Gift Overs (Vic)
When a person makes their will, they nominate beneficiaries to inherit their assets when they die. A problem arises if a person named as a beneficiary predeceases the testator. The legal solution in this situation is for a testator to make a gift over in their will, naming another person as a substitute beneficiary in case the original beneficiary cannot inherit. Special conditions or contingencies are often attached to these bequests that must be fulfilled before they can inherit or so that they can retain their inheritance. This article explains the role of gift overs in estate planning and shows the importance of nominating a substitute beneficiary to avoid protracted litigation.
What Is A Gift Over?
A gift over can be any type of asset including a legacy, real property, shares or even the entire residual estate. A gift over is the process of allowing a substitute beneficiary to “take over” the gift that was originally intended for someone else. This means that the person named as the substitute beneficiary is effectively a second recipient in case the primary beneficiary dies. A substitute beneficiary may be one person or a class of people, such as the deceased’s children or grandchildren.
The substitute beneficiary inherits the bequest if the primary beneficiary dies before the testator does or before the primary beneficiary has attained a vested interest. The Wills Act 1997 states that a beneficiary must survive for at least 30 days after the deceased’s death to be eligible to receive their gift. If the person dies earlier, it is as if the beneficiary died before the deceased.
For instance, a common example of a gift over is where a testator leaves their estate to their partner with the proviso that the spouse must survive them for 30 days, otherwise any children inherit the estate. A gift over can also be used to deal with the situation where a testator’s children die within 30 days of their death. As unlikely as it may appear that a child will not outlive their parent, it is important that a testator consider every eventuality, including tragic outcomes. In this situation, the estate can be left to the testator’s spouse or surviving children, with a gift over to grandchildren when they attain a specified age.
Contingency
When a gift over depends on a contingency, the gift will usually not come into effect until the conditions have been met. These contingencies are divided into conditions precedent (where something must occur prior to the beneficiary inheriting) and conditions subsequent (where a beneficiary forfeits bequest if something occurs). Common conditions are a beneficiary reaching a certain age, a person behaving or not behaving in a certain way or achieving certain things. For instance, it can be a condition precedent of inheritance that a person completes a certain course of study or a condition subsequent that they are not convicted of a criminal offence. The conditions set must not be impossible, against public policy or to the rule of law.
Benefits Of Making A Gift Over
There are clear advantages to providing for a gift over in a will. Naming a substitute beneficiary makes sure that all of the deceased’s property is disposed of according to the wishes of the testator. If a beneficiary cannot inherit, then the estate is partially intestate and the specific asset/s will be dealt with under the intestate succession provisions in the Administration and Probate Act 1958. This usually means that the spouse of the deceased will inherit, which may not be in line with the wishes of the deceased.
Case Study
In Re McHenry; Thompson v Attorney-General [2020], the testator left 90% of his estate to an organ donation organisation, without any gift over for the money to go to a substitute beneficiary. The organisation merged with another company by the time of his death and was operating under another name. The court considered whether the renamed entity was able to inherit the gift, or whether it had lapsed. It noted that if the organisation had stopped operating, then there would be no choice but to let the gift lapse and pass to the residual beneficiary in accordance with the Wills Act 1997. Ultimately, the court found that as the donation service was still operating, albeit under a different name, the gift had not lapsed. Importantly, the recipient organisation was still acting for the same charitable purposes that the testator intended to benefit.
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