Probate Litigation, the failure of a specific legacy.

A•demp•tion (uh-demp’-shuh n))—the failure of a specific legacy because the testator did not possess the subject of the legacy at the time of death.

We are litigating a dispute before the New Hampshire Supreme Court that may have significant implications for business succession planning efforts because it focuses upon the concept of ademption. Ademption is the cancelation of a specific bequest because the deceased no longer owns the property at issue when he or she dies. Other property is NOT substituted for the adeemed or lost bequest.

A business owner may plan for the succession of a business by making a bequest of the business in his will to a named individual or group of individuals. The owner may, for example, direct that his machine shop be given to his sons upon his death. Under the concept of ademption, however, if the machine shop is sold during the owner’s lifetime, not only do the sons lose the right to receive the business but they also are not entitled to substitute the proceeds of the sale or another part of the estate for the lost business. The bequest of the machine shop fails because it is adeemed.

Although we are defending the case on appeal, the law of ademption appears to be well settled in New Hampshire. In a case called, Reposa, decided in 1981, the New Hampshire Supreme Court adopted the majority view of courts around the country and has not varied from this view since. The Reposa case provides that ademption is not a question of determining the intention of the deceased. Instead, the Reposa opinion makes clear that ademption is simply a matter of determining whether or not the bequest was specific and, if so, whether the subject of the specific bequest was still owned by the deceased at the time of death. If the subject of the specific bequest is not owned by the deceased at the time of his death, the bequest is canceled and no other aspect of the estate is substituted for the adeemed bequest, unless the will has specifically provided for a substitution. A specific bequest is not limited to a named business, it could be anything, a piece of realty or a favorite painting.

In the Reposa case, a woman from Dunbarton made out her will in 1972 and, through the will, gave her farm to a young woman she had raised as her daughter. The rest, or residue, of the estate went to Mrs. Reposa’s sister. Three years later, however, the farm was sold and Mrs. Reposa took back a note and mortgage. Mrs. Reposa died in 1979. The question for the Probate Court was whether or not it was proper to substitute the note and mortgage for the farm and convey it to the daughter or to consider the specific bequest adeemed and allow the sister to take the mortgage and note as part of the residue of the estate. The Court ruled that the specific bequest had been adeemed and the sister was awarded the note and mortgage, the daughter’s bequest was canceled.

The clear and simple rule of ademption means that courts do not consider extrinsic evidence, outside of the language of the will, about what the deceased would have intended to substitute for the failed bequest. The rule avoids difficult and complex trials about the deceased’s intent in which the parties attempt to marshal evidence long after death. The rule also places confidence in the notion that if the deceased had intended to substitute another property for the canceled bequest, he or she would have done so before death. The rule presumes that the deceased’s intent was shown by not changing the will after selling the business or farm.

Unless the Court changes its 30 year old precedent, the message of the Reposa case is clear. Keep up to date on specific bequests, making substitutions when property is sold, or make lifetime transfers that allow for orderly transitions before the death of the business owner.