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Understand spousal rights, then learn how to reduce or eliminate them

Most people getting remarried have little to no concept of the full legal impact of their new marriage. Many believe that documents like prenuptials or other waivers are only needed by the wealthy. As a result, they often do little planning when a remarriage occurs—increasing the conflict and chaos that often occurs when people die.

Financial planners should make sure their clients understand the practical, legal, and tax impacts of an impending remarriage or recent remarriage.

While a remarriage does not create greater spousal rights than a first marriage, there is often an unstated perspective that spouses in second marriages (particularly when there are children from a prior relationship) should have limited rights to the assets of the new spouse. Certainly most of the descendants from prior marriages have that perspective. But that is not what the law generally provides.

Spousal Elective Share

“Spousal share” or “spousal elective share”1 refers to a legal claim that a surviving spouse has against a portion of the assets of a deceased spouse, even if the deceased spouse disinherited the survivor. Every state except Georgia permits a spousal share election to a surviving spouse or a community property right in a spouse.

While some states provide that the elective share may only be made against the probate estate of a deceased spouse, in most states, the assets used in calculating the spousal elective share are “augmented” to include some or all of the non-probate assets of the decedent (for example, revocable living trusts, life insurance, and IRAs that passed by beneficiary designation, or jointly owned financial accounts that automatically passed to a joint owner).

The spousal elective share normally ranges from 30 to 50 percent of the “augmented estate” of the decedent spouse. It is often in addition to the other spousal claims (see below) that the spouse has against the decedent’s estate. Because the spousal elective share is considered a taking against the decedent spouse’s will (similar to the claims of a creditor), it effectively gains a priority of distribution over the bequests in the will, creating a potential elimination of testamentary bequests under the decedent’s will to satisfy the election (in other words, the spousal election is similar to the claim of a creditor).

Community Property Rights

As of January 1, 2015, the following nine states have enacted community property laws: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Alaska and Tennessee permit their residents to elect into community property treatment. Fundamentally, the laws provide that “marital assets” acquired during the marriage are jointly owned by both spouses. States with community property rights do not generally provide for a statutory spousal elective share, because the surviving spouse is entitled to half of the marital estate.

Homestead Rights

According to The Wall Street Journal2, on average, the homes of American households age 65 and older constitute 33.1 percent of their net wealth. Many states grant a “homestead allowance” to a surviving spouse. The homestead allowance is generally a priority claim that a surviving spouse has against the estate of a deceased spouse.

The homestead allowance can be fairly small. For example, note the following homestead allowances: Alabama ($6,000), Idaho ($50,000), and Maine ($7,000). In Oregon, the surviving spouse can occupy the homestead for one year. In many states, the homestead allowance is often treated as a claim for a defined sum against the estate, rather than a right to directly claim the homestead residence.

Florida has unique rules that govern the devise of a homestead. In Florida, a surviving spouse has a constitutional right to a life estate in the homestead, or the surviving spouse can elect to take an undivided one-half interest in the homestead as a tenant in common. These rights exist even if the surviving spouse was not on the homestead title and even if the residence was held in trust.

Spousal Support

States can provide for defined support rights to a surviving spouse. For example, the Georgia “years support” claim is a priority claim that a surviving spouse and/or minor child can make for their support from a deceased spouse’s testate or intestate estate.

Personal Property Rights

Many states provide that a surviving spouse has a priority claim to some of the tangible personal property of a deceased spouse. The property is often referred to as “exempt property.” The right may be to particular tangible personal property and/or may be expressed in or be limited by a monetary value.

For example, New York3 provides:

“If a person dies, leaving a surviving spouse … the following items of property are not assets of the estate but vest in, and shall be set off to such surviving spouse (1) All housekeeping utensils, musical instruments, sewing machine, jewelry unless disposed of in the will, clothing of the decedent, household furniture and appliances, electronic and photographic devices, and fuel for personal use, not exceeding in aggregate value twenty thousand dollars … (2) The family bible or other religious books, family pictures, books, computer tapes, discs and software, DVDs, CDs, audio tapes, record albums, and other electronic storage devices, including but not limited to videotapes, used by such family, not exceeding in value two thousand, five hundred dollars. (3) Domestic and farm animals with their necessary food for sixty days, farm machinery, one tractor and one lawn tractor, not exceeding in aggregate value twenty thousand dollars.”

