'Tis the season of gift giving - the legal effect of bequests and conditional gifts in Wills

In brief: Gifts (also known as bequests) are a common feature in wills, and allow a testator to give a sum of money or an asset to a particular person or entity. 

Background

It is important that gifts are drafted into wills properly to ensure that proper consideration has been given to: 

1. identifying the person or entity entitled to a gift;

2. the nature of the gift; and

3. the legal consequences which follow when administering the estate

In this article we explain different types of gifts which can be included in a will, as well as the legal effect or interpretation of these different types of gifts.

Gifts in Wills

A testator can, generally speaking, include any gifts they choose in their Will. Gifts in wills must be identified with enough particularity to ensure that it can be given to the right person or entity, and without controversy. For example, jewellery when gifted should be described properly and gifts to charities must ensure that the charity is correctly named and preferably with an ABN provided. 

Common gifts that are made in wills include:

• lump sums of money;

• jewellery or items of personal or family significance;

• pets; and

• donations to charities.

However, there are rare instances of testators getting creative and making some rather unusual gifts. We have selected some of the most unusual ones from around the world:

• US comedian Jack Benny left a romantic instruction that a florist would deliver one red rose to his widow every day for the rest of her life. 

• Aristocrat Luis Carlos de Noronha Cabral da Camara had no spouse or family to leave his estate, so he left his estate to 70 individuals chosen randomly from a Lisbon telephone book.

• US singer Janis Joplin made a last-minute change to her Will two days before her passing to leave a gift of a sum of money to pay for a party at her favourite pub after she had passed away.

• Many celebrities have left large sums of money to be used to care for their pets - in 2004, billionaire hotelier Leona Helmsley left £8m to her nine-year-old Maltese dog.

Notwithstanding the above eccentric examples, not all of these gifts would be recognised by the Australian legal system, as some involve a direction or condition which are harder to enforce in Australia.

Conditional gifts

Some wills contain a condition or certain criteria which must be met in order for a beneficiary to inherit. These are known as conditional gifts. There are two types of conditional gifts:

1. Condition precedent gift - beneficiary must fulfil a specific condition before receiving the gift eg, a beneficiary receives a gift only after getting married or reaching a certain age

2. Condition subsequent gift - beneficiary receives the gift, but the gift is revoked if a specific event happens. For example, in the case of Kotsar v Shattock [1981] VR 13, the beneficiary would be eligible to their entitlement if they resided in 'one of the countries of the British Commonwealth of Nations'. If the beneficiary moved away, the gift would instead be distributed to charitable institutions. 

If a condition precedent gift fails, the gift will go to the residuary estate. If a condition subsequent gift fails, the gift will be given with a removal of the condition.

If there is ambiguity over whether the conditional gift is condition precedent or condition subsequent, the gift will be assumed to be condition subsequent. This is because our courts have historically chosen to have a gift vest earlier rather than later (even if it can be revoked - as seen in Permanent Trustee Co of New South Wales Ltd v D’Apice (1968) 118 CLR 105).

The inclusion of a conditional gift in a Will is entirely a personal choice. Conditional gifts can appeal to individuals as it can give the testator peace of mind with respect to how their estate will be distributed, and allows the testator to maintain some level control over their assets. 

While conditional gifts are recognised overseas, Australian courts have shown extreme caution in acknowledging conditional gifts, and are often reluctant to do so. The Court will not uphold a conditional bequest if the condition produces one of the following outcomes:

1. it is contrary to the rule of law;

2. it is an uncertain condition or impossible to fulfil; 

3. it is inconsistent with the rest of the will; or

4. it is contrary to public policy ie, a general restraint against marriage. 

A conditional gift may be upheld by the court if it does not fulfil any of the above criteria. If a conditional gift is included in a will, it is important that due consideration is given to the wording and contents of the conditional bequest, to avoid it being court challenged. 

We recommend seeking legal advice if you are thinking to leave a conditional bequest in your will. 

Who takes the gift

Whilst a will attempts to provide for all future events, sometimes circumstances inadvertently change such that gifts in wills may be interpreted differently over time. It is a person who fits the description of the recipient of the gift in the will at the date the will is made, who takes the gift (Re Whorwood (1887) 34 Ch D 446 at 450 per the Court of Appeal). This will happen even if circumstances change by the time the testator has passed away. For example, if a gift was left to "X's" husband at the time the will was made, yet "X" remarries, the gift will go to the first husband of "X". If a person who has been left a gift is no longer alive at the date of the will-makers passing, the gift will fail and form the residuary estate. Note, there are exceptions to this rule if gifts are made to charities, as the gift can still be made even if a charity is no longer in existence. 

Gifting - change of mind 

Changed your mind about a gift that is in your will? Gifts in wills can be easily be added or removed, through the creation of what is called a codicil to the will. A codicil is a brief document which is attached to the existing will. This avoids having to redraft a will in its entirety, and still leaves the original will to be valid (save for the gift if it is removed).

Key takeaways

Ultimately, it is entirely a personal choice whether to insert a gift in a will. If a gift is inserted it is important that it is properly described, and consideration is given to who will receive the gift, and any possible consequences. 

Conditional gifts can be added to wills, but it is recommended that legal advice is obtained so the condition is properly drafted. 

We have experts in estate planning and asset management who can assist with the preparation of your will to ensure your gifts are distributed to your beneficiaries without any unintended consequences.