Wills 201 – Abatement

Abatement

There can sometimes be a discrepancy between what a person has or thinks they will have when they create a will, and how much they do have when they die. Medical, long-term care, and other expenses can whittle down what once seemed like a sizable fortune.  Some estates are reduced to the point of being insolvent (i.e., there are not enough remaining assets to pay outstanding bills).  Other estates have enough assets to settle all debts but do not have enough to satisfy all the distributions made by the will. In the latter case, the rules of “abatement” apply.

A reduction of a distribution to pay an estate’s debts is called an “abatement.” In the event the will does not contain abatement instructions, Arizona law provides a default scheme. The scheme works by setting an order of priority for abatement based on certain categories of testamentary gifts.

The first category of gift to abate is “property not disposed of by the will.” This refers to the situation where the will only disposes of specific assets, and the decedent died owning additional property. For example, Mike’s will might leave his house to his brother Steve and his Camaro to his brother Walt, but at the time of his death he had a checking account and a mutual fund. In this example, the checking and mutual fund account are “property not disposed of in the will,” and will be the first estate property to abate if necessary.  Most all professionally drafted wills have what is called a “residuary” clause. Meaning, a clause that distributes any estate property left over after all other distributions are made. However, some DIY wills fail to include this basic clause.

The second category of gift to abate is “residuary devises.” As explained above, residuary distributions are simply distributions of everything that’s left over. For example, Mike’s will might leave his house to his brother Steve and his Camaro to his other brother Walt, and the remainder of his estate to be divided between his brothers in equal shares. The distribution of the remainder of Mike’s estate is a residuary devise.

The third category of gift to abate is “general devises.” A general devise is a gift of general property, usually of a specified amount of money or quantity of property, that is payable out of the general assets of the estate. For example, Mike’s will may have a clause that leaves $10,000 to his mom. That would be a general devise. It is for a specified amount of money and can be paid out of the general assets of the estate.

The fourth category of gift to abate is “specific devises.” A specific devise is gift of some specifically identified asset. In our example above, Mike’s gifts of his home and his Camaro to his brothers are specific devises. However, a specific devise can also be a money gift. For example, if Mike’s will has a clause gifting to mom, Steve, and Walt, in equal shares, the balance on hand in his checking account and his mutual fund, that too would be a specific devise because the gift is payable from a specifically identified asset (his checking and mutual fund account), and not from the general assets of the estate.

It can be difficult to know well in advance whether an estate’s assets will be sufficient to cover all of the estate’s debts and make all of the distributions intended. For this reason, it’s good practice to periodically revisit one’s estate plan to make sure that the intended distributions can be made without certain gifts being reduced to pay debts.

Please note that the preceding is informational only and is not intended to be legal advice. If you need assistance drafting a will or have any other questions about testamentary gifts, contact the experienced attorneys at Lancer Law. To schedule a consult, call (520) 385-0008 or email [email protected].