In second and third marriages, family heirlooms may be lost to the surviving spouse’s family.

Intestate Claims

There are at least three ways that a surviving spouse can obtain an intestate share of a deceased spouse’s estate. First, if a married client dies without a will (or similar dispositive documents), then the surviving spouse is entitled to a share of the estate, generally limited to the intestate estate (for example, excluding jointly held bank accounts that pass to the co-owner, IRAs pass to the named beneficiary, etc.). If the decedent leaves no descendants (or in many states, no surviving parent4), then the surviving spouse will normally receive 100 percent of the intestate estate. In some states, the surviving spouse receives at least a minimum dollar amount or minimum percentage of the intestate estate even if there are surviving descendants or surviving parents.

Second, in many states, if the decedent’s will existed before a marriage and was not made in contemplation of the marriage, the new spouse is entitled to an intestate share of the estate.

For example, Georgia5 provides:

“If the will was made prior to [a marriage] …, and does not contain a provision in contemplation of such an event, the subsequent spouse … shall receive the share of the estate he or she would have received if the testator had died intestate.”

Assume the decedent/spouse dies with no surviving descendants or parents. Georgia passes 100 percent of the decedent’s estate to the surviving spouse.6 Assume a Georgia couple married with neither having any descendants. They are involved in the same accident and the wife passes at the scene while the husband passes at a hospital. If the wife failed to revise her will in contemplation of their marriage, the heirs of the husband would inherit 100 percent of the combined estates.

Third, even if the decedent spouse executed a new will, there is a least one other route by which a surviving spouse could inherit. If all of the named heirs should predecease the decedent or if a trust was created and all of the trust beneficiaries die before the termination of the trust, the surviving spouse might have a right to inherit as a surviving intestate heir—with a priority of intestate inheritance in front of more remote family members.

ERISA

The Employee Retirement Income Security Act of 1974 (ERISA) governs qualified retirement plans. Upon marriage, a spouse normally and automatically becomes the primary beneficiary of the other spouse’s ERISA defined contribution account.7 In making a pre-retirement distribution decision for a defined benefit or money purchase plan, unless both spouses choose otherwise, the form of payment must be a qualified joint and survivor annuity, providing payments over the participant’s lifetime and then a surviving spouse’s lifetime.8 In addition, changes in beneficiary designations of an ERISA retirement plan generally require written approval of a spouse if the participant is married.9

IRAs do not have similar mandatory spousal rights or spousal approval requirements in changing the IRA beneficiary.10

Filial Support Laws

Many older Americans have not been adequately planning for their retirement and as a consequence, many are unprepared for their long-term care needs. Moreover, many elderly are living longer than they ever expected and are outliving their assets. According to the Genworth 2015 Cost of Care Survey, the average annual price for a private room in a nursing home is $91,250.

According to the Statute of Frauds, an individual cannot generally be held liable for the debts of another person without agreeing to such liability. However, as many as 30 states have adopted filial support statutes, in which family members can be held legally liable for the support obligations of spouses. These costs include health care and long-term care costs. In California, Connecticut, Indiana, Massachusetts, North Carolina, and Ohio, failure to provide the necessary support to a spouse can be a criminal felony or misdemeanor.

The increased life expectancy of Americans, combined with their lack of adequate financial preparation for their long-term care, will cause increased enforcement of filial support laws against family members. This right may prove to be particularly problematic in second and third marriages, even when a prenuptial agreement is in place.

Incapacity Decision-Making

Some states provide that marriage automatically revokes a medical directive, except with regard to the new spouse. For example, Georgia law (§ 31-32-6(b) (2015)) provides:

“Unless an advance directive for health care expressly provides otherwise, if after executing an advance directive for health care, the declarant marries, such marriage shall revoke the designation of a person other than the declarant’s spouse as the declarant’s health care agent … .”

In the absence of medical directives and/or durable general powers of attorney, most states provide that the current spouse has the highest priority to serve as guardian/custodian over the assets and/or person of an incapacitated spouse. In a number of states—including Florida, Texas, Virginia, and Washington—appointment of a guardian (for example, the current spouse) revokes or limits the agent holding a general power of attorney.

Estate Representation

In the event of an intestate estate or the failure of all named personal representatives to serve, the surviving spouse generally has a priority right to be the executor/personal representative of the deceased spouse’s estate, even if there are children from a prior relationship.

