When an adult loses capacity, they will rely upon their appointed attorney to manage their financial affairs. The attorney must act consistently with the duties imposed on them by statute and by common law, both for the benefit of the adult and ultimately the beneficiaries of the adult’s estate.
However, sometimes through necessary action by the attorney (for instance, the sale of a property specifically gifted in the will to fund entry into aged care), there will be instances when the actions of an attorney result in disruption to the estate plan. An example of this is ademption of specific gifts under a will.
The principle of ademption is a rule which assists the Court in construing gifts in a will. Ademption occurs if:
- property has been disposed of either through inter vivos gifting, sale, theft or loss; or
- property has substantially changed from how it was described in the will. For example, if the will refers to a gift of shares in a company, but that company has been taken over by a different company, it may fall foul of the ademption rules and is no longer available to the beneficiary.
There have been some recognised exceptions to the rule of ademption:
- where the gift has been removed by fraud or by a tortuous act unknown to the will maker;
- where an agent disposed of the gift the subject of the bequest outside of the terms of the agency and without the knowledge of the testator; or
- where the gift is still in the estate in substance although changed in name and form. Some examples are where money has moved from one bank account to another or stocks or shares have been subject to a corporate name change.
The case of Re Viertel (which was decided before the Powers of Attorney Act 1998 (Qld) (POAA)) examined the question of whether a gift of a house to Mr and Mrs McCallum (the McCallums) under Mrs Viertel’s will was adeemed by the actions of the McCallums as Mrs Viertel’s attorney.
Mrs Viertel had made a will under which she gifted her house to the McCallums. Mrs Viertel had also the McCallums as her attorneys under an enduring power of attorney.
In June 1993 Mrs Viertel suffered a stroke and lost capacity and was placed in an aged care facility. After Mrs Viertel lost capacity, the McCallums, acting pursuant to the power of attorney, sold the house. They invested the proceeds in debentures in Mrs Viertel’s name.
- the McCallums were not aware that they were the beneficiaries of the specific gift of the house under the will;
- there was no doubt that the sale of the property was a lawful exercise of the attorneys’ powers under the power of attorney; and
- there was no doubt that it was done for the benefit of Mrs Viertel.
The question was whether the debentures purchased with the proceeds from the sale of the house went to the McCallums or formed part of the residue of the estate.
Thomas J examined the decision of Jenkins v Jones (1866) LR 2 Eq 323. In that case the will-maker was a farmer who held a yearly tenancy. In his last will, he appointed his wife and son as executors and left to his son:
“the whole of my farming stock animate and inanimate including the whole of my implements of husbandry, which shall be in my possession at my decease“.
Two years prior to his death, the farmer lost capacity. His wife and son gave up possession of the farm and sold all his farming stock and implements. They deposited the proceeds into a bank account. The residuary beneficiaries brought a motion for an account of those funds.
Sir J Stuart VC held:
“I think that it was no act of the testator that the chattels were converted, for he never intended any conversion, but intended that the specific legatee should have his farming stock. I ought to refuse the motion to vary the certificate“.
The statements of Sir J Stuart VC did not exactly fit within the established exceptions to the rule of ademption. However, Thomas J found:
With some hesitation, I express the view that the rule recognised by Stuart VC in Jenkins v Jones above is an historical exception to the consequence of ademption and that the present circumstances fall within that exception“
Thomas J thought:
- In the absence of knowledge about what the attorney was doing, the will maker did not have the opportunity of changing her will.
- Her wishes remained that the attorney was to benefit by having the property and if they could not have the property, then the strong inference is that the will maker would want them to have the proceeds of sale instead.
- The strong inference in this circumstance is that if the will maker could change her will, she would, in order to ensure that the attorney could still benefit during her lifetime.
Therefore, Thomas J was prepared to conclude that the gift was not adeemed and the attorney was entitled to the proceeds of sale of the house.
Although Re Viertel was followed in several subsequent cases in Queensland, doubt has been thrown on the decision by Campbell JA in RL v NSW Trustee and Guardian  NSWCA 39.
He held that Re Viertel was incorrectly decided because it failed to recognise that Jenkins v Jones was a case involving an unauthorised dealing in the estate prior to the testator’s death. Campbell JA noted that the wife and son of the farmer in Jenkins v Jones did not have the authority to deal with the estate at that time. Campbell JA said:
“That lack of authority would have amply justified the Court’s conclusion that the legacy had not been adeemed. By contrast in Re Viertel, the attorneys had full legal authority to sell the house“.
Campbell JA held that the exception to ademption should be limited to cases “where the subject matter is extinguished by fraud or tortious acts unknown to the testator” as contemplated in Jenkins v Jones.
After the decision in Re Viertel, the POAA was enacted. Section 107 of the POAA provides that if a person’s benefit in a principal’s estate under the principal’s will, on intestacy, or by another disposition taking effect on the principal’s death, is lost because of a sale or other dealing with the principal’s property by an attorney of the principal the Court may order that the person, or the person’s estate, be compensated out of the principal’s estate as the Court considers appropriate but the compensation must not exceed the value of the lost benefit.
Section 107 POAA is not entirely satisfactory because it is not a statutory exception to ademption, nor does it contemplate an exercise of tracing the proceeds. Rather, it involves an application for compensation coming out of the estate. Consequently, it is possible that other beneficiaries may have their entitlements reduced or disrupted.
The position is much clearer in New South Wales under sections 22 and 23 Powers of Attorney Act 2003 (NSW). The statutory exceptions to ademption do not require an application to the Court. By contrast, in Queensland, if an applicant seeks compensation under section 107 POAA or relief under the common law exceptions to ademption, an application to the Court will be required unless all interested parties who have full legal age and capacity agree.
On 26 March 2019, Queensland Parliament passed the Guardianship and Administration and Other Legislation Amendment Act 2019.
This legislation has introduced an anti-ademption and tracing provision similar to that in New South Wales where a beneficiary’s interest in a will is affected by the actions of an attorney.
However, despite being passed and assented to many months ago, the commencement of these legislative amendments is yet to be proclaimed.
The lawful and appropriate actions of an attorney can disrupt the estate plan. A common situation is the ademption of a gift of property sold to fund entry to an aged care facility.
Presently, in Queensland there is uncertainty in case law as to whether there is an exception to ademption in circumstance. The provisions of section 107 do not bring certainty either and necessitate Court application and possible further disruption to the estate plan.
Recent legislative amendments which align us more to the provisions in New South Wales may ameliorate these concerns, but the commencement of these changes is yet to be announced so we must continue to watch this space.
Sharon Ann Winn