§ 41  Introduction  [231-239]

 

This chapter discusses a number of doctrines governing what documents mean. Some of these doctrines developed as part of wills law, some as part of future interests law, and others as statutory responses to perceived inadequacies in each.

 

         A.  The Donor’s Intention [?]

 

Deeply imbedded within our law is the notion that a court seeking the meaning of a donative document should attempt to identify the donor’s intention.  The canonization of “intention” causes confusion, however, as courts struggle to attribute to donors subjective intentions they almost certainly never had.  The document might apply in a situation unanticipated at the time it was drafted.   The donor may not have understood it.  The language may not be clear, because it is tangled or when applied to the real world, it does not fit.

 

         B.  Mistake and Extrinsic Evidence

 

Courts traditionally have been reluctant to look beyond the language of a document when they try to determine its meaning.  They may give effect to the “plain meaning” of particular technical words, or stretch a bit further and consider the whole document.  The problem is that what is plain to a particular judge may not be so plain to other people.  Understanding the bigger picture, however, requires a court to admit extrinsic evidence, and courts traditionally have been unwilling to do so unless that evidence is needed to resolve ambiguity.

 

1.   Patent and Latent Ambiguities

 

A patent ambiguity is one apparent from the face of a document.  For example, “I give Arnie one of my two houses in Toledo.”  Traditionally, no extrinsic evidence is admissible to resolve the problem, and the gift fails.

 

A latent ambiguity is one only discoverable by considering evidence extrinsic to the document.  See In re Estate of Gibbs, 111 N.W.2d 413 (Wis. 1961).  Latent ambiguities can arise in either of two ways:

 

·        Two or more items meet the description

·        Nothing meets the description.

 

Traditionally, extrinsic evidence is admissible to resolve a latent ambiguity.

 

The direction of the law, but perhaps not yet the majority position, is to allow extrinsic evidence to resolve ambiguity, whether patent or latent.  Restatement (Third) of Property § 11.1 comment a.

 

               2.   Interpretation or Reformation?

 

Because traditional rules preclude reforming wills, courts faced with mistakes in drafting often purport to “interpret” or “construe” a document in order to correct the mistake.  In a comprehensive and influential article, Professors Langbein and Waggoner propose that courts instead recognize a reformation doctrine for wills.  John H. Langbein & Lawrence W. Waggoner, Reformation of Wills on the Ground of Mistake: Change of Direction in American Law?, 130 U. Pa. L. Rev. 521 (1982).  The Restatement has endorsed their approach.  Restatement (Third) of Property § 12.1.  Not only would such a development allow courts to be more honest about what they are doing, but it would also bring wills law more into line with the law of will substitutes. 

 

The text discusses two illustrative cases (one about a trust, the other, a will).  Each involves perhaps the most frequent source of litigation about documents — ones that fail to anticipate what actually happens.  Compare Brinker v. Wobaco Trust Ltd., 610 S.W.2d 160 (Tex. Civ. App. 1980), with Flannery v. McNamara, 738 N.E.2d 739 (Mass. 2000).

 

The current UPC, while not providing for reformation, allows it.  Section 2-601 notes that the Code’s rules of construction apply “[i]n the absence of a finding of contrary intention.”  The earlier version had referred to “contrary intention indicated by the will.”  The comments explain that “[t]he striking of this sentence removes [a] possible impediment to the judicial adoption of a general reformation doctrine for wills . . . .”

 

§ 42  Independent Significance  [239-240]

 

Courts must also rely upon extrinsic evidence in many situations not involving mistake.  Suppose Akiko’s will reads “all the books in my library to Mitsuo Matsushita” or “$500 to each of the members of the Galesburg Sewing Circle.”  In order to interpret these gifts, a court might rely upon a library catalog or an after-death inventory, a sewing circle mailing list or a dues record.  Courts routinely consider such evidence under the doctrine of independent significance.

