If you provide for a specific gift of property in your Will, but you don't own it at the time of your death (perhaps you sold it, gave it away or lost it), that gift has been "adeemed." California's approach to ademption generally depends on the testator's intent. California Probate Code Sections 21132-21135 provide some specific rules regarding ademption that are worth noting.

Specific Gifts

If a testator leaves a specific gift to a beneficiary, but not all of it is owned at the time of the testator's death, then we can look to California Probate Code Section 21133, which describes additional substitute property the beneficiary may be entitled to. This section provides:

A recipient of an at-death transfer of a specific gift has a right to the property specifically given, to the extent the property is owned by the transferor at the time the gift takes effect in possession or enjoyment, and all of the following:

(a) Any balance of the purchase price (together with any security agreement) owing from a purchaser to the transferor at the time the gift takes effect in possession or enjoyment by reason of sale of the property.

(b) Any amount of an eminent domain award for the taking of the property unpaid at the time the gift takes effect in possession or enjoyment.

(c) Any proceeds unpaid at the time the gift takes effect in possession or enjoyment on fire or casualty insurance on or other recovery for injury to the property.

(d) Property owned by the transferor at the time the gift takes effect in possession or enjoyment and acquired as a result of foreclosure, or obtained in lieu of foreclosure, of the security interest for a specifically given obligation.

Thus, for example, if one writes a Will that says, "I leave my home on 123 Main St. Los Angeles, CA to Roger." and then that person later sold half of the property and took back a secured promissory note from the buyer, the promissory note would also be part of the gift to Roger.

Conservator, Agent, or Trustee

If you provide for a specific gift of property and later while you are incapacitated, your (a) agent under a durable power of attorney, (b) successor trustee, or (c) conservator sells or encumbers the property , then the beneficiary will receive money in an amount equal to the net sales price of the property or the amount yet unpaid on the loan on the property (including the property itself). California Probate Code Section 21134 provides the specific details:

(a) Except as otherwise provided in this section, if, after the execution of the instrument of gift, specifically given property is sold, or encumbered by a deed of trust, mortgage, or other instrument, by a conservator, by an agent acting within the authority of a durable power of attorney for an incapacitated principal, or by a trustee acting for an incapacitated settlor of a trust established by the settlor as a revocable trust, the transferee of the specific gift has the right to a general pecuniary gift equal to the net sale price of the property unreduced by the payoff of any such encumbrance, or the amount of the unpaid encumbrance on the property as well as the property itself.

(b) Except as otherwise provided in this section, if an eminent domain award for the taking of specifically given property is paid to a conservator, to an agent acting within the authority of a durable power of attorney for an incapacitated principal, or to a trustee acting for an incapacitated settlor of a trust established by the settlor as a revocable trust, or if the proceeds on fire or casualty insurance on, or recovery for injury to, specifically gifted property are paid to a conservator, to an agent acting within the authority of a durable power of attorney for an incapacitated principal, or to a trustee acting for an incapacitated settlor of a trust established by the settlor as a revocable trust, the recipient of the specific gift has the right to a general pecuniary gift equal to the eminent domain award or the insurance proceeds or recovery unreduced by the payoff of any encumbrance placed on the property by the conservator, agent, or trustee, after the execution of the instrument of gift.

(c) For the purpose of the references in this section to a conservator, this section does not apply if, after the sale, mortgage, condemnation, fire, or casualty, or recovery, the conservatorship is terminated and the transferor survives the termination by one year.

(d) For the purpose of the references in this section to an agent acting with the authority of a durable power of attorney for an incapacitated principal, or to a trustee acting for an incapacitated settlor of a trust established by the settlor as a revocable trust, (1) “incapacitated principal” or “incapacitated settlor” means a principal or settlor who is an incapacitated person, (2) no adjudication of incapacity before death is necessary, and (3) the acts of an agent within the authority of a durable power of attorney are presumed to be for an incapacitated principal. However, there shall be no presumption of a settlor’s incapacity concerning the acts of a trustee.

(e) The right of the transferee of the specific gift under this section shall be reduced by any right the transferee has under Section 21133.

Life can bring unexpected changes to one's assets; however, the law does provide some mechanisms to ensure that your beneficiaries are taken care of in common situations.

Sometimes clients want to leave a gift to a beneficiary who is receiving government benefits (e.g., Medi-Cal). However, leaving a gift outright to that person might jeopardize the ability to continue receiving those benefits.

Incorporating "special needs" provisions in your estate planning documents can help a beneficiary preserve his or her ability to continue receiving government assistance by providing that the gift to the beneficiary will be held in a special trust and only be used for that person's "supplemental" needs such as travel, entertainment, and special medical care that are not covered by the government. 

A special needs trust created by a person other than someone who is receiving public benefits is not subject to Medicaid liens. Where there's a concern that leaving a substantial bequest to an individual may cause forfeiture of benefits, one should strongly consider incorporating provisions to create a special needs trust.

Your revocable living trust should carry out your wishes based on your current situation in life, but it should also be flexible enough to account for potential unexpected events. Here are some of the things that one might consider:

1. Death of a child or other family member
2. Incapacity of a child or other family member
3. Birth of additional children or other family members
4. Possibility that a beneficiary may be suffering from substance abuse
5. Possibility that a beneficiary may have creditors
6. Possibility that a beneficiary might be a victim of fraud or undue influence
7. Possibility that a beneficiary may be relying upon special government assistance

By taking precautions to think through these possibilities, one may be able to avoid the need to amend his or her estate planning documents by incorporating provisions to deal with these contingencies. 

To create a trust, certain legal requirements must be met. California Probate Code Section 15200 describes the ways in which a trust may be created:

Subject to other provisions of this chapter, a trust may be created by any of the following methods:

(a) A declaration by the owner of property that the owner holds the property as trustee.

(b) A transfer of property by the owner during the owner’s lifetime to another person as trustee.

(c) A transfer of property by the owner, by will or by other instrument taking effect upon the death of the owner, to another person as trustee.

(d) An exercise of a power of appointment to another person as trustee.

(e) An enforceable promise to create a trust.

Although there are a number of ways in which a trust can be created, there are a few other elements that must be satisfied:

• There must be a manifestation of intent by the Settlor (or Settlors, if a married couple) to create a trust. California Probate Code Section 15201.
• The trust must have property. California Probate Code Section 15202.
• The Trust may not be created for an illegal purpose or for a purpose that is against public policy. California Probate Code Section 15203.
• A trust created for an indefinite or general purpose is not invalid for that reason, if it can be determined with reasonable certainty that a particular use of the trust property comes within that purpose. California Probate Code Section 15204.
• There must be a beneficiary. California Probate Code Section 15205.

In California, trusts are not permitted to last indefinitely. Under California Probate Code Section 21205, a trust must not last longer than 21 years after an individual alive at the time the trust is created or 90 years, whichever is called for in the trust document. Here's the actual code section:

A nonvested property interest is invalid unless one of the following conditions is satisfied:

(a) When the interest is created, it is certain to vest or terminate no later than 21 years after the death of an individual then alive.

(b) The interest either vests or terminates within 90 years after its creation.

Understanding the elements of a valid trust can feel like an academic exercise, since it is virtually impossible to create an effective estate plan that carries out a client's wishes without necessarily meeting all of the elements. That being said, understanding the elements can help form an understanding of the considerations required in creating effective trusts.