A father, who has been widowed for years, creates a last will and testament to distribute his assets to his only son and two daughters. He is the proud owner of a 1967 Chevrolet Corvette that he keeps covered in a barn behind his home. The fair market value of the car is $170,000.00. He has fond memories of cruising and making repairs on the vehicle with his son. As a result, he gives and bequeaths the Corvette in his last will specifically to his son. He leaves the remainder and residue of his estate to his daughters. Unfortunately, the vehicle was destroyed after a fire consumes the old wooden barn due to a lightning strike. The Corvette was covered by an excellent car insurance policy and the father received a check for $200,000.00 to cover the loss five days after death. However, the father, devastated by the loss, passes away from a heart attack two weeks later. At the time of death, the 1967 Chevrolet Corvette is no longer part of the estate so the only remaining property to distribute is the residue and remainder to the daughters. Is the son cheated out of any inheritance due to the fire? Is he entitled to substitute property (or even the $200,000.00 insurance money) to replace the vehicle that was lost?
This scenario raises an issue of ademption, meaning that there is specifically bequeathed property that is no longer a part of the estate at the testator’s death. Under common law, the rule was that ademption would operate to cause a gift to fail entirely. Hankey v French, 281 Mich 454, 464-463; 275 NW 206 (1937). This means that the son would be entitled to nothing for the destroyed Corvette and he would be restricted to the share of the remainder he was entitled to. However, Michigan statute has superseded the common law and now creates a presumption of non-ademption.
MCL 700.2606(1) provides that “[a] specific devisee has a right to the specifically devised property in the testator’s estate at death AND ALL OF THE FOLLOWING:
- (a) Any balance of the purchase price, together with any security agreement, owing from a purchaser to the testator at death by reason of sale of the property.
- (b) Any amount of a condemnation award for the taking of the property unpaid at death.
- (c) Any proceeds unpaid at death on fire or casualty insurance on, or other recovery for, injury to the property.
- (d) Property owned by the testator at death and acquired as a result of foreclosure, or obtained in lieu of foreclosure, of the security interest for a specifically devised obligation.
- (e) Real property or tangible personal property owned by the testator at death that the testator acquired as a replacement for specifically devised real property or tangible personal property.
- (f) When subdivisions (a) through (e) above do not apply, the devisee is entitled to the value of the specifically devised property (to the extent it is not included in the estate) UNLESS the facts and circumstances show that the ademption was intended by the testator or within the testator’s manifested plan of distribution.
Specific bequests only apply to unique, identifiable items. Money and cash are not considered a specific bequest and can be paid to the devisee from any estate source or even from liquidation of non-bequest items. Devisees do not have a right to claim specific property that was not expressly bequeathed in the last will and testament. Any remainder or residue will be distributed in the discretion of the personal representative according to the terms of the last will and testament.
Does the son have any entitlement to proceeds for the destroyed 1967 Chevrolet Corvette? Unless his father’s last will and testament says otherwise, he is entitled to the presumption of non-ademption. Before his death, the father received insurance proceeds in the amount of $200,000.00. However, the son is not entitled to these insurance proceeds because they were not “unpaid” at the time of death pursuant to MCL 700.2606(c). The father did not live long enough to replace the vehicle so there is no specific substitute property to be transferred pursuant to MCL 700.2606(e). Since subdivisions (a) through (e) do not apply, the son is therefore entitled to the fair market value of the 1967 Chevrolet Corvette before it was destroyed. The personal representative should pay the son $170,000.00 from estate funds in compensation for the failed bequest.
There are special rules for specific devises that are sold or lost during the operation of a conservatorship or a durable power of attorney:
- Pursuant to MCL 700.2606(2), if an attorney-in-fact or agent acting under a durable power of attorney for an incapacitated person or a conservator sells or mortgages specifically devised property OR the agent or conservator receives insurance proceeds, a condemnation award or other recovery for injured or lost specifically devised property, then the devisee has a right to recover a monetary devise from the estate equal to one of the following:
- The net sale price;
- The amount of the unpaid loan;
- The condemnation award;
- The insurance proceeds; or
- The recovery (e.g. compensatory damages from a court of law).
- Any rights that a specific devisee has to value under MCL 700.2606(2) is REDUCED by the right that the specific devisee has under MCL 700.2606(1).
- The specific devisee is not entitled to recovery under MCL 700.2606(2) IF the sale, mortgage, condemnation, casualty or recovery occurred during a conservatorship AND the court determined that the testator was no longer incapacitated and he or she survives that decision by one year. MCL 700.2606(4).
Since Michigan law recognizes a doctrine of non-ademption, there is a possibility of family strife over a deprived devisee making claims against estate property or money desired by other devisees. How do you determine the fair market value of the lost property when it is destroyed? When you have failed gifts arising out of estate administration, you need to protect your rights by speaking to a probate lawyer immediately to ascertain what you are entitled to. If you wait until the judge approves the final distributions of the estate, then you may have waited too long and any claims you have are extinguished forever.
If you have any further questions about wills, estates and probate administration or require legal representation, then do not hesitate to contact the experienced attorneys at Kershaw, Vititoe & Jedinak PLC for assistance today.