 

The key to the doctrine is the notion of significance independent of the will.  Some situations straddle the line.  Suppose Naomi leaves a will giving “everything in my right-hand desk drawer to Beth and everything in my left-hand desk drawer to Andrea.”  The designation might be innocent.  If the evidence showed, however, that Naomi moved things from one side to the other as she changed her mind about who should get what, the gifts should fail.  In that case, Naomi would have used the drawers to change testamentary gifts without complying with the Statute of Wills

 

§ 43  Class Gifts  [240-243]

 

         A.  What Is a Class?

 

Most class gifts are easily recognizable, like gifts to “children” or “issue.”  Some are not.  On the margin, courts seeking to identify class gifts ask two related questions: Was the testator “group minded”?  Did the testator intend for the size of the group to fluctuate?   As a practical matter, courts often look first to the consequences of applying the “class gift” label, and then work backward to see if calling something a class gift will make sense in a particular situation.  See Sullivan v. Sullivan, 529 N.E.2d 890 (Mass. App. 1988).

 

         B.  When Does a Class Close?

 

Virtually everyone who has attended college has had the experience of being shut out of an academic class that closed.  The same idea applies to class gifts. Class closing rules set the maximum size of a class.  Just as students can drop out of academic classes, so can members drop out of donative classes, making them smaller.  The class closing rules, then, do not establish the exact size of a class, but only its ceiling.

 

               1.   Physiological Closing

 

Classes close physiologically when all the persons who can feed the class are dead.  For example, if a trust provides income “to Jessica’s children,” the class cannot grow after Jessica’s death.  A gift “to my nieces and nephews” would close physiologically only after the deaths of all of the donor’s siblings.

 

               2.   The Rule of Convenience

 

Classes will close according to the rule of convenience when any class member has a right to demand possession.  Because income can be reallocated as new class members arrive, the rule only applies to gifts of principal.  The examples below are simply applications of the basic principle: once one class member has a right to his or her share, afterborn class members are cut out.  Assume that the class feeders are alive.

 

Immediate Gifts.  Suppose Howard’s will gave $10,000 “to Ethel’s children.”  If Ethel has a child, the class closes at Howard’s death.  If Ethel has no children, the class remains open until Ethel’s death, even if she later has a child who could take.

 

Suppose Helen’s will gave $3,000 “to each of my grandchildren.”  Because the total amount of the gift varies with the number of grandchildren, the class closes at Helen’s death to allow closing of Helen’s estate.  This result would follow even if Helen had no grandchildren.  We can neither keep the estate open until the class closes physiologically, nor know how many $3,000 shares to set aside for possible future grandchildren.  If, instead of coming from an estate, the funds would come from a trust, this rationale would not apply.  See In re Earle’s Estate, 85 A.2d 90 (Pa. 1951).

 

Postponed Gifts.  Suppose Rivke established a trust to pay income to “Noyich for life, remainder to Sylvia’s children.”  At Rivke’s death, Sylvia has one child, David.  Before Noyich dies, Sylvia has Ricky.  The class does not close until Noyich’s death, when David can demand distribution.  Ricky shares the fund.

 

§ 44  Special Cautions  [244-256]

 

When you draft or review documents, the phrases below should jump off the page as ones that you should either not use, or use only with great care.

 

         A.  “To Delison and His Children”

 

Suppose Evelyn gave her farm “to Delison and his children.”  See Wild’s Case, 77 Eng. Rep. 277 (K.B. 1599).  Delison and his two daughters, Susan and Angela, survived Evelyn.  Consider some possible interpretations, each with some supporting authority:

 

·        Delison, Susan and Angela own the farm as co-tenants. 

·        Delison has a fee simple.

·        Delison has a life estate, and the daughters have vested remainders, subject to open.

 

The bottom line: avoid this formulation.

 

         B.  “If Dorthea Dies Without Issue”

 

When the fee tail was still in use, English courts read “if Dorthea dies without issue” to mean “if her line runs out.”  Most states now adopt a definite failure of issue construction, which means we ask if Dorthea has died leaving issue surviving her death.  Another conflict surrounds what to do if Dorthea had a child, but the child died before Dorthea.  The standard rule is that “dies without issue” means “dies without issue surviving her (or him).”

 

1.      Substitutional v. Successive

 

Suppose George’s will leaves property “to Dorthea, but if she dies without issue, to William.”  Some authorities say if Dorthea survives George, she gets a fee simple absolute and William gets nothing. The theory here is that “dies without issue” means “dies without issue before George dies.”  This is a substitutional construction; William is an alternative beneficiary of George’s will.

