Presentation Transcript

1. Today’s topic: rights of the surviving spouse To what extent are spouses protected when decedents do not provide for their spouses in their estate plans? Can individuals write their spouses out of their estate plans? Does it matter whether they use a will or non-probate transfers, like trusts, to dispose of their assets? You can’t take your money with you, but can you at least make sure it doesn’t go to an estranged spouse?
2. Rights of surviving spouse to support
3. Marital property systems All property acquired during the marriage is community property, unless both spouses agree to separate ownership. Sharing of acquisitions as equals in marital economic partnership. No automatic sharing of earnings; whatever individual earns is his or hers. Protection against disinheritance provided through elective share. Individual autonomy over acquisitions.
4. WA ME MT ND VT MN OR NH MA ID WI NY SD RI WY MI CT PA NJ IA NE NV OH DE IN IL UT MD CO WV VA KS MO CA KY NC TN AZ OK AR SC NM GA AL MS TX LA FL AK HI Community property states
5. Are surviving spouse’s rights based on partnership or support? Under a partnership theory, the elective share should be greater for the 50-year marriage than the one-week marriage property acquired during, rather than before, marriage. Under a support theory, the elective share should be greater for a younger spouse with young children a surviving spouse with lower income Generally, the elective share does not depend on any of these variables
6. Are surviving spouse’s rights based on partnership or support? What if after the testator’s death, the spouse dies before electing a forced share? May the spouse’s estate exercise the right to a forced share? A partnership theory would say yes; a support theory would say no Most states say no Can the elective share be satisfied with a life interest in property held in trust? The support theory would say yes; the partnership theory would say no Only CT and RI limit the surviving spouse to a life estate
7. The elective share Traditionally applied to probate estate. Can a testator evade the elective share by using revocable trusts or other nonprobate transfers? Courts and legislatures have started to extend the elective share to revocable trusts and other nonprobate assets The elective share traditionally was less than the intestate share (one-third versus one-half) With the intestate share, we rely on presumed intent while with the elective share, we override actual intent In an era of nonprobate assets, the elective share may be greater than the intestate share Surviving spouse may choose elective share for an intestate decedent
8. What were the facts in Sullivan v. Burkin, p.488 Ernest Sullivan died after having transferred his house to a revocable inter vivos trust that would benefit him during his life and two friends after his death In his will, he wrote that he intentionally did not make any provisions for his wife and grandson His wife claimed that she should be able to reach the house to satisfy her forced share
9. Sullivan v. Burkin Sullivan v. Burkin460 N.E.2d 572 (Mass. 1984) Trustees (Ernest, then friends George and Harold) Mary Residue Real Estate Trust Property Mary elects to take forced share. George Cronin Harold Cronin Questions Presented: Is the trust valid without Wills Act formalities? Do the trust assets qualify as part of the “estate of the deceased” for Mary’s elective share? Ernest
10. Questions for the court in Sullivan Do we have an invalid will or a valid trust? As we saw before the break, we have a valid trust It doesn’t matter that Ernest retained full power over the trust property during his lifetime
11. Questions for the court in Sullivan Do the trust assets qualify as part of Ernest’s estate for purposes of Mary’s elective share? Under clear precedent, the trust assets are not counted, and it would not be fair to apply a new rule retroactively However, times have changed, and greater recognition has been given to the interests of spouses Under current law, a divorced spouse has a greater claim than a widowed spouse For the future, trust assets are considered part of the estate for purposes of the forced share if the decedent created the trust during the marriage and retained a general power of appointment or a power of revocation
12. In Sullivan, the decedent created the trust—what if a third party created the trust? What are the facts in Bongaards, p. 492? Jean Bongaards held a general power of appointment over a trust established by her mother (and a limited power of appointment over the remainder)
13. Bongaards v. Millen Bongaards v. Millen,793 N.E.2d 335 (Mass. 2003), p.492 Josephine George Nina Exercise of Power of Appointment Do the trust assets qualify as part of the “estate of the deceased” for George’s elective share? Jean
14. Why did Bongaardscome out differently than Sullivan? If George and Jean had divorced, George would have had a right to a share of the building In Sullivan, the court closed a loophole by which a testator tried to shelter assets and evade the elective share George tried to enlarge the class of property that would be considered part of the decedent’s estate—Jean’s mother wanted to keep the property in her family, so she set up a trust to do just that.
15. Does Bongaardsmake sense? Under a partnership theory of the forced share, the court’s decision makes sense, just as did the Sullivan court’s decision under the partnership theory. On the other hand, because Jean essentially had full ownership of the property, the UPC and a few states take the position that the trust should be included in the elective share calculation (page 809, note 4).
16. Elective shares and nonprobate assets States apply different tests for deciding whether to include nonprobate assets (e.g., illusory transfer test, intent to defraud test, pp. 493-494) Almost all states count revocable inter vivos trusts in calculating the elective share Indiana is in the minority except when a testator executes a trust in contemplation of his impending death and does so in order to defeat the surviving spouse’s statutory share Dunnewind v. Cook, 697 N.E.2d 485, 489 (1998) States generally do not count life insurance policies
17. Elective shares and nonprobate assets You should advise clients to exercise extreme caution in making nonprobate transfers without spousal consent that might have the effect of diminishing the spouse’s elective share (p. 494)
18. The elective share: State statutory approaches Greater of $50,000 or one-third of decedent’s net estate. One-third of the decedent’s net estate. Probate estate and specified nonprobate transfers, such as: gifts made within one year of death; savings account trusts; POD accounts not payable to spouse; lifetime transfers in which decedent retained certain powers. All property includible in the decedent’s gross estate under the federal estate tax law.
