Legal Definitions - substitutional gift

A substitutional gift refers to a gift specified in a legal document, such as a will or trust, that is intended to replace an earlier, primary gift under certain predefined circumstances. It acts as an alternative or backup provision, coming into effect only if the original gift cannot be made, the intended recipient is unable to receive it, or specific conditions for the primary gift are not met.

Here are some examples illustrating a substitutional gift:

• Example 1: Asset Unavailable

  In her will, Ms. Chen specifies that her vintage coin collection should go to her grandson, Leo. However, she also includes a clause stating that if the coin collection is sold or lost before her death, Leo should instead receive a cash sum of $50,000 from her estate. In this scenario, the $50,000 cash sum is a substitutional gift because it is designed to replace the original gift of the coin collection if that collection is no longer available to be given.

• Example 2: Beneficiary Predeceases

  Mr. Davies' will leaves his entire vacation home to his daughter, Sarah. The will further stipulates that if Sarah does not survive him, the vacation home should instead pass to his son, Michael. Here, the gift of the vacation home to Michael is a substitutional gift. It only takes effect if the primary beneficiary (Sarah) is unable to receive the gift due to her death before Mr. Davies, thereby substituting Michael as the recipient.

• Example 3: Condition Not Met

  A trust fund is established by a wealthy aunt to provide $100,000 for her niece, Emily, to start a business, provided Emily completes a business degree by age 30. The trust also states that if Emily does not complete the degree by that age, the $100,000 should instead be donated to a specific local charity. The donation to the charity is a substitutional gift because it replaces the original gift to Emily if she fails to meet the specified condition for receiving it.