 

Other authorities give Dorthea a fee simple subject to an executory limitation, and William, an executory interest.  Under this view, the language means “dies without issue whenever Dorthea dies.”  This is a successive construction; William can divest Dorthea if she later dies without issue.  When the gift involves a present interest, the successive construction is preferred, but not universal.  See Restatement of Property § 263.

 

Similar construction problems arise if someone uses a phrase like “dies with issue.”  The question remains: When?  See Pyne v. Pyne, 154 F.2d 297 (D.C. Cir. 1946).

 

         C.  “To Vernon’s Youngest Grandchild”

 

Suppose a testator says a trust “shall be maintained for the benefit of my grandchildren and shall not be sold until the youngest of said grandchildren has reached twenty-one years of age.”  See Lux v. Lux, 288 A.2d 701 (R.I. 1972).  Someone might qualify as the “youngest grandchild” at any of four times:

 

(1) when the will was executed,

(2) when the will was effective,

(3) when the youngest alive at any time reached 21, or

(4) when no more grandchildren could join the class.

 

Lux chose the third option, but the drafter should have clarified the point.

 

         D.  “To Joyce’s Heirs” or “To My Heirs”

 

               1.   Identifying Heirs

A court deciding who fits the description of “Joyce’s heirs” starts by looking at an intestate statute.  Two principal problems emerge.

 

a.      What Statute Should Apply?

 

Suppose Edwin died an Illinois resident in 1970, leaving personal property in trust “to Lois for life, remainder to Joyce’s heirs.”  Joyce, who lived in Indiana, died in 1980.  Should the law of Illinois (the testator’s domicile) or Indiana (the designated person’s domicile) identify Joyce’s heirs?  There is authority for each position

 

Suppose Illinois law applies, but the statute was revised in 1975.  Should the new or the old version control?  The authorities are split.

 

b.      When?

 

As a starting place, we expect to determine someone’s heirs at the time of her death, but in many situations such a reading would not match a donor’s likely intention.  Problems can arise both with immediate gifts and with gifts of future interests.  For some examples, see the discussion surrounding Chart 11-2 in the text.

 

               2.   “To Joyce for Life, Remainder to Her Heirs”: The   Rule in Shelley’s Case

 

The rule applies to gifts of land to a life tenant, with an attempted remainder to the heirs of the life tenant.  Regardless of the intention of the donor, the rule invalidates the attempted remainder to the heirs, and substitutes in its place a remainder owned by the life tenant.

 

If Edwin gave realty “to Joyce for life, remainder to her heirs,” the rule would change that grant to read “to Joyce for life, remainder to Joyce.”  Then, the doctrine of merger would apply to create a fee simple absolute in Joyce.  Be careful not to collapse the analysis and jump straight to the fee simple.  All Shelley does is convert the remainder.  Whether to apply merger is a separate question.

 

The Rule in Shelley’s Case is dying, but not dead.  It lingers on in a few states and has only recently been abolished in others.

 

               3.   “To Joyce for Life, Remainder to My Heirs”: The Doctrine of Worthier Title

 

The doctrine establishes a presumption that a grantor’s gift of a remainder to the grantor’s own heirs was not intended as a remainder at all but, rather, as a way of retaining a reversion.  An easy way to remember the doctrine’s impact is to say it simply invalidates remainders to heirs of the grantor.  Thus, if Edwin created a trust giving “income to Joyce for life, remainder to my heirs,” the doctrine would have us strike the remainder, leaving only “income to Joyce for life.”  Without more granted, Edwin has a reversion.

 

Oddly, saying “remainder to my heirs” is not enough to overcome the presumption; something more is required.  Though disputes are legendary, language like the following ought to be enough: “By this grant I fully intend to overcome the Doctrine of Worthier Title and to create a remainder in my heirs, and not to retain a reversion for myself.”

 

UPC § 2-710 abolishes Worthier Title, but the doctrine persists.

 

4.      A Checklist

 

Often a gift to heirs will present several problems at once.  See Warren-Boynton State Bank v. Wallbaum, 528 N.E.2d 640 (Ill. 1988).  If you see a remainder to the “heirs” of some person, ask:

 

·        Is the person alive?  If so, the remainder is probably contingent.

·        Is the person a life tenant?  If so, Shelley may apply.

·        Is the person the grantor?  If so, Worthier Title may apply.

·        When should “heirs” be determined?

