Lessons on Protecting a Beneficiary

Best v Hendry, 2021 NLCA 43

On July 8, 2021, the Newfoundland and Labrador Court of Appeal rendered a decision holding that the sale proceeds from a house could not be substituted for the intended gift of the house itself and its contents left to a beneficiary in a Will.

The Court of Appeal, in coming to its decision, has clarified the legal principle of ademption and suggests lesson to be learned by Will makers and their advisors to prevent any potential loss to a beneficiary named in a Will. The doctrine of ademption occurs when, upon distribution of an estate’s property, an item that a testator wanted to specifically leave to a beneficiary is no longer in the estate at their death.

Background

In 1981, Ms. Penney, a childless Aunt, executed a Will using her solicitor, who she also named executor, and naming her two nieces, Ms. Hendry, and Ms. Best as beneficiaries. Ms. Hendry was left the Aunt’s home and its contents and Ms. Best was left the residue of the estate, meaning all the assets remaining after the estate’s debts and expenses were paid.

Decades later, Ms. Penney passed away. However, between the time of Ms. Penney executing her Will and passing away, she was diagnosed with dementia and moved to a long-term care home. Following this, Ms. Best, with Ms. Hendry’s consent, was granted guardianship of Ms. Penney’s estate. Ms. Best and Ms. Hendry prepared Ms. Penney’s home for sale. When the property sold, the proceeds of the sale were deposited into the Aunt’s bank account.

Ms. Penney’s estate at the time of her death consisted only of cash held in that bank account. When the lawyer/executor later met with Ms. Best and Ms. Hendry to discuss the distribution of the estate, he believed that it was Ms. Penney’s intention to leave the bulk of it to Ms. Hendry. Therefore, he proposed that Ms. Hendry receive cash equal to the sale proceeds from the house which was $145,780 and that Ms. Best receive the cash balance of $30,238.

The funds were released according to Mr. Vavasour’s proposal. However, the Court of Appeal determined that the $145,780 distributed to Ms. Hendry from the sale proceeds of Ms. Penney’s house was done in error. This is because Ms. Penney had specifically left Ms. Hendry her house and its contents, not cash. Therefore, Ms. Hendry, as the beneficiary, was no longer entitled to any portion of the estate as no substitute gift was provided for in her Will.

Key Takeaways

Key takeaways from the Court of Appeal’s decision include:

1. Consider making arrangements to provide a substitute gift to protect a beneficiary from losing their entitlement to a specific gift, in case for any reason or circumstance at the time of death, that gift is no longer in the estate.

If no substitute gift is provided in the Will, it will be assumed that the testator did not intend to substitute the gift or that the testator intended to revoke the gift.

2. Alternatively, if a substitute gift is not made, and a specific gift must be disposed of, consider placing any relevant proceeds in a separate account where it will not be co-mingled with any other monies.

Simply having an account with the money from the proceeds of a specific gift will not entitle a beneficiary to that money if other monies are repeatedly withdrawn and deposited in the same account.

In conclusion, when drafting a Will, you should always consider including a provision for a substitute gift for your intended beneficiary if you wish to leave them specific property. This will protect the beneficiary from any potentially harsh results if that property does not exist in your estate at your death.

The comments contained in this eCaseNote provide general information only and should not be construed as legal advice or opinion. For more information or specific advice on matters of interest, please call our offices at (709) 579-2081.