Spousal Medicaid Claims

Even if the clients live outside one of the filial support states, marriage creates a potential indirect claim on the income and assets of each spouse under Medicaid. To qualify for Medicaid, the joint assets and income of a married couple are taken into account. Married couples may need to spend down both spouses’ non-exempt assets before either spouse can qualify for Medicaid, even if there is a prenuptial agreement that provides that certain spousal assets are separate. Because Medicaid is a governmental support program, its qualification rules are not affected by a prenuptial agreement. The government can ignore any support restrictions contained in the prenuptial in determining Medicaid qualifications of either spouse.

Intestacy and a Deceased Spouse’s Family

While the general rule is that step-children (or other blood relatives of a deceased spouse) cannot statutorily inherit from a step-parent, a number of states11 permit such an inheritance by intestacy if the decedent’s remaining statutory intestate heirs are more remote.

For example, the language of the Florida statute (§ 732.103(5) (2015)) provides:

“If there is no kindred of either part [i.e., lineal descendants of the blood line of the maternal and paternal grandparents of the deceased], the whole of the property shall go to the kindred of the last deceased spouse of the decedent as if the deceased spouse had survived the decedent and then died intestate entitled to the estate.”

Note that the use of the word “kindred” would appear to include all intestate heirs of the pre-deceased spouse, not just the spouse’s lineal descendants.

Clients entering into second and third marriages tend to be older and a bit wiser (or jaded) about marriage. Financial advisers need to make sure the clients have a full understanding of the practical and legal implications of the remarriage.

The following will discuss how to reduce or eliminate many of these spousal rights.

Reducing or Eliminating Spousal Rights

Waivers

Waivers can be the simplest way to eliminate a spousal right. However, the rules governing waivers can be complex, and failure to completely comply with the law can create unexpected results.

Waivers can be of a particular asset (for example, an ERISA plan) or more global, such as a prenuptial or post-nuptial agreement. Prenuptial agreements have become a significant part of the estate planning and asset-protection process. Probably the last thing an engaged couple wants to do is meet with their paranoid lawyers to discuss the possibility of their premature death, incapacity, or divorce. Nonetheless, it should also be a vital part of the preparation for any remarriage. Prenuptial agreements tend to take a bit of the romance out of the first marriage, but by the second or third marriage, the historic reality of divorce often creates a different perspective.

Retirement Plans and Waivers

In a series of decisions, the federal courts have ruled that a spouse’s right to an ERISA retirement plan cannot be waived prior to the marriage of the parties.12 Thus, if the parties intend for such a waiver, a renunciation of rights should be signed after the marriage occurs. A waiver before marriage may be void. Although the pre-marriage waiver may not be effective upon the death of the plan participant, it might be effective upon the divorce of the couple.

IRAs are not governed by ERISA. Subject to state laws (for example, inclusion in the calculation of a spousal elective share in an “augmented” estate), an IRA owner may be able to eliminate a spouse’s right to inherit or make a claim against an IRA.

In Charles Schwab v. Debickero,13 a husband rolled a 401(k) into an IRA after retirement, but before he remarried. The husband named his children as the IRA beneficiaries. When the husband passed away, his wife argued that because her husband had rolled his 401(k) into the IRA, she should receive the same protections that his ERISA-qualified retirement plan would have provided to her. The Ninth Circuit Court disagreed: “Thus, under both § 401(a) and the accompanying regulations, there is no basis for imposing on the Schwab IRA the automatic survivor annuity requirements of § 401(a)(11) and overriding the beneficiary designations rightfully made by Wilson in establishing the account.”

IRA Trusts

Many clients in second and third marriages are concerned that passing their substantial IRA accounts directly to a spouse will either result in a rapid dissipation of the IRA or result in IRA funds that remain upon the spouse’s death, ultimately passing to someone other than the clients’ family members (for example, a new spouse or children from a prior marriage). To provide current benefits to a spouse while placing a “gate keeper” trustee between the spouse and the assets, the clients should consider the use of a qualifying trust or a conduit trust. These trusts can also limit the claims of creditors on a spousal-inherited IRA, after the U.S. Supreme Court decision of Clark v. Rameker.14

When drafting an IRA trust for the benefit of a spouse, particularly a second or third spouse, consider having the spouse waive any rights (for example, spousal elective share in an augmented state) to the IRA as a part of the documents being signed. Because the couple might move to an “augmented” state (as in, for elective share purposes), this waiver should be made even if the current domicile state has limited spousal rights to make claims against an IRA.

