When a person dies with excessive amounts of debt or there are lots of expenses related to the administration of his or her estate, certain gifts laid out in the deceased person's Will or Trust may need to be reduced. There's a specific sequence in which the gifts get cut back, and California Probate Code Section 21402 provides the sequence:
(a) Shares of beneficiaries abate in the following order:
(1) Property not disposed of by the instrument.
(2) Residuary gifts.
(3) General gifts to persons other than the transferor’s relatives.
(4) General gifts to the transferor’s relatives.
(5) Specific gifts to persons other than the transferor’s relatives.
(6) Specific gifts to the transferor’s relatives.
(b) For purposes of this section, a “relative” of the transferor is a person to whom property would pass from the transferor under Section 6401 or 6402 (intestate succession) if the transferor died intestate and there were no other person having priority.
For details on specific versus general gifts see this earlier blog post.
The abatement applies to debts, expenses, and the satisfaction of gifts from high to low priority; however, it does not apply by default to how estate taxes get apportioned.
Often a client may have grand ideas about giving gifts to certain family members and friends, without considering the fact that the assets they want to distribute at the time of their death may be insufficient to satisfy all of the gifts.
For example, a client may create his or her Will or Trust at a time when he or she is wealthy, but pass away at a time when much of the estate has been depleted for the client's care. It is therefore, important to consider the sequence in which the client may want gifts fulfilled to ensure that those that are most important to the client have the highest likelihood of being distributed to the chosen recipient.