In the world of Trust and Wills, some gifts are better than others. I don’t mean monetarily (of course $1 million is better than $1 thousand), but I mean the type of gift being given.
There is a hierarchy of gifts—a pecking order if you will. Specific gifts are at the top of the heap. Followed by general gifts and then residue or remainder gifts.
Specific gifts are gifts of a specific piece of unique property. Like real estate, or a ring, or a car. These are specifically identifiable properties.
General gifts are gifts of money. Money can never be a specific gift because one dollar is the same as the next. If I give you a gift of $1,000, it does not matter which money is used to satisfy that gift. Therefore, the gift is general, not specific (although gifts of money are often called “specific gifts” in Trusts and Wills, they technically are not specific gifts under the law).
Finally, residue gifts are the left overs—all assets remaining after specific and general gifts are made.
Specific gifts have the most rights attached to them because if that particular property is part of the estate after the decedent dies, then you are entitle to receive that property. Specific gifts must be distributed first, and must be distributed by giving the beneficiary THAT PROPERTY described. Period. (See Probate Code section 21133.)
The only thing that can reduce a specific gift is a creditor’s claim. Creditors take precedent over beneficiaries after someone dies. But if creditors can be satisfied out of other property, then that is where they must be paid from. The specific gift can only be used to pay creditors if there are no other sources of assets available to pay the creditor.
The fact that a specific gift must be distributed to the named beneficiary is often missed by Trustees. It is an important point because the specific gift beneficiary has the right to block any sale of the specifically gifted property. Since the property must pass to the beneficiary directly, the Trustee effectively has NO power to sell the property without the beneficiary’s consent. That is not usually the case with Trust assets, where the Trustee has the right to sell property with or without beneficiary consent.
This makes a specific gift beneficiary a potentially powerful party to a Trust or Will. It also ties the Trustees hands and prevents total control over the specifically gifted asset.
The downside of specific gifts? If the property is not part of the estate at time of death, then you may be out of luck…but that’s the topic of our next post.