Eliminate Probate

In those states in which the spousal elective share is not “augmented” by the non-probate assets of a deceased spouse, it may be possible to eliminate a spousal elective share by not having assets in the probate estate. However, be aware that a number of states include revocable lifetime trusts in the calculation of the spousal elective share.

Eliminate any Intestate Claim

As noted earlier, a surviving spouse can have at least three potential intestate claims against a decedent spouse’s estate. By properly drafting a new will in contemplation of the marriage or after the marriage, the decedent spouse can eliminate all of these potential intestate claims. The common disaster language of the will (for example, what happens if all of the descendants of the testator are deceased?) should specifically eliminate any inheritance by the spouse or the spouse’s family members. Moreover, the new will should specifically mention that the marriage exists and that the testator desired to limit inheritances by the new spouse.

Eliminate the Marriage

In a number of states, marriages are voidable after the marriage, even by a decedent’s heirs. For example, in a recent Wisconsin Supreme Court decision,15 the court ruled that a marriage could be annulled after the death of a spouse if it was found that the decedent lacked sufficient capacity to enter into the marriage. Wisconsin is not alone in permitting annulment of marriages after the death of a spouse. Some states, including Florida, Texas, and New York, have statutes that allow the voiding of a marriage after a spouse’s death.

Lack of mental capacity is not the only basis for voiding or annulling a marriage. The rules vary widely by states, but other grounds for voiding a marriage can include:

  • a spouse being impotent
  • a “want of understanding” by one of the spouses
  • a spouse having a venereal disease
  • a spouse having been convicted of a felony before the marriage without the knowledge of the other party
  • prior to the marriage, either party having been with a prostitute, without the knowledge of the other party
  • a spouse being underage and marrying without any required parental consent
  • a spouse being under the influence of drugs or alcohol at the time of the marriage
  • the marriage constitutes incest or bigamy

Caution: Even if the marriage is void, local courts might award a spousal share to the survivor of the relationship. In Cotton v. Cotton,16 the Mississippi Court of Appeals awarded a spousal elective share to a wife who had never divorced her prior husband and whose marriage to the decedent was therefore void.

An important element of this planning is determining whether a marriage ever existed. A minority of states allow their residents to enter into marriages without obtaining a marriage license. As of January 1, 2015, these states include: Alabama, Colorado, Iowa, Kansas, Montana, New Hampshire, Oklahoma, Rhode Island, South Carolina, Texas, and Utah. In addition, a number of other states have statutorily eliminated common law marriages that occur after certain dates.17 These states and the effective dates are:

  • Florida (January 1, 1968)
  • Georgia (January 1, 1997)
  • Indiana (January 1, 1958)
  • Mississippi (April 6, 1956)
  • Michigan (January 1, 1957)
  • Ohio (October 10, 1991)
  • Pennsylvania (January 1, 2005)
  • South Dakota (July 1, 1959)

Eliminate the Right of Spousal Elective Share

States have adopted a number of limitations that can deny a surviving spouse the right to claim an elective share. For example, a spousal elective share may be denied if the following conditions apply (rules vary widely from state to state):

  • The marriage was automatically void under state law (for example, bigamy, incest) or annulled after a judicial determination was made.
  • The claimant spouse abandoned the deceased spouse.
  • Oregon provides: “If the decedent and the surviving spouse were living apart at the time of the decedent’s death, whether or not there was a judgment of legal separation, the court may deny any right to an elective share or may reduce the elective share.”
  • New York provides: “The right of election granted by this section is not available to the spouse of a decedent who was not domiciled in this state at the time of death, unless such decedent has elected, under paragraph (h) of 3-5.1, to have the disposition of his or her property situated in this state governed by the laws of this state.
  • Pennsylvania provides that the elective share is not permitted “in the event a married person domiciled in this Commonwealth dies during the course of divorce proceedings ... and grounds have been established as provided in 23 Pa.C.S. § 3323(g).”
  • The electing spouse or their qualified agent fails to file the election within the period provided for in the statute.

