“Gift over” in a will to a substitute beneficiary

Gift over to a substitute beneficiary

A “gift over” in a will is when a willmaker has provided that if their intended beneficiary dies  or does not survive them within the required time by law, the gift passes over to a substitute beneficiary they have nominated instead to inherit. The substituted beneficiary is really a second recipient chosen to inherit or take the gift should an event occur, here the death of the first or primary beneficiary. Other conditions and contingencies may apply depending on what the will says and surrounding circumstances. See infographic.

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Outline of a how a gift over works in a will.  The substitute beneficiary only inherits if the main beneficiary has already died, not survived the deceased or died before attaining a vested interest.

A partial intestacy is when the will does not completely dispose of all of the deceased’s property.  That part is then distributed according to the statutory rules on intestate estates. An outcome which may not be what was intended.

Considerations

Providing a “gift over” in the event of a pre-deceased beneficiary is an important matter for willmakers to consider when will making. Who would inherit should such a situation occur, as unlikely as it may seem at the time of making a will?  Parents don’t expect their younger offspring to die before them, but it happens, as do accidents involving whole families. 

Another situation is where a spouse/partner leaves everything to their surviving spouse/partner, and if they fail to survive for the statutory 30 (mostly) days it goes to their children. But what if all died together in some kind of accident? Has consideration been given to how the estate should be distributed in such a tragedy?

Why do this?

Providing for a substitute beneficiary to take a gift in certain circumstances ensures all property is disposed of by the will and can alleviate the risks of the gift ‘failing’ and of a partial intestacy (see boxes).  Making it clear in a will who is to inherit in the event an intended beneficiary doesn’t survive the willmaker is important.  Whether the main beneficiary has already died, not survived the willmaker or died before obtaining a vested interest, it can avoid difficult consequences. Further, the legal rules applying to failed gifts are complex. 

Under the general law ‘failure’ of a gift made under a will to a beneficiary occurs when that beneficiary has not survived the willmaker. This is called the doctrine of lapse in law.  Wills and succession legislation contain provisions in varying extent to address the effect of lapse.

Making a gift over

One way to do this is by allowing for a substitute beneficiary to inherit or take the gift “over” the primary beneficiary, who would had inherited had they survived the willmaker.

A substitute beneficiary may be an individual or a group (class) of people such as the willmaker’s children, grandchildren or issue.  Gifts of legacies, personal property, shares or the residue  of a deceased estate can be made to substitute beneficiaries.

Surviving the willmaker to inherit

Situations leading to problems where some alternative provision for a gift over to a substitute beneficiary is worth considering are:

  • if the main beneficiary has already died, in the willmaker’s lifetime – who takes?
  • where wills and succession legislation requires a beneficiary to survive the willmaker by (usually) 30 days. If the main beneficiary doesn’t survive, who inherits? 
  • Check the will – as it may say something about the length of time a beneficiary must survive in order to inherit.  Survivorship provisions in legislation provide for a contrary intention in the will to be expressed.

Gift over on condition or made contingent

A gift over may be subject to the beneficiary meeting a condition before they can take.  Or on the occurrence of some event or circumstances existing. For example attaining a particular age. Often the intended recipient has to obtain a vested interest. But any conditions should not be offensive or counter to the law. 

If a person has a vested interest it means they are identified or known as being the taker and don’t need to meet any conditions or do anything further to acquire it.  A vested interest is an immediate property right to present or future enjoyment.1 

A residuary estate for instance may be left equally between surviving children, with a gift over to grandchildren conditional on them reaching a specified age. 

When there is a gift over upon a certain contingency, generally speaking the gift won’t take effect unless the exact contingency happens.  However each circumstance is different and this may not always apply.

Case example

The deceased had left a gift of 90% of the residue of his estate to an organ donating service, with no substitute beneficiary named for a gift over.

The problem was that the service was subsequently absorbed into another entity and renamed. Did this mean that the renamed entity could take the gift, or had it lapsed?

The Court noted that if the entity had ceased to exist, the gift would lapse.  With no specific gift over provision in the will that share of share of the residue would pass to the other residuary beneficiary according to s 46(3) of the Wills Act 1997 (Vic).

In the circumstances the Court considered that the donation service had not ceased to exist nor had the gift lapsed. The entity named in the will remains in existence in the form of the new name.  This fulfills the same charitable purposes to which the deceased intended to contribute..2  

 


1. P. Butt (ed), Butterworths Concise Australian Legal Dictionary, 3rd ed (2004)
2. Re McHenry; Thompson v Attorney General [2020] VSC 211

B Stead
BHS Legal

Important notice: This article is intended for general interest and information only. It is not legal advice and nor should it be used as such. Always consult a legal practitioner for specialist advice specific to your needs and circumstances and rely on that.

© BHS Legal

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