 

         E.   “To Linda’s Issue” or “To Linda’s Children”

 

1.   Allocating Shares

 

Suppose Hope’s will gave property “to my descendants.”  Hope dies leaving one son, Gordon, and his three children, Gord, Chuck  and Kathy.  Hope’s other son has predeceased, leaving two children, Kendra and James. (See Chart 11-4(A).)  Do the descendants take per capita, so each gets 1/6?  Or do they take by representation, so Gordon gets half and James and Kendra share the other half?  If Gordon has also predeceased (see Chart 11-4 (B)), do the grandchildren take equally, or do Gord, Chuck and Cathy share one half while James and Kendra share the other?  The document should have covered these questions.

 

When they need clarification, courts often interpret documents according to the way the local intestate statute would handle the problem.  The First Restatement endorsed that approach.  See Restatement of Property § 303.  The Second Restatement established its own rule. Restatement (Second) of Property § 28.2. UPC § 2-708 follows the First Restatement.

 

               2.   Identifying Takers

 

Additional problems arise if individuals claim membership in a class by way of adoption, or if they are nonmarital children.  In addition to the fairness issues considered regarding intestate statutes, when interpreting documents we should consider what the donor intended.  In the absence of an identifiable intent to include nonmarital children in class gifts, traditional rules excluded them.

 

Adopted children were presumed included in an appropriate class gift created by their adopting parents, but they were excluded from class gifts created by others who did not know of the adoption.  The idea was that “strangers to the adoption” should not have adopted family members foisted upon them.  Presently, both adopted and nonmarital children are more likely than they were in the past to be included in class gifts.  See In re Estate of Coe, 201 A.2d 571 (N.J. 1964);  Will of Hoffman, 385 N.Y.S.2d 49 (N.Y. App. 1976);  755 Ill. Comp. Stat. 5/2-4(f).

 

UPC § 2-705 distinguishes between class gifts from parents (biological or adoptive) and class gifts from “strangers” to the conception or adoption. 

 

§ 45  Changes After Drafting: People  [256-278]

 

         A.  Arrivals

 

We have already discussed, in different places, various doctrines affecting documents in light of new arrivals.  If someone gets married, his whole will may be revoked.  The new spouse may have a “pretermitted spouse” claim.  If a testator has a child, the child may be able to take a share of the estate.  If a will or trust creates a class gift, a newborn or newly adopted class member may be able to qualify for it, if the class is still open.  In various ways, all these doctrines address the problem of how to handle those who arrive on the scene after a document has been drafted.

 

B.     Departures

 

1.   Divorce of the Donor

 

Suppose Glenn and Tracy marry and have two children.  Glenn executes a will giving everything to Tracy or, if she does not survive him, to the children.  He makes an identical beneficiary designation for his life insurance.  Later the marriage collapses and the parties divorce, but the decree does not mention either the will or the insurance policy.  When Glenn dies without having revised either document, Tracy claims the proceeds of each.  In most states Tracy would lose under the will, but still take the life insurance.  The reason for the different treatment is that virtually every state has a statute denying will benefits to a former spouse, but the statutes seldom apply to will substitutes.

 

Some courts have stretched doctrine or statutes to cover will substitutes. See Miller v. First National Bank & Trust Co., 637 P.2d 75 (Okla. 1981);  Clymer v. Mayo, 473 N.E.2d 1084 (Mass. 1985).  Others have been more direct at simply applying the wills rule to the life insurance context.  See Vasconi v. Guardian Life Insurance Co., 590 A.2d 1161 (N.J. 1991).

 

UPC § 2-804 cuts across a range of will substitutes.  It revokes appointments and beneficiary designations of, and severs joint tenancies with, the former spouse.  Property which would otherwise go to the former spouse passes as if the spouse, and the spouse’s relatives, had disclaimed.

 

2.      Death: The Need for Survivorship

 

The most common way for beneficiaries to drop out of a donative document is by dying. In this context, timing is everything.  Traditionally, survival of the donor, even by a moment, is enough for someone to qualify.  Moreover, unless the document provides otherwise, once someone acquires a future interest, it usually remains valid even if the holder dies before the time for possession.

 

a.      Survival: Simultaneous Death

 

Questions about whether one person survives another have two aspects:  one medical, the other legal.  Suppose Carol and Greg had wills giving everything to each other, but then died in a plane crash.  Who should inherit from whom? 

