Most of the time, when someone leaves a will, their assets are distributed according to the terms of the will, after all of the debts of the estate are settled. Occasionally, though, a last will and testament will make bequests that just cannot be fulfilled; there are not enough assets left in the estate. When that happens, who gets shortchanged? Do some heirs receive their entire bequest, while others get little or none of what was "left" to them? Abatement of legacies is the law of who gets what, and how any shortfalls are handled.
Why would abatement of legacies be necessary? Who would leave their heirs assets that they didn't have? Most people don't intend to do that, of course. But the reality is that the value of an estate can go up and down between the time a will is written and the time it becomes necessary to distribute assets. In addition, estate debts can be higher than anticipated, particularly if the last illness of the deceased person incurred significant medical bills.
Put simply, there are often the same number of people at the table, but the size of the pie is smaller. The question then becomes: how is the pie divided? Do some people leave the table hungry, or does everyone just get a smaller piece?
If the will or trust is silent about how gifts should abate, the probate court may have to decide. In Ohio, guidance about abatement of legacies comes from In re Estate of Oberstar,126 Ohio App. 3d 30, 709 N.E.2d 872(11th Dist. Lake County 1998). That case said that ‘‘the mere placement of a bequest in the first clause of a will does not sufficiently show the testator's intent to give any priority with reference to abatement over a bequest in a following clause.’’ Note the importance of the testator's (will-maker's) intent. In other words, just because a certain bequest is mentioned first in a will, doesn't mean that it's more important (and less worthy of abatement) than a bequest in a later clause.
What really matters is the class of gift. There are different types of bequests:
Ohio courts, including the Oberstar court, have stated that bequests abate in this order: first residuary bequests, then general bequests, and lastly, specific and demonstrative bequests. The Oberstar case also says that in the case of general bequests of money alone, abatement is prorated among all recipients.
Some examples might help to illustrate this. Let's say you have four children: Andrew, Billy, Christa, and Doug. You believe your estate is worth about $1,000,000, and you plan to leave your children equal shares. In your will, you leave Andrew your house valued at $250,000, and Billy, 1500 shares of Apple stock with the same value. You leave Christa some heirloom jewelry valued at $50,000 and a general bequest of $200,000, and Doug a general bequest of $250,000.
Unfortunately, when the debts of your estate are settled, there is less value left in the estate than you anticipated, including $300,000 in cash. Andrew takes the house, a specific bequest. Billy receives his demonstrative bequest of Apple stock. Likewise, Christa receives her specific bequest of jewelry.
There are now $450,000 worth of bequests to satisfy, and only $300,000 in cash with which to do it. Just as they would have had there been sufficient funds, Christa will receive four-ninths (or, $200,000/$450,000) of the money, and Doug will receive five-ninths (or, $250,000/$450,000). Although it was not your intention, your children took very different amounts from your estate
You cannot guarantee that at the time of your death, all the assets in your will or trust will still exist or be worth what they once were. The best thing you can do is be clear with your estate planning attorney about your goals and intentions. Your attorney can include language in your estate planning documents (any trusts you have, in addition to your will) to direct how gifts should abate in the event your estate's assets are not sufficient to fulfill them.
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