Gifts With Strings

Most people die owning stuff (assets) and owing money (debts). Some debts are attached to specific assets (such as a mortgage on a house), while other debts are general (such as credit card debt). Both the debts and the assets become part of a person’s probate estate when that person dies.  

Not surprisingly, most beneficiaries under a Will want to receive their bequests unencumbered by probate debts. If the Will doesn’t contain adequate language assigning specific debts to specific bequests, then chaos can result.  

Well, the Texas Supreme Court has the answer to that. In 1988, it handed down an opinion in Hurt v. Smith that set forth an entire road map for executors.

The court decided by first classifying the bequests and the debts. Bequests are divided into four categories: specific, demonstrative, general and residuary. “Specific” is the most descriptive, (“I leave Lisa my wedding ring”) and residuary is the least (“I leave the rest and residue to the Charitable Order of Newspaper Writers”). To put a bequest into a particular category, the court looks at the entire dispositive scheme in the Will.  

Generally speaking, debts associated with a particular asset go with that asset. Then the remaining debts are paid in the opposite order of specificity: first from the residuary bequest, then from the general bequest, then from the demonstrative bequest, and finally from the specific bequest.  

A testator (the person who made the Will) can change these general rules by specifically assigning an asset or class of assets to pay a debt. This is trickier than it sounds – for example, the customary language that “debts and expenses” should be paid includes only those debts owed by the testator at the time he died, plus his funeral expenses, plus the probate administration expenses. The phrase does not include estate and inheritance taxes.  

The result is that, after payment of debts, a beneficiary may not receive all, or any, of the bequest. That’s probably not the result intended by the testator, but then no one ever accused the law of being logical.

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The information contained in this article is general information only and does not constitute legal advice.