19. The elective share: Uniform Probate Code 1969 UPC Designed to prevent the testator from deliberately trying to defeat the right of the surviving spouse to the elective share Includes in the estate a schedule of nonprobate transfers. 1990 UPC as amended in 2008 Designed “to bring elective-share law in line with the partnership theory of marriage.” Includes in the augmented estate a schedule of nonprobate transfers (§2-203(a), §2-205 ); Elective share is 50 percent of the marital-property portion of the augmented estate (§2-202) Marital-property portion is based on the length of the marriage (§2-203(b)) Elective share reduced by nonprobate transfers and marital assets owned by surviving spouse (§2-209).
20. Prenuptial/postnuptial agreements and the elective share You may not be able to evade the elective share rights of your spouse by using nonprobate transfers, but you can ask your spouse to waive elective share rights via a prenuptial or postnuptial agreement Prenuptial agreements permitted in all states; postnuptial in most states Subject to requirements of fairness
21. Reece v. Elliott, 208 S.W.3d 419 (Tenn. App. 2006), p. 503 Reece v. Elliott Plaintiff and Reece execute premarital agreement. Plaintiff had independent counsel. Disclosure of assets, some without values. Plaintiff challenges premarital agreement for lack of disclosure of value of Routh Packing Company stock. Reece dies. Wedding. Dec. 4, 1999 Nov. 29, 1999 July 5, 2003
22. What was the basis for the challenge to the prenuptial agreement in Reece? The decedent didn’t make a full disclosure regarding his assets. He disclosed a substantial stock holding, but not the value of the stock. Why did the court uphold the agreement? The spouse received a fair disclosure of his assets (the decedent disclosed all of his assets, even if not the value of all of them, and she had adequate notice of the nature of his wealth) She had the opportunity to ask questions or investigate further but didn’t because she knew she would have no interest in the assets She was represented by independent counsel, and she acknowledged that she understood the agreement
23. Reeceand prenuptial agreements What if the surviving spouse had not been represented by counsel? Not fatal in most states, but an important consideration in judging whether the agreement is unconscionable. If you’re negotiating one of these agreements, you want to make sure that there is full disclosure of all assets with good faith valuations of each asset and that both parties are represented by independent counsel (pages 506-507).
24. Protection of pretermitted spouses We’ve seen that surviving spouses receive protection when decedents intentionallydecline to devise property to them What happens when a decedent married after executing a will but failed to update the will? States assume that the failure to update was an oversight and that the decedent would have wanted to provide for the spouse. Hence, the surviving spouse receives an intestate share of the estate But maybe the decedent intentionally failed to update the will, in which case the spouse would be entitled to an elective share rather than an intestate share When does a court conclude that the omission was intentional rather than inadvertent?
25. In re Estate of Prestie138 P.3d 520 (Nev. 2006), p. 516 In re Estate of Prestie W.R. Maria W.R. executes, in California, a pour-over will and an inter vivos trust. Neither provide for Maria. Ray W.R. amends the inter vivos trust, granting Maria a life estate in his condominium. Maria and W.R. divorce. 1987 1989 1994 2001 2000 Maria and W.R. Prestie marry in Las Vegas, Nevada. W.R. moves from California to Nevada. Maria also moves to Nevada. Maria moves in with W.R. and cares for him. Maria and W.R. marry again. W.R. dies.
26. Elective share in Indiana Ind. Code § 29-1-3-1 (a) . . . The surviving spouse, upon electing to take against the will, is entitled to one-half (1/2) of the net personal and real estate of the testator. However, if the surviving spouse is a second or other subsequent spouse who did not at any time have children by the decedent and the decedent left surviving a child or children or the descendants of a child or children by a previous spouse, the surviving second or subsequent childless spouse shall upon such election take one-third (1/3) of the net personal estate of the testator plus an amount equal to twenty-five percent (25%) of the remainder of:        (1) the fair market value as of the date of death of the real property of the testator; minus        (2) the value of the liens and encumbrances on the real property of the testator.In determining the net estate of a deceased spouse for the purpose of computing the amount due the surviving spouse electing to take against the will, the court shall consider only such property as would have passed under the laws of descent and distribution.
27. Waiver of right to elect and of other rights: UPC §2-213 (a) The right of election of a surviving spouse…may be waived,… by a written contract, agreement, or waiver signed by the surviving spouse. (b) A surviving spouse’s waiver is not enforceable if the surviving spouse proves that: (1) he…did not execute the waivervoluntarily; or (2) the waiver was unconscionable when it was executed and, before execution of the waiver, he…: (i) was not provided a fair and reasonable disclosure of the property or financial obligations of the decedent; … and (iii) did not have, or reasonably could not have had, an adequate knowledge of the property or financial obligations of the decedent. (d) . . . A waiver of “all rights”, or equivalent language [includes rights that would exist by virtue of intestate succession]