Imagine you were going to be given a specific gift of a house. You liked the house, maybe you grew up there. You could use a place to live and you look forward to having a place of your own. But then the house is sold by your parent and turned into cash, where it then goes into a CD or a savings account. Your parent then dies, do you get the cash from the house sale?
No, you don’t. At least, not in most cases. That may seem odd because usually a specific gift beneficiary has an absolute right to receive the property that is the subject of the specific gift. In this example, the house.
But there is a catch, the law presumes that if property is sold prior to death, and the Trust or Will is not updated to specify new terms, then the sale of the specifically gifted property extinguishes the gift (called satisfaction by extinction because the property is gone—see Probate Code section 21134).
There are two exceptions to this harsh rule. One, if the house is sold by a conservator while your parent is under a conservatorship, then the gift is not extinguished and you could (or should) receive the proceeds of the house sale. Two, if the house is sold AFTER your parent dies, or is in escrow and the sale is not complete when your parent dies, then you could receive the sale proceeds.
The law presumes that when a person makes a specific gift they intend it to take effect ONLY if the property exists at the time of death. If the property is no longer owned by the Trust or the decedent, then the law ASSUMES the gift was intentionally terminated.
That’s a lot to assume. Most people have to idea the law is making all those assumptions. And most people, parents and children alike, think that once a specific gift property is sold the beneficiary should receive the sales proceeds. Not so, unless the Trust or Will is amended to say that after the property is sold.