Reduce the Elective Share

In many states, the spouse’s elective share is reduced to the extent the claimant spouse received assets as a result of the decedent spouse’s passing. This rule may effectively permit the decedent to plan for the particular assets (possibly excluding the homestead) they want to pass to the spouse as an elective share. For example, the decedent may have structured his estate to assure that the family business passes to his descendants, while other (perhaps less favorable) assets pass to the surviving spouse.

Distributions in Lieu of Taking under the Will

The nature of the spousal elective share is that the surviving spouse is taking against the will. Therefore, it is generally expected that the spouse could not take both a spousal elective share and a bequest under the will. Moreover, non-probate distributions to the surviving spouse (for example, beneficiary designations and joint accounts) may statutorily reduce the spousal elective share. If the will or living trust makes a bequest for the surviving spouse, consider specifically providing that those testamentary benefits are in lieu of any other statutory claims (for example, spousal elective share) the surviving spouse might otherwise have.

Eliminate the Assets

In planning their estates, parents should be encouraged to contemplate the possibility of either a child’s divorce or death and the resulting potential claims of a surviving spouse. By proper planning, the assets can be removed from any divorce settlement or the rights of a surviving spouse at the death of a child.

For example, assume a client has three children who are all married and in their 40s. Two daughters have children, while the son has no children. Neither the client nor any of the children are expected to have a taxable estate for federal or state tax purposes. The client has a strong desire to keep the family assets in the blood line. As a result, the client should understand that the son’s spouse could take up to 100 percent of the son’s inheritance by the spousal elective share and/or by intestate share. All those assets could then pass to the heirs and/or new spouse of the son’s current spouse. To keep the disposition of assets in the blood line, the client should use a spendthrift, discretionary, generation-skipping trust. The trust might provide a lifetime interest in the son’s surviving spouse, but then pass the assets back to the blood line. When the father says “I want to give one-third of my estate to my son, because I know my son will do the right thing and pass his inherited assets back to our family,” the adviser needs to point out that the spousal elective share is an automatic right of the son’s spouse, not something controlled by the son.

This same problem can occur in family businesses. Assume a daughter is gifted or bequeathed half of a family business. Upon divorce or death, the daughter’s surviving husband could take up to 100 percent of her ownership in the business. If the former son-in-law remarries and then passes away, the new surviving spouse may inherit that business interest. Make sure there is a buy-sell agreement on all of the family business interests that allows the business to “call” any shares at any time for their appraised fair market value, including applicable valuation discounts, but no penalties.

Apportioning Expenses and Taxes

To limit the funds passing to a surviving spouse as an elective share and/or homestead claim, clients should consider having specific language in the dispositive documents that provide for an apportionment of part of any state and/or federal death taxes, debts, and expenses of the estate to assets passing to a surviving spouse that are elected by the spouse against the will. The specific language should also provide a specific and reasonable method for calculating the apportionment (in other words, it should not penalize the surviving spouse). But recognize that any statutory language detailing the calculation the spousal rights will probably govern.

Gifts in Contemplation of Death

Connecticut is the only state with a state gift tax. For clients facing a tax gap between the state and federal death tax exemptions, making lifetime gifts may be a way to reduce the state death tax. Gifting assets proximate to the donor’s passing can also potentially eliminate the spousal elective share of a surviving spouse. However, note that the Uniform Probate Code provides that the spousal elective share is only eliminated if the donor survives the gift by two years.

Moreover, there are some downsides to gifts right before death, including:

  • Some states have rules that provide that certain “gifts in contemplation of death” remain subject to a state death tax. As of January 1, 2015, these states include Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. The rules vary widely and in some cases are rebuttable.
  • If the assets are gifted, the donees receive the donor’s tax basis and lose the step-up in basis that occurs for bequests of appreciated assets.

Personal Property

To avoid conflicts over the ownership of personal property, have both spouses sign an agreement that specifies who owns particular assets and waives any rights to those assets. (A form for this purpose can be found at the author’s website, www.scrogginlaw.com.)

Life Insurance

Life insurance owned by the decedent/insured in those states that have augmented spousal shares can increase the claim of a surviving spouse, even if the insurance is paid to a named beneficiary. Clients who want to eliminate spousal elective shares should consider moving new or existing life insurance into an irrevocable life insurance trust to eliminate a spousal claim. Beware of the two-year contemplation of death rule in the above states and the three-year federal estate tax inclusion rule for the transfer of existing life insurance policies.18

Automatic Elimination of Claims

Largely because of continual mistakes by divorced residents, at least 23 states have adopted statutes providing that divorce automatically results in a deemed elimination of beneficiary designations for the benefit of the former spouse.19 For example, Georgia provides that a former spouse is treated as predeceasing the decedent when a divorce occurs.20

A number of Supreme Court decisions21 have indicated that state statues that automatically rescind rights upon divorce do not apply to ERISA retirement plans and other federally provided benefits, because federal law preempts state law with regard to such rights.22 Therefore, clients are well advised to promptly review and modify all beneficiary designations as a part of their marriage or divorce.

