The recipe for disaster that is leaving Specific Gifts in Wills

"And to my family I bequeath all my worldly goods and chattels ..."

One of the most popular questions asked about making a Will document is, ‘Can I leave a specific gift, to one person and the remainder of my estate to be split equally between the remaining beneficiaries?’

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You don't get a second chance to fix a mistake in your Will document

Whenever you make Specific Gifts in a Will document you have to be incredibly precise, because anything that's other than clear will lead to uncertainty - which leads to litigation - which leads to your Will and wishes being the source of anger and disappointment, between the surviving beneficiaries.

Often Residual Gifts are see as a better alternative.

Phrases like, 'to my favourite niece Julie I leave my collection of porcelain "Royal Doulton with the hand-painted periwinkles,’ hanging on the kitchen wall…', becomes complicated 30 years later when the situation has changed; you have more than one niece, Julie has medically transitioned their gender to John, your porcelain Royal Doulton plate collection has metastasized and the really valuable pieces have now been relocated to the living room wall.

Believe it or not, it is these types of questions that often find their way to the lawyers office and then the courthouses, looking for further clarification and making the lawyers happy, who make their money from the proceeds of your estate, while making the estate beneficiaries even more suspicious of each other's motives.

Was this level of uncertainty and suspicion really what you wanted to leave in your Will document?

The complexity that can be created by leaving Specific Gifts in a Will

Leaving specific gifts in your Will can be complicated (and even dangerous) if you don't know what you're doing. To add insult to injury, remember that your Will document is planning for an event in the future perhaps 30-40 years hence, so making your Will should never be left to a spot of late-night internet searching and an online-Will generator from the blind dogs association.

Should I put Specific or Residual Gifts in my Will?

Your Will needs to be clear and legally enforceable. Adding multiple specific gifts in a Will adds complexity and tax issues.

There are two main types of gifts you can list in your documented Will: Specific Gifts or Residuary Gifts

• Specific Gifts are gifts of a particular item of property to a specific beneficiary. For example, ‘Classic car registration 123-ABC’ gifts to my son Terry Smith.
• Residuary Gifts are gifts of an entitlement to a specific percentage, of what is left of all the remaining estate assets (after debts are paid out) that are distributed amongst all the nominated residual beneficiaries.

For example: if you have five (5) beneficiaries they could all be gifted one fifth (⅕) each of the total of all your assets (after your debts are paid out). What's left is simply split five ways between the five residuary beneficiaries.

What can go wrong when leaving a specific gift in a Will document?

Leaving a specific gift in a Will has complications and can become dangerous because a Will document is often made with a long future time horizon, and assets held change over time, as do the beneficiaries.

Warning: Specific Gifts are paid out first

One of the key problems is specific gifts are paid out first, and with changing circumstances, they can effectively interfere with (or even prevent) the remaining residual beneficiary accessing any remaining inheritance.

For example: You’re preparing to write your Will document.

In the next 20 years the value of your estate increased to $4,000,000 - made up of a $2,000,000 house and $2,000,000 investment bond.

• You pass away in 30 years time and your Will document stipulates a specific gift and a residual gift.
• Your $2,000,000 house goes to your son Adam, as a specific gift
• Your remaining estate assets go to your daughter Eve, as the residual beneficiary gift

Twenty years ago, this looked fair and balanced, but in the years that followed before your death your $2,000,000 investment bond was sold to get you into an aged care home with round the clock medical care after a stroke took away your independence. Therefore, you end up dying with only a $2m house.

The outcome: Your son is on track to receive the $2,000,000 house as a specific gift and your daughter who cared for you during your last years, has nothing left to receive from your estate.

Specific Gifts in a Will are said to fail when:

• the description of the item to be gifted is unclear
• the identity of the nominated beneficiary of the gift is unclear
• the intended beneficiary of the gift dies before you, or
• the specified gift is no longer owned by the Will maker, and the gift is said to have ‘adeemed’.

Ultimately, where there is uncertainty as to the description of an asset, or the individuals who have been gifted it, the lawyers make money going to court to decide what was the reasonable expectation of the original Will maker - you.

Here is a list (in progressively maddening and confusing order) of some common examples where listing specific gifts in a Will document has gone wrong.

Examples of Specific Gifts gone wrong:

'I gift all of my money in Bank Account number 1234-1234 held in the Rural Bank of Australia, to my daughter, Jessica Mills.'

• But this bank no longer exists, does the gift fail?

'I gift my Superannuation to my friend, John Jones'

• But you died having two superannuation accounts; which one goes to John, or is it juts the one that was in place when the Will document was made, or both? Also, there is 32% tax on your superannuation if it's left to a non financial dependant and then of course, superannuation is not actually covered by your Will unless you have first signed a Binding Nomination directing the Super Fund Trustee to pay your estate (your Will) the super balance. Can you see how this just becomes a mess and how the lawyers will make their money?
• And the gift of superannuation fails anyway because it never came under the control of the Will.