 

An early version of the Uniform Simultaneous Death Act provided that where “there is no sufficient evidence that the persons have died otherwise than simultaneously, the property of each person shall be disposed of as if he had survived.”  Unif. Simultaneous Death Act § 1, 8A U.L.A. 561 (1953).   The idea was to solve the dilemma of insufficient evidence and to distribute property to living people as much as possible.  The statute was drafted too narrowly, however.  Claimants were able to produce evidence of bare survival and thereby overcome the statute, defeating its second purpose of not giving property to dead people. See Estate of Rowley v. Bunnell, 65 Cal. Rptr. 139 (Cal. App. 1967).

 

In response, UPC § 2-702 created a legal definition of survival, requiring one person to have survived another by 120 hours before being deemed to have survived for the purpose of interpreting documents, including will substitutes.

 

                     b.   Surviving the Donor: Lapse

 

Suppose James leaves a will giving his piano to Jessamal, but that she predeceases him.  At common law, Jessamal’s gift would “lapse,” or fail.  The piano would be distributed under the residuary clause, or, if the will lacked one, by intestacy.  Because legislators thought that in some cases such a result would be contrary to a common testator’s intention, they passed “antilapse” statutes.  See Restatement (Third) of Property § 5.5, statutory note.

 

 

                           i.    Traditional Antilapse Statutes

 

Because antilapse statutes vary in detail, it can be helpful to have a series of questions you can ask about whatever statute you face:

 

Is the predeceased beneficiary in a class protected by the statute?  The answer depends upon the relationship between the testator and the beneficiary.  Some jurisdictions protect gifts to all beneficiaries; some apply only to gifts to relatives;  some only cover gifts to descendants.

 

Did the beneficiary die before the will was executed?  Under the common law, a gift to someone dead when the will was executed did not lapse; rather, it was “void.”  Most statutes expressly cover both lapsed and void gifts, but some do not.

 

Did the beneficiary leave survivors who qualify under the statute to take the gift?  This time the key is the relationship between the predeceased beneficiary and that person’s survivors.  If appropriate survivors exist, they will take the gift.  By far the most common substitute takers are issue of the beneficiary.

 

How does the document’s language affect the statute?  Antilapse statutes will yield to contrary expressions of intent. 

 

Survivorship.  Much confusion surrounds the impact of adding survivorship language to a gift.  Authorities sometimes say a mere survivorship requirement is enough to override the statute. See Estate of Rehwinkel, 862 P.2d 639 (Wash. App. 1993).   The law is not clear, however, so relying upon that approach is risky.  UPC § 2-603, comment. 

 

Class gifts.  Many statutes expressly apply to class gifts.  When the statute is not clear, courts are divided.  The Restatement’s position is that antilapse statutes do apply to single-generation class gifts (e.g., children), but not to multiple-generation gifts (e.g., descendants). See Restatement (Third) of Prop. § 5.5 cmt. j.

 

Powers of Appointment.  When the testator is exercising a general power, courts usually will apply an antilapse statute, if its other terms are met.  On the other hand, if the power is special, courts may refuse to apply the statute.

 

Does the statute apply to documents other than wills?  By their terms, virtually all antilapse statutes apply only to wills.  Some authorities extend the coverage to will substitutes.  See Estate of Button v. Old Nat’l Bank, 490 P.2d 731 (Wash. 1971).

 

                           ii.   The UPC

 

UPC § 2-603 expands and clarifies antilapse statutes while covering class gifts, testamentary exercises of powers of appointment, and void gifts.  Sections 2-706 and 1-201 extend antilapse protection to a variety of will substitutes. 

 

Its most ambitious and controversial step is to clarify the rules surrounding what language will preclude the application of the statute and who the alternate takers ought to be in various circumstances.  The language “if she survives me,” without more, is not enough to prevent the statute from substituting alternative takers if the named beneficiary does not survive.  Only if testators clearly express another intention can they avoid the statute’s solutions.  The best way to avoid the statute is to provide an alternative gift. 

 

For examples, consult text pages 266-269, the comments to UPC § 2-603, and the comments to Restatement (Third) of Property § 5.5.

 

                     c.   Future Interests: Surviving Until Possession?