Self-Settled Spendthrift Trusts

Prenuptial agreements can take a lot of the romance out of the impending marriage and create some tense negotiations. An alternative may be the creation of a self-settled trust before the marriage. Traditionally, states have not allowed individuals to set up “self-funded” spendthrift trusts. That is, the grantor of a trust was not allowed to set up a trust against which his creditors (including a divorcing spouse) could not make claim. As a result, many clients have created offshore asset protection trusts to restrict the claims of future creditors.

In recent years, a number of states have provided limited protection for a grantor of self-settled spendthrift trusts. For example, Alaska allows the creation of a self-funded spendthrift trust, which denies spousal claims even if the marriage existed at the time of the trust’s creation.23 These trusts (and similar trusts in other states) may open up an opportunity for a client to create a self-funded spendthrift trust, which is protected from a new spouse without the complication of a prenuptial agreement.

While a comparison of the state and foreign trust rules are beyond the scope of this article, planners should carefully consider the advantages and disadvantages of creating self-funded spendthrift trusts in one of the states that offer greater creditor protection. Such trusts may be created in lieu of or as part of a prenuptial agreement. If created as a part of prenuptial agreement, the client should fully disclose the existence of the trust. Preferably, the trusts should be created before the marriage occurs. A bankruptcy court may disagree with the protections potentially obtained by the use of a self-settled spendthrift trust.24

Change of Residency

Spousal rights vary widely from state to state. Moving to another state can change the inheritance rights and powers of a surviving spouse. Georgia is the only state that does not permit a spouse to make a spousal elective share claim.

Depending upon which side of the inheritance you are on, moving an incapacitated spouse to a jurisdiction with greater benefits for the surviving spouse may be a method of increasing the surviving spouse’s inheritance.

For example, a couple in their second marriage with children from prior marriages resides in Georgia. Each spouse executed a will that disinherits the surviving spouse in favor of the testator’s descendants. The husband is now in an Alzheimer’s unit and the wife (who holds a general power of attorney and medical directive) wants both of them to “retire” to Florida. Neither spouse has waived any marital rights. The change of domicile could result in the wife being able to claim a Florida spousal elective share and make a claim against the homestead property.

Inheritance and Divorce

Lack of caution can convert inherited assets to assets used in a divorce property settlement. Given the high potential for divorce and the increasing divorce rate of baby boomers,25 clients who inherit assets should take actions to minimize the loss of assets to a subsequent divorce. Among the approaches the recipient should consider are:

  • Segregating the assets from any other income or assets of the recipient and maintaining records showing that no marital assets or income were ever combined with those segregated assets. Be aware that even segregated assets may be taken into account in determining both alimony and property settlements, particularly in “kitchen-sink” states and “hybrid” states that may not distinguish between segregated inheritances and marital property. Appreciation in the value of inherited assets can be considered a marital asset in some states.
  • Don’t use inherited funds to pay off the debt on an asset that is in the couples’ joint name (for example, the residence).
  • Try to avoid using the income and/or principal of the inherited funds to pay for lifestyle costs of the couple (for example, funding the family’s mortgage).
  • Perhaps the best approach is to have the transferor of the inherited asset place the asset in a spendthrift, discretionary, generation-skipping trust with the beneficiary/spouse having a limited power of appointment over the trust fund at his or her passing.

Caution: The author was unable to find any state statute that excluded assets that a deceased spouse inherited from the calculation of the spousal elective share.

Decision-Making

To eliminate the incapacity and estate decision-making of a new spouse, new wills, durable powers of attorney, and medical directives should be executed. If they are signed before the marriage, they should specifically state that they are in contemplation of the marriage and are not to be revised by the marriage. In the medial directive and general power of attorney, state that if it is necessary to appoint a guardian upon incapacity, the named agent in the document is to be the guardian.

