changing benefits. This can allow the testator to amend or make the distributions more precise. Many lawyers recommend that a will be reviewed every three to five years. This lets testators account for changing values of shares, real estate and other assets in their estate.
Primary Forms of Testamentary Bequests:
Most benefits can be classified into four major types. This specification can be important if the property on the small side or has excessive expenses and creditors’ claims.
1. Specific Bequests
These are gifts of an actual item that is identifiable and separate from all other items in the testator’s will. Because of the specific nature of the will, it cannot be replaced by another item to meet the requirements of the bequest.
For instance, if the testator leaves a painting or a house to a child, that specific painting or house is what will satisfy the terms of the will.
In the case of assets that are as volatile as stocks, specific bequests can be prone to misinterpretation and legal action. Precise language is needed because stock value varies, and splits and mergers are also common.
2. Demonstrative Bequests
A demonstrative legacy is the bequest of a specific thing from the estate that is sourcing from a specific asset or item. Such endowments have properties of both specific and general bequests.
They can be honored fully or partially if the source of funds is no longer in existence. If the source of the bequest is not available, then the general assets of the estate can be used to honor the bequest.
For example, Mr X stated in his will: “I leave $20,000 to my daughter, A. These are to be paid from the income from the sale of my farm in Georgia."
Now Mr X sold his farm three years before his death to buy something else near his residence. The $20,000 bequest can be met from the proceeds from the sale of the new land or any other asset included in the will.
3. General Bequests
Like the name implies, this is a gift of an asset or item that can be settled from the assets included in the overall assets of the estate.
For example: continuing with our Mr X example, if he had stated in his will: “I leave $20,000 to my daughter, A to be settled from my estate. Or my entire portfolio of stocks at the time of my death will go to my daughter A.”
General bequests are usually of money or other generic assets, like stocks, bonds or other securities.
4. Residuary Gift
A residuary gift is a testamentary gift from whatever is left of the estate after the satisfactory settlement of all other dispositions.
This means that the residuary estate is whatever is left after paying duties, taxes, liabilities, and all bequests listed in the will.
For example, Mr X states the following in his will: “I leave $20,000 to my daughter, A. These are to be settled from the income from selling my land in Georgia. I leave all of the remaining worth of my estate to my son, Z.”
This means that after paying all death and administrative expenses, taxes, settling all credit claims and the $20,000 from the sale of the farm in Georgia, Z will get the balance of the estate.