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How you deal with your property during your life may affect the validity of any gifts you have made in your Will.
Over the years, you may buy and sell properties, cars and other valuables as your tastes and circumstances change. You may acquire and dispose of major assets on getting married or divorced, having children, retiring and growing old.
What if, when you pass away, you have already given away or sold the gift?
While you are living you are at liberty to sell, transfer or give away your assets.
The legal term ‘ademption’ describes a situation where:
You may have sold, discarded or destroyed the asset. It may have been lost or stolen. You may have given it away. You may have kept the asset but it is somehow different from what you described in your Will (e.g. shares in a company if the company has changed its name).
The bottom line is at the time of your death, the asset is no longer part of your Estate and cannot be given to the beneficiary named in your Will. In this instance, the gift fails. Your Will operates as if the gift was never made. The beneficiary is not entitled to receive something else in place of the gift or cash to the same value.
The rationale behind this principle is that you should know what is in your Will. If you sell or dispose of an asset which you have gifted in your Will, it is presumed that you had a change of heart and did not want the named beneficiary to receive the gift after all.
Exceptions – sale or disposal by a third party
Exceptions to the ademption rule apply where property is disposed of by an authorised third party.
For example, an adult authorised to manage your finances  may have to sell your home to pay the upfront costs of an aged care facility. Once your home has been sold it is no longer an asset of your Estate. If your Will says that your home was to be given to a named beneficiary on your death:
Instead, by the operation of the exception, the named beneficiary may receive cash to the same value of the home. The beneficiary may be able to trace the proceeds of the sale or disposal of the gift. 
Under new laws a beneficiary can apply to the court if any of the exceptions to ademption result in a beneficiary receiving an unfair advantage or disadvantage. This may occur where an attorney sells a gift, without knowledge of the legal consequences, causing a particular beneficiary to receive a disproportionate share in the Estate.
This exception is broad and applies even if you had legal capacity at the time of sale or disposal (i.e. you could have amended your Will to remove reference to the gift but didn’t).
How to preserve your wishes
To prevent gifts failing, it is best to update your Will as your assets or ownership structures (i.e. trusts or companies) change.
It is now vitally important that Wills and Powers of Attorney be drafted carefully with ademption issues in mind. For example, it may be necessary to restrict the power of an attorney to sell or dispose of certain assets.
The laws relating to Wills and Enduring Powers of Attorney are changing rapidly. Review your Will and Estate plan every 3-5 years to avoid legal obstacles, expense and family conflicts down the track.
If you have any questions regarding your Estate planning matters, please contact us on 9822 8588.
Deborah Kliger is a lawyer at Burke & Associates who practises in Wills & Estates Law, Elder Law and VCAT matters. Click here to see her profile page and contact details.