What is Abatement?
A few weeks ago I blogged about what happens when a deceased’s debts exceed the value of the estate. However, sometimes a problem that arises is that there is enough in the estate to discharge all the debts – but not to satisfy all the gifts made in the will. So, what then?
When the assets of an estate are insufficient to satisfy the gifts set out in the will, the gifts are said to “abate” – meaning, the value of the gifts is reduced to the extent that a shortfall exists.
Not all gifts will necessarily abate – rather the type of gifts provided for in the will determines the order in which abatement occurs. The order of abatement is as follows:
- Residuary personalty;
- Residuary real property;
- General legacies (including pecuniary bequests from the residue);
- Demonstrative legacies (i.e bequests from the proceeds of a specific asset or fund, such as a bank account, which does not form part of the residue);
- Specific bequests of personalty; and
- Specific devises of real property.
The assets at each level will abate until exhausted, after which assets at the next level will start to abate.
It’s important to note that the order of abatement is a general rule and it is subject to an contrary intention expressed in the deceased’s will. However, the abatement rules are important to keep in mind when doing estate planning – particularly when different classes of gifts are being made in a will.
It’s worthwhile to raise the possibility that, at death, a client’s debts might result in the estate being insufficient to fulfill the gifts made in the will – and ensure that, if this occurs, the client is comfortable with the gifts being reduced according to the usual order of abatement.