Conclusion

Because of all of the state variations, this area of law is even more complex than the federal tax code; 50 states have broadly different and constantly changing rules, exceptions, exclusions, and limitations. It also impacts far more families than state and federal estate taxes. But a central part of being a skilled planner is ensuring clients and their parents and close family members fully understand the practical, legal, and tax impacts of an impending remarriage or recent remarriage. More information and practical checklists can be found at www.scrogginlaw.com.  

John J. (“Jeff”) Scroggin, AEP®, J.D., LL.M., has practiced as a business, tax, and estate planning attorney for 37 years. He is a member of the Board of Trustees of the University of Florida College of Law. He served as founding editor of the NAEPC Journal of Estate and Tax Planning and is a prolific author and frequent speaker.

Endnotes

  1. The right is also referred to as “widow’s share,” “statutory share,” “election against the will,” and “forced share.”
  2. See “Lost Inheritance,” from the March 7, 2013 issue of the Wall Street Journal.
  3. EPTL § 5-3.1. (2015) (emphasis added).
  4. C.f., Ala. Code § 43-8-41(2015) provides that “[i]f there is no surviving issue but the decedent is survived by a parent or parents, the first $100,000.00 in value, plus one-half of the balance of the intestate estate” passes to the surviving spouse with the parents equally taking the remainder of the estate. Similarly see: Mich. Comp. Laws § 700.2102, MD Code Est. & Trusts § 3-102.
  5. O.C.G.A. § 53-4-48(c) (2014).
  6. O.C.G.A. § 53-2-1(c)(1) (2014).
  7. I.R.C. § 401(a)(11)(B)(iii) (2015).
  8. I.R.C. § 401(a)(11).
  9. 29 U.S.C. § 1055(c)(2)(A) (2015).
  10. 29 U.S.C. §§ 1051–1061 (2015).
  11. C.f., Fla. Stat. § 732.103(5) (2015); Cal. Prob. Code § 6454 (2015); Md. Code Ann., Est. & Trusts § 3-104(e); and Ohio Rev. Code Ann. § 2105.06(J) (2015).
  12. See Hagwood v. Newton, 282 F.3d 285 (4th Cir. 2002); Nat’l Autos. Dealers & Assoc. Ret. Tr. v. Arbeitman, 89 F.3d 496 (8th Cir. 1996); Howard v. Branham & Baker Coal Co., 968 F.2d 1214 (6th Cir. 1992); Hurwitz v. Sher, 982 F.2d 778 (2nd Cir. 1992); see also 26 U.S.C. §§ 417(a), 1055 (2012); Treas. Reg. § 1.401(a)-20 Q&A 28 (2015). But see Strong v. Dubin, 75 A.D.3d 66 (N.Y. Sup. Ct. 2010).
  13. 593 F.3d 916 (9th Cir. 2010).
  14. 134 S. Ct. 2242 (2014). In the case, the Court provided that inherited IRAs do not have the same creditor protections as the original IRA owner’s protections.
  15. McLeod v. Mudlaff (In re Estate of Laubenheimer), 2013 WI 76, 833 N.W.2d 735, 2013 Wisc. LEXIS 287 (2013); See also: Matter of Estate of Kaminester, 888 NYS2d 385 2009, NY Slip Op 29429, 2009 WL 3415254 (N.Y. Cty. Surr. Ct., 10/14/09).
  16. 44 So. 3d 371 (Miss. Ct. App. 2010).
  17. The following states have never permitted common law marriages: Arkansas, Connecticut, Delaware, Louisiana, Maryland, North Carolina, Oregon, Tennessee, Vermont, Virginia, Washington, West Virginia, and Wyoming.
  18. I.R.C. § 2035 (2015).
  19. See “When Clients Fail to Change Beneficiary Designations,” by Leslie A. Shaner, in the December 10, 2013 issue of Family Law Magazine. See also Unif. Prob. Code § 2-804 (Unif. Law Comm’n 2014).
  20. O.C.G.A. § 53-4-49.
  21. Hillman v. Maretta, 133 S.Ct. 1943 (2013); Kennedy v. DuPont Savings and Investment Plan, 555 U.S. 285 (2009); Egelhoff v. Egelhoff, 532 U.S. 141 (2001); Ridgeway v. Ridgeway 454 U.S. 46 (1981); Wissner v. Wissner, 338 U.S. 655 (1950). A number of state courts have issued similar rulings (for example, see In re Sauer, 32 A.3d 1241 (Pa. 2011)).
  22. ERISA § 514(a) (codified at 29 U.S.C. §1144(a) (2012)) provides that ERISA “shall supersede any and all State laws insofar as they may now or hereafter relate to any [ERISA] employee benefit plan.”
  23. See “Alaska and Delaware: Heavyweight Competition in New Trust Laws” by Douglas J. Blattmachr and Richard W. Hompesch II, 12 Prob & Prop. 32 (Jan/Feb. 1998).
  24. C.f., In re Castellano, 2014 WL 3881338 (Bk.N.D.Ill., Aug. 6, 2014); Jay Adkisson, David Slenn and Philip Martino, In re Castellano: A Wake-Up Call for Self-Settled Trusts and Spendthrift Provisions, LISI Asset Protection Planning Newsletter No. 258, (September 8, 2014).
  25. See “The Gray Divorce Revolution: Rising Divorce among Middle-aged and Older Adults,” by Susan L. Brown and I-Fen Lin, a National Center for Family & Marriage Research working paper series WP-13-03, 2013, and “Divorce Late in Life: The Gray Divorcés,” by Susan Gregory Thomas, in the March 3, 2012 issue of the Wall Street Journal.