'I gift my real estate located at 124 Rose Court Paddington NSW, to my son, Lesion Dash.'

• But, this property was sold under your power of attorney to get you into a good nursing home after you lost mental capacity.

‘I gift all my personal assets to my wife, Gloria Hewitt.’

• However, the expression ‘personal belongings’ has two different means. So off we go to court to work out what you really meant. Is it just your clothes and tools in the shed of does it include your $1m art collection?

“ I gift all my personal belongings to my friend Rudra Deep.”

• But does the phrase ‘personal belongings’ extend to include high-value items? A $1 million stamp collection could be contentious and should such a collection be considered a personal belonging, or due to its value, should it have been explicitly mentioned as included in the personal belongings?

“I gift all my personal assets to my family’

• But does the term family include family friends who were considered and repeatedly called family, and or should this include extended family such as cousins, nieces, and nephews, and then stepfamily members, but at the same time, does a step child lose their right to an inheritance when their parent is no longer in a relationship with the deceased? What is the relationship was secret and ongoing?

‘I gift my wedding ring to Mavis Johnson.’

• But now the wedding ring is subject to Capital Gains Tax so who pays that, the estate or the person receiving the gift?

Ambiguity occurs when a word or phrase can be interpreted in different ways. Most of the words and expressions used naming specific gifts in Wills are ambiguous.

• Specific gifts can create confusion and leave beneficiaries wondering how to proceed with estate administration.

Ambiguous wording in specific gifts leads to disputes and complications in administering your estate. Australian courts have encountered numerous instances where terms or phrases in Wills have been deemed ambiguous in specific gifts and the beneficiaries had to go to court to work out what was meant.

Common phrases Courts have found ambiguous

Here are some examples of words and phrases commonly found in Wills, that Australian courts have considered ambiguous:

1. 'Children' – This term can cause ambiguity if it’s unclear whether it refers to biological children only, includes stepchildren, or children from multiple relationships. Courts often need to consider the Will maker’s family structure and any statements they made that might indicate their intentions.
2. 'Household Goods' – This phrase can lead to disputes about what exactly qualifies as ‘household goods.’ Does it include all items within a home, such as appliances and furniture, or just personal belongings?
3. 'Personal Effects' – This is another term that can be problematic, as it might be interpreted to include only personal items like clothing and jewellery, or it could extend to all personal possessions, including cars and technology.
4. 'Reside' – When a Will stipulates that a beneficiary can “reside” in a property, does this mean they can live there rent-free? Are there any conditions regarding how long they can stay? This term can lead to different interpretations of the rights and obligations it confers.
5. 'Maintenance' – If a Will provides for the “maintenance” of a beneficiary, the extent and nature of this maintenance can be unclear. Does it cover basic needs, or extend to a more comfortable provision that includes education, healthcare, and other expenses?
6. 'Estate' – While it might seem straightforward, disputes can arise over whether “estate” refers to all assets owned by the deceased, or controlled by the deceased.

Specific gifts in Will documents can lead to court battles, where judges must interpret the Will’s terms in light of evidence about the Will maker’s intentions. This includes things you may have said when you were alive, the overall context of the Will, and your family circumstances.

The Case for Residuary Gifts – and leaving out Specific Gifts

Residuary gifts offer several advantages over specific gifts:

• Greater Fairness and Balance: They ensure a balanced distribution of the estate based on percentage proportions set out by the Will maker, which can automatically adapt to changes in the estate’s value or composition over time.
• Reducing Complexity: By not tying specific assets to specific beneficiaries, residuary gifts avoid the legal complexities of 'ademption' and greatly simplify the executor’s role in estate administration.
• Legal Enforceability: Unlike Letters of Wishes, Lists or ‘ownership stickers’, residuary gifts are legally binding and ensure that the Will maker’s fundamental intentions are upheld.

Specific gifts can be a recipe for disaster.

So, the next time someone makes mention of your Royal Dalton collection with the hand-painted periwinkles, you can smile the smile of relief, if you've made a Will document without specific gifts where your estate will simply be divided equally amongst the residual beneficiaries you have listed.

And if you would like help to get your Will documents and estate planning sorted, we’d love to help you out.

Drew Browne is a specialty Financial Risk Advisor working with Small Business Owners & their Families, Dual Income Professional Couples, and diverse families. He's an award-winning writer, speaker, financial adviser and business strategy mentor. His business Sapience Financial Group is committed to using business solutions for good in the community. In 2015 he was certified as a B Corp., and in 2017 was recognised in the inaugural Australian National Businesses of Tomorrow Awards. Today he advises Small Business Owners and their families, on how to protect themselves, from their businesses.  He writes for successful Small Business Owners and Industry publications. You can read his Modern Small Business Leadership Blog here. You can connect with him on LinkedIn.  Any information provided is general advice only and we have not considered your personal circumstances. Before making any decision on the basis of this advice you should consider if the advice is appropriate for you based on your particular circumstance.