 

Suppose Peggy’s will left property “to my husband Ricky for life, remainder to Todd,” and Todd survived Peggy, but not Ricky.  Under traditional rules, when Todd survived Peggy, he got a vested remainder.  In the absence of a survivorship requirement, Todd does not lose his interest by dying before Ricky.  See Swanson v. Swanson, 514 S.E.2d 822 (Ga. 1999).  This subsection discusses rules that change that result and require a future interest holder to survive until possession.

 

i.    Express Survival Requirements: When?

 

In general, the law presumes that words of survivorship refer to the time the beneficiary would come into possession of the property.  See In re Gustafson, 547 N.E.2d 1152 (N.Y. 1989).  Although the tendency is to require survivorship until the time of distribution, courts often depart from that rule in particular cases.  Sometimes they say “survive” means “survive the testator.”  Sometimes “survive” means “survive your immediate ancestor.”

 

ii.   Implied Survival Requirements

 

In general, courts do not imply survivorship requirements in gifts of future interests.  The principal exceptions are:

 

Multi-generational classes.  Courts will imply conditions of survivorship when donors give to multi-generational classes, like “issue,” “heirs,” and “descendants.”  Courts generally define these terms as having a built-in survivorship requirement and alternative gift to those who survive.  See UPC § 2-707, comment.

 

“To Thomas for life, remainder to George or Martha.”  If a gift is phrased in alternative terms, courts usually will read it to mean that the gift to the first person is contingent upon survival.  If both of them predecease Thomas, the general rule would not imply a survivorship condition with respect to Martha’s gift, so Martha’s successors would take.

 

“To Anton for life, remainder to Stanley at 21.”  If a gift is to someone “at” a particular age, many courts will read “at” as “if he reaches” and require the donee to survive until that age.  On the other hand, courts would probably read “to Stanley, payable at 21” to give Stanley a vested interest, with no survival requirement.  Under this reading, if Stanley dies, his successors can demand payment when Stanley would have reached 21 (or at Anton’s death later). These different interpretations got their start in Clobberie’s Case, 86 Eng. Rep. 476 (K.B. 1677).

              

                           iii.  The UPC

 

Taking an approach paralleling the antilapse statutes discussed above, Section 2-707 applies to future interests under the terms of trusts.  The future interests reform takes two basic steps.  It requires beneficiaries to survive until the time of distribution, and it provides an alternative distribution of a predeceased beneficiary’s interest.  The UPC radically alters traditional learning about future interests by making any future interest in trust contingent upon survival.

 

iv.  Applying the Rules

 

As a vehicle for understanding how the survival rules apply in the context of future interests, see the family tree and discussion of Security Trust Co. v. Irvine, 93 A.2d 528 (Del. Ch. 1953), on text pages 276-278.

 

§ 46  Changes After Drafting: Property  [278-286]

 

Imagine that Javier drafts a will leaving Antonio 50 shares of Computerwiz stock. Before Javier dies, the stock might split, with additional shares issued for each share owned.  Computerwiz might merge with, or be purchased by, another company. Javier might sell, or give away, the stock.  Miriam, acting as Javier’s guardian or under a power of attorney, might sell it on his behalf.   Javier might die owning the stock, but fewer total assets than he had anticipated.  This section addresses the doctrines that determine what Antonio would get in these various circumstances

 

         A.  Classification of Gifts

 

         Courts and legislatures have identified four classes of gifts:

 

·        Specific: “my oak desk,” “my 100 shares of General Motors Preferred Stock,” and “my house and lot in Pullman.”

·        General: “$3,000 to Marsha” and “my land to Calvin.”

·        Demonstrative:  “$6,000 to come first from my credit union account, but if the account is too small, from my other funds.”

·        Residuary:  “everything else I own.”

 

The biggest problem is trying to distinguish—on the margin—between specific and general gifts.  One reason for the trouble is that the characterization has different consequences in different circumstances.  Predictably, courts may read similar language in different ways as they strain to push a gift into a particular category to produce the result they believe makes the most sense in the case before them.  Compare Haslam v. De Alvarez, 38 A.2d 158 (R.I. 1944), with In re Estate of DeVoss, 474 N.W.2d 542 (Iowa 1991).  Sometimes it can help to ask whether the testator was primarily thinking of the gift or of the beneficiary.

