Sunday, January 12, 2014

Differences among General, Demonstrative and Specific Gifts

What is the difference between a general and specific gift? Or a general or demonstrative gift? Why does it matter?

In many cases it makes no practical difference how a gift in a will is classified, but the classification affects the rights of beneficiaries if there are insufficient assets to pay all of the gifts in a will, or if at the time of death, the will-maker no longer owns an asset that he or she left to a beneficiary.

This is illustrated in a recent Supreme Court of British Columbia decision.

Florence Verlene Celantano left cash amounts to family members and charities in her will. In most cases, her will provided that a beneficiary would receive an amount of money, such as “$50,000 to THE WAR AMPS,” but one provision directed her executor to transfer,

the sum of $50,000.00 each in US funds (such funds to be taken from my US bank accounts) to the following SHRINERS HOSPITALS:
             i)          PORTLAND HOSPITAL, 3101 SW. Sam Jackson Park Road, Portland,       Oregon, 97201-5090 (504) 241-5909, and
            ii)         SPOKANE HOSPITAL, 911 W. Fifth Avenue, Spokane, Washington,            99204-2901 (509) 455-7844….

When the amount of these gifts of money in her will is added up they total $130,000 in Canadian funds and $100,000 in U.S. funds. The problem was that at her death, Florence Celantano did not have enough assets at her death to pay all of the amounts in her will. Her main assets were bank accounts in the United States.

When there are insufficient funds to pay out all of the gifts in a will, then gifts abate. But not all types of gifts abate equally, and this is one reason the classification of gifts can be important.

As set out by Madam Justice Donegan in Celantano Estate v.Ross, 2014 BCSC 27

[13]         The common law order of abatement for testamentary gifts is:
1)    residuary personality;
2)    residuary real property;
3)    general legacies, including pecuniary legacies from residue;
4)    demonstrative legacies;
5)    specific bequests of personality;
6)    specific devices of real property.

(It should be noted that the order of abatement in British Columbia law will change with the new Wills, Estates and Succession Law that will come into effect on March 31, 2014, which I write about in my next post.)

The issue in this case is whether the gifts to the Shiners Hospitals were general legacies, or either specific or demonstrative. If general legacies, then they would abate equally with the other gifts of money, which were clearly general legacies. Accordingly, to the extent of any shortfall, then each gift would be reduced by the same percentage.

But if the gift to the Shriners Hospitals were either specific or demonstrative, they would be paid out of the U.S. bank accounts first, and the shortfall would be borne by the general gifts.

Madam Justice Donegan succinctly summarized these three types of gifts. She described general and specific gifts as follows:

[17]         A general legacy is a gift of something which, if the testator leaves sufficient assets, must be raised by her executor out of her general personal estate. It is a legacy not of any particular thing, but of something which is to be provided out of the testator’s general estate. An example of a general legacy is “I give [pounds] 100 to X”: Wood Estate v. Arlotti-Wood, 2004 BCCA 556 at para. 11.
 [18]         A specific legacy is a gift of some particular thing or of some interest, legal or equitable, forming part of the testator’s estate. It must be identified by a sufficient description and separated in favour of the particular legatee from the general mass of the testator’s personal estate. In other words, a specific legacy is a gift of a severed or distinguished part of the testator’s property, thus showing an intention that the property shall pass to the legatee in specie. An example of a specific legacy is “I give my dwelling house, Blackacre, to X” or “I give my silver teaspoons to X”: Wood Estate at para. 11.

She wrote of demonstrative gifts:

[25]         A demonstrative legacy shares characteristics of both general and specific legacies. It is in the nature of a specific legacy in that it is a gift of a specified amount or quantity which is directed to be satisfied primarily out of a particular fund or asset. It is in the nature of a general legacy, in that it could be paid out of the general estate if the specified fund falls short. An example of a demonstrative legacy is: “I give [pounds] 100 to be raised out of the sale of my Surrey properties”; Wood Estate at para. 12.

In this case, Madam Justice Donegan found that the gifts to the Shriners Hospitals were not general gifts, but were either specific or demonstrative. She wrote:

[31]         In my view, the Shriners’ legacies cannot be construed as general legacies. In so finding, I consider not only the specific language used in the bequest, but also its context in the entire will.
[32]         In determining the deceased’s intentions, I must consider the will as whole. It is notable that the Shriners’ legacies are the only bequests that are specified to come out of a particular fund. All other legacies are pecuniary and are clearly general legacies. Those other legacies have no reference to the actual state of the property; they are something simply to be provided out of the deceased’s general estate.
[33]         The Shriners’ legacies were treated differently by the deceased. By using the words “$50,000.00 each in US funds (such funds to be taken from my US bank accounts)”, the deceased specifically referred to the actual state of the property (the existence of her US bank accounts). Her use of the word “my” also suggests that the gift is specific and not general. She provided that recourse for payment of the Shriners’ legacies is to come from a particular fund - her US bank accounts.

As between specific or demonstrative, she found that it was most likely that these gifts were demonstrative. Accordingly, the Shriners Hospitals will receive the full amount of the gifts in the will, and the shortfall will be borne by the other beneficiaries.

Although in this case it made no difference whether the gifts to the Shriners Hospitals were classified as specific or demonstrative, in some cases this distinction is important. If a will-maker leaves funds from an investment to a beneficiary, and the will-maker no longer has the investment at death, then if the gift is considered to a specific gift of the investment, the gift adeems, and the beneficiary does not receive the gift. But if the gift is demonstrative, then the beneficiary is entitled to the gift out of other assets. Accordingly, if Ms. Celantano no longer had U.S. bank accounts, then if the gift to the Shriners Hospitals were classified as specific, they would not receive anything, but if demonstrative, then they would be entitled to receive their gifts (subject to any abatement) out of other funds. 

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