gift of a particular piece of real or personal property is a specific gift.  If made in the context of a will or a living
trust, such gifts typically take effect at the donor’s death.  Meanwhile the donor (i.e., maker of the gift)
still owns the property.  Events may upset
(compromise) the intended gift, either in full or part.  Specifically, the property may be sold,
mortgaged, destroyed, or subject to eminent domain (i.e., the exercise of a
government’s right to condemn property).
All of which can result in the donee (i.e., the recipient of the gift)
receiving less than what was originally intended.

the donor subsequently dies, what then happens in respect of any specific gift
that was compromised by being sold, mortgaged, destroyed or condemned under
eminent domain?  It all depends.  In certain defined circumstances, California
law may protect the donee.  Let us

the property is sold, mortgaged, destroyed, or condemned due to eminent domain while
the donor (owner) was incapacitated and either the donor’s conservator or agent
under a durable power of attorney, as relevant, was involved, then the intended
donee may be in luck.  The law tries to
compensate the donee so that the intervening events do not totally disrupt the
incapacitated donor’s estate plan.  Presumably,
but for the donor’s incapacity, he or she would have made an offsetting gift of
money to compensate the donee of the specific gift for the sale, mortgage, destruction,
or condemnation of the property. 

example, consider a parent who makes a will that leaves a home to his son and
leaves the rest of his estate to his daughter.
Later-on, the parent becomes mentally incapacitated, is conserved, and
the home mortgaged by the conservator in order to pay bills.   When the parent dies, the son is entitled to
receive a sum of money equal to the unpaid mortgage owed at the owner’s death.  The son also receives the residence subject
to the mortgage. Now with the money, the son can pay-off the mortgage.  This presumes, of course, that the parent’s estate
is able to generate the funds after paying-off any debts, taxes and expenses of

in the case of conservatorships, the foregoing rule only applies if the
conserved donor dies either while still conserved or within one year of the
conservatorship’s termination.
Otherwise, the rule does not apply.

if the property that is the subject of the specific gift is sold, mortgaged,
destroyed or condemned while the owner/donor is alive and has capacity then the
intended donee of the property is entitled to receive any remaining unpaid
consideration on the sale of the property, any unpaid insurance proceeds, and
eminent domain monies owed on the property, as relevant.  This is in addition to any remaining
ownership rights the decedent had in the subject property at death

there is another rule regarding the specific gift of a debt instrument (e.g., a
promissory note or “IOU”).  Any property
owned by the donor that was acquired due to foreclosure, also belongs to the donee.  So, for example, consider the situation where
a creditor’s will gifts an IOU to his daughter.
The IOU is secured by a deed of trust recorded against the debtor’s residence.  The debtor defaults, and loses his residence
to his creditor.  When the creditor dies,
the daughter receives the residence instead of the IOU.

as of January 1, 2013, the foregoing protections will also apply to specific
gifts made in a person’s living trust.  Anyone
seeking to apply the rules to a specific situation should consult an attorney. 

“Serving Lake and Mendocino Counties for nineteen years, the Law Office of Dennis Fordham focuses on legacy and estate planning, trust and probate administration, and special needs planning. We are here for you. 870 South Main Street Lakeport, California 95453-4801. Phone: 707-263-3235.”