 

         B.  Increases

 

People often acquire assets derived from property they already own.  Bondholders may receive interest.  Stockholders may receive dividends in the form of cash or additional stock.  Stocks may split, with the company offering two new shares for each old one.  When these changes occur between the time of a will’s execution and the testator’s death or during the estate administration, questions can arise about which beneficiaries get the “add-ons.”

 

Recall Javier’s gift to Antonio.  Suppose that after the will’s execution, Computerwiz sends Javier a cash dividend.  All authorities would agree that Antonio would have no claim to that dividend after Javier’s death.  The cash would be an estate asset, just like any other money Javier earned before he died.  If the dividend were paid in Computerwiz stock, however, Antonio might argue that he should get the additional shares as part of his Computerwiz gift.  Most courts say stock dividends do not go along with the underlying gift, because stock dividends, like their cash counterparts, are paid out of corporate earnings.  See Hicks v. Kerr, 104 A. 426 (Md. 1918).  Other courts note that after a stock dividend, the total shares the stockholder owns still reflect the same percentage ownership of the company.  Therefore, these courts give stock dividends to the beneficiaries of the underlying stock.  See Butler v. Dobbins, 53 A.2d 270 (Me. 1947).  Accord UPC § 2-605.

 

Suppose that before Javier’s death, Computerwiz splits its stock, two for one, so that Javier dies owning100 shares of their stock. The traditional approach of deciding whether Antonio gets 50 or 100 shares was to ask whether his gift was specific or general.  If specific, the new shares would go along as part of the basic gift.  If general, they would not.  A newer view gives the donee the additional shares after a stock split, regardless of the form of the gift, absent a showing of the testator’s different intention.  See Bostwick v. Hurstel, 304 N.E.2d 186 (Mass. 1973).  The UPC adopted the modern approach in 1990. Compare UPC (pre-1990) § 2-607 with UPC § 2-605.  See also Restatement (Third) of Property § 5.3.

 

         C.  Ademption

 

Suppose that by the time Javier died, he no longer owned the stock his will gave Antonio.  The dominant approach relies upon classifying the gift as general or specific.  If the gift is general, Javier’s executor uses general estate assets to buy the stock for Antonio.  If the gift is specific, Antonio loses out under the “identity” theory, which says that a specific gift fails if the subject matter is not an estate asset at death.

 

The identity theory can be harsh when assets are missing even though testators have taken no action to remove the assets from the estate.  See McGee v. McGee, 413 A.2d 72 (R.I. 1980).  In response, courts have developed avoidance devices:

 

·trace assets when someone acting on behalf of the incompetent has transferred property  See Morse v. Converse, 113 A. 214 (N.H. 1921).

·manipulate the general/specific distinction to avoid the ademption issue altogether. See In re Buck’s Estate, 196 P.2d 769 (Cal. 1948).

·Apply a “change-in-form” rule. See In re Estate of Watkins, 284 So. 2d 679 (Fla. 1973).

 

UPC § 2-606 adopts an intention-driven rule, expands the change-in-form rule, details specific situations in which tracing is appropriate, and sets up a presumption against ademption by extinction.  See also Restatement (Third) of Property § 5.2 and comment d.  But see Wasserman v. Cohen, 606 N.E.2d 901 (Mass. 1993) (noting that the identity rule’s "so-called harsh results" can be avoided by careful drafting).

 

         D.  Abatement and Exoneration

 

These doctrines relate not so much to changes in property as to creditors’ claims, but they traditionally depend so heavily upon the classification of gifts that it makes sense to consider them here.

 

      1.   Abatement

 

Abatement addresses what to do when there is not enough money to go around.  Typically, gifts to will beneficiaries “abate,” or fail in the face of inadequate funds, in the following order:  (1) residuary, (2) general, and (3) demonstrative and specific as a single class.  Multiple gifts in the same class abate proportionately.

 

               2.   Exoneration

 

Exoneration decrees that a specific gift transfers free from any outstanding mortgage or lien, which then has to be paid by the residuary estate.  Some jurisdictions recognize the doctrine, while others do not.  Compare Ashkenazy v. Estate of Ashkenazy, 140 So. 2d 331 (Fla. Dist. Ct. App. 1962) (yes), with UPC § 2-607 (no right of exoneration).  The important point for document drafters is that if you include a specific gift, say whether it passes free from creditors’ encumbrances, or subject to them.