Most testators who make wills do so with it mind that they will have enough assets in their estate to satisfy not only their debts and obligations but also the gifts they wish to make on their death. Nevertheless, life is full of twists and turns which can render even the best of intentions ineffective.
Cullen Estate v. Cullen, (1997) 17 E.T.R. (2nd) 197 (Ont. Gen. Div.) was a case wherein the deceased left by her will legacies of $50,000 each to her mother, Thomas Cullen and Helen Doyle, the deceased`s brother and sister, plus a legacy of $5000 to a friend. There were also bequests of personal property to various friends. One of the issues the Court was asked to determine was whether in the event that the residue of the estate was insufficient to satisfy the siblings’ pecuniary (monetary) legacies, the legacies abated rateably or would be satisfied in full from the testator’s interest in music residuals.
Abatement is a process by which there is a proportional reduction of the monetary legacies, when the funds or assets out of which such legacies are payable are not sufficient to pay them in full.
It has long been established that debts and other liabilities of an estate are paid first from the residue. If the residue is insufficient to satisfy all such debts and liabilities, the gifts made under the will are applied for this purpose. The order in which these testamentary gifts are applied are:
- general or monetary legacies,
- demonstrative legacies, which are gifts that must be paid from a specific fund,
- specific legacies, which are gifts of specific personal property, whether an article(s) or part of the testator’s estate, which is identified and distinguished from all other things of the same kind and which may be satisfied by delivery of a particular thing(s); and
- devises, which are gifts of land or realty.
One authority cited in the case stated that if the estate is insufficient pay all legacies in full, the general legacies must, in the absence of a contrary direction by the testator, abate in equal proportions. As the deceased’s will did not contain a contrary direction, it was decided that the monetary legacies (also called cash or general legacies) left under the deceased`s will must each abate rateably if the residue of the estate is insufficient to satisfy these legacies in full.
This situation and others like it are yet another reason that preparing an estate inventory is a prudent exercise when preparing a will and estate plan, in order to ensure that there will be enough in the estate to satisfy all debts and gifts and also to determine what provision should be included in the will when it becomes apparent that there will simply not be enough “estate pie” to go around. Life insurance is an option that many use for just such a situation.
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Andrea Kelly, Lawyer, has extensive experience in wills, trusts, powers of attorney and estate administration matters. She provides clients with a high standard of timely professionalism and expertise, incorporating a very thorough fact finding process. This is quite often enlightening for her clients and facilitates individually tailored services. If you would like to know more, feel free to use the easy contact form or read Andrea’s bio.