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George F. Bearup, J.D. Senior Legal Trust Advisor

15-Aug-19

Specific and General Devises – the Rule of Abatement

Take-Away: A testator possesses the right to leave his or her property by Will. However, the rights of the beneficiaries to the testator’s property are subject to the restrictions and limitations of EPIC which are intended to facilitate the prompt settlement of the decedent’s estate and its administration, including the payment of the decedent’s debts. Those restrictions, sometimes, can disillusion a beneficiary of the decedent’s estate who thinks he/she is entitled to receive an asset from the estate.

Background: The Estates and Protected Individuals Code (EPIC) addresses the situation when a decedent’s estate does not have enough liquidity to pay the decedent’s outstanding debts, or the costs and expenses of estate administration. This lack of liquidity situation requires the Personal Representative of the decedent’s estate to sell assets to create the liquidity necessary to pay debts and to finance the estate’s administration for an extended period of time. That raises the question of which assets are sold to provide that needed liquidity, which results in a legal concept called abatement, and who suffers if assets must be sold to pay the decedent’s debts and estate administrative expenses.

Abatement: When the assets of a decedent’s estate are insufficient to satisfy all of the gifts under a Will, after the payment of debts and administrative expenses, EPIC provides two (2) prioritizations as to who or what gets paid first, and how much they get paid. The first ‘priority of payment’ statute identifies which debts, bills, expenses of estate administration, and probate court allowances get paid, and in what order they get paid. [MCL 700.3805.] The second prioritization of ‘who gets paid in full’ is the abatement statute that deals with the distribution of particular gifts or devises under the decedent’s Will when there is insufficient estate liquidity to pay all debts and expenses, and also fulfill all of the testator’s devises under the Will. [MCL 700.3101 et seq.] Who gets the ‘haircut’ turns on whether the Will contains a specific devise or a general devise.

Devise: A devise is described in EPIC as the testamentary disposition of real or personal property. [700.1103(1).] However, there is no statutory definition of a specific devise. A devise is technically described as one that passes a particular piece of property. Black’s Law Dictionary (10th)

Abatement Statute: That statutory prioritization, i.e. whose devise gets reduced first follows: (1)…., distributees’ shares abate, without a preference or priority between real and personal property, in the following order: (a) property not disposed of by the Will; (b) residuary devises; (c) general devises; and (d) specific devises. Thus, recipients of specific devises, have their distribution exposed last in this abatement scheme.

Will Override: Note, however, that the terms of a Will can override Michigan’s presumptive statutory abatement scheme. [MCL 700.3101(d) (3).]

These abatement rules were addressed by the Michigan Court of Appeals recently in one of those situations where that Court was asked, on a second appeal, to address the disposition of tangible personal property under a Will.

Court Decisions (a ‘two-fer’):  In re Guise Estate, Michigan Court of Appeals, No. 334771 (November 21, 2017 unpublished) and No. 344217 (July 23, 2019, unpublished)

  • Facts: Randall Guise’s Will contained the following Article III: “Andrew Guise and Susan Null shall sort through all of the household goods, antiques, tools, and all other items of personal property and identify those items which shall stay within the Guise and Knapp family. Those items identified shall be distributed to members of those families, with the exception of Rhonda Duchette and Bob Guise. Neither of these individuals shall take from my estate and [they] are being purposely omitted. The remainder of personal property shall be placed for sale at auction and any proceeds therefrom shall be distributed pursuant to Article VII below [which listed persons and charities to which the sale proceeds were to be given.]”
  • First Appeal: Guises’ estate lacked liquidity, which prompted the Personal Representative (PR) to petition the probate court to compel Susan to return to the probate estate $2,000. Apparently, Susan, in distributing the decedent’s personal property, had taken a John Deere tractor for herself and sold it for $2,000. The PR claimed that the above ‘identify and distribute’ directive only dealt with heirlooms, and not all the decedent’s tangible personal property. The probate judge agreed with the PR that only heirlooms were to be sorted through, identified, and distributed to family members by Susan and Andrew. Therefore, Susan acted beyond the scope of her authority under the Will, and the PR was correct in demanding that Susan return of the $2,000 in tractor sales proceeds. Obviously, Susan was not happy with the PR’s interpretation of the Will provision, and she appealed. The Court of Appeals reversed the probate judge. It found that the language of Article III was broad enough to cover all tangible personal property owned by Mr. Guise and not just family heirlooms. Consequently, Andrew and Susan were permitted to identify and allocate any items of tangible personal property among the decedent’s nephews and nieces in accordance with the provisions of the Will, with the balance then sold at auction and the resulting sale proceeds distributed to another ‘group’ of identified estate beneficiaries.
  • Second Appeal: Apparently as part of the estate’s administration and in the PR’s search for cash, the PR sold a 2010 GMC Acadia and a 2004 Buick LeSabre in order to pay bills and expenses. Susan filed a petition in which she claimed that these two vehicles should have been included within the decedent’s ‘personal property’ that was to be made available for identification and distribution by Susan and Andrew to family members. Susan claimed that Article III was a specific devise of the decedent’s personal property so that when the PR sold the two vehicles to provide liquidity for the administration of the decedent’s probate estate, Susan and the other family member devisees remained entitled to the cash value of the two vehicles or a proportionate distribution from other specific devises if there were insufficient funds available to the probate estate.
  • Issue: Therefore, the issue before the Court in this second appeal was whether Article III provided a specific devise to the decedent’s nieces and nephews which, under the abatement statute, should not have abated except to the extent the abatement of the residuary and general devises were insufficient to meet the estate’s cash needs. Restated, in the statutory abatement priority scheme, the beneficiaries under Article III should be viewed as specific devisees who were entitled to 100% of the value of the decedent’s personal property items, and not just a portion of their value (after the vehicles were sold and the sales proceeds used to pay estate bills and expenses). As specific devisees, according to Susan, these beneficiaries should be made whole, while other beneficiaries of the general or residuary devises should bear the burden of insufficient estate funds.
  • General Devise: The Court of Appeals found Article III of Mr. Guise’s Will to be a general devise of personal property and thus not accorded the highest level of protection in the Michigan abatement priority scheme. To reach this conclusion the Court noted the following: (i) Mr. Guise did not intend to devise all of his personal property when he used the words in Article III “which shall stay within,” which effectively denoted a subset of personal property of items that were not to be sold at auction; (ii) Mr. Guises’ use of the ‘sorting and identifications’ directive to Susan and Andrew used to fairly distribute Mr. Guise’ personal belongings did not transform Article III into “a devise that transfers a particular piece of property;” and (iii) the ‘sorting and identification’ process chosen by Mr. Guise confirmed that he did not intend any particular piece of property to pass in a particular manner which is required with a specific devise.

Conclusion: In the absence of a specific definition of specific devise in EPIC, if a Will intends to identify specific items for specific individuals, or the testator uses an attached ‘list’ as contemplated by EPIC, it would be helpful if the testator uses terms like specific gifts or specific devises to alert both the Personal Representative and the probate judge which items will be sold last with their sales proceeds used to pay the decedent’s debts and expenses of estate administration. Abatement is not a common problem with most decedent’s estates, but it never hurts to be abundantly clear which assets are to be sold, last, to raise cash by the estate’s Personal Representative to administer the decedent’s estate.