Sidebar:

Why Marital Rights Are a Bigger Concern than Death Taxes

“The heirs of family members who are getting remarried or have remarried have more to fear from the martial rights of the new spouse then they do applicable state and federal death taxes.”

This premise is supported by a number of facts, including:

  • A Congressional Research Service report estimated that approximately 0.2 percent of all estates would be subject to an estate tax in 2013.1 As of January 1, 2015, only 19 states and the District of Columbia have a state death tax.2
  • According to a 1996 University of California study,3 61 percent of widowers are engaged in a new romantic relationship within 25 months of their wife’s death, while only 19 percent of the widows had a new relationship.
  • 20 percent of men in second marriages marry someone who is at least 10 years younger than them.4
  • According to an AARP report,5 at age 70 men are twice as likely to have a current or recent sexual partner as women of the same age.
  • The Census Bureau reports that more than 10 times as many widowers as widows who are over age 65 remarry.
  • Roughly 500,000 U.S. residents over age 65 marry each year.6
  • The median net worth (including $125,000 of equity in their residence) of the average American age 65 to 69 was $194,266 in 2011.7 These assets can dissipate quickly under the claims of a surviving spouse.

These demographics are creating some interesting planning problems, particularly for older clients who are remarrying. For example:

  • Dad’s marriage to a woman 20 years his junior has created heartburn for many children who have been anticipating a larger and quicker inheritance. The children may attempt to aggressively insert themselves into their parent’s marriage and estate planning process, creating new ethical and legal complexities for the parents’ advisers.
  • A couple married late in life for the second time, with neither of them having any descendants. The husband was paying for his wife and sister to stay in an expensive Alzheimer’s facility. When the 70-year-old man went in for “routine” surgery he died on the operating table without a valid will. Under state law, his incapacitated wife inherited his entire estate, but she did not have a will. Her nieces and nephews promptly obtained guardianship for the wife and then refused to make any further payments to support the deceased husband’s incapacitated sister, even though the husband’s estate exceeded $11 million. The sister was moved into a Medicaid facility.

Endnotes

  1. “The Estate and Gift Tax Provisions of the American Taxpayer Relief Act of 2012,” by Jane G. Gravelle, Cong. Research Serv., R42959.
  2. McGuireWoods State Death Tax Chart, April 2015, available at www.mcguirewoods.com/People/F/Charles-D-Fox-IV.aspx#publications.
  3. “Dating and Remarriage over the First Two Years of Widowhood,” by Danielle S. Schneider, in the June 8, 1996 issue of Annals of Clinical Psychiatry.
  4. “Tying The Knot Again? Chances Are, There’s a Bigger Age Gap than the First Time Around,” by Gretchen Livingston, Pew Research Center, posted December 4, 2014.
  5. “Sex, Romance, and Relationships: AARP Survey of Midlife and Older Adults” by Linda L. Fisher, posted April 2010 at aarp.org.
  6. U.S. Census Bureau, 1995.
  7. U.S. Census Bureau: “Median Value of Assets for Households, by Type of Asset Owned and Selected Characteristics,” 2011.

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