Surviving Spouse’s Elective Share: Where We’ve Been; Where We’re Going
Amy Morris Hess

Historical Overview Dower and Curtesy Common law rights that were life estates in all (curtesy) or one-third (dower) of the real estate that the predeceased spouse had acquired during the marriage. Curtesy was the right of a surviving husband; dower was the right of a surviving wife. These interests attached to real estate automatically; no action was necessary on the part of the survivor in order to receive them. Early Elective Share By mid-20th century, most states had abolished dower and curtesy and had substituted an elective share of both realty and personalty. Usually the share was one-third, the same fraction as dower. The share was a fixed fraction. It did not change depending upon the length of the couple’s marriage. The surviving spouse received the fraction outright, not as a life estate. Generally, the share was computed and payable out of probate assets only; it did not apply to non-probate transfers and testamentary substitutes. The survivor did not receive the elective share automatically. As the name implies, the survivor had to elect to receive the statutory share, usually by filing a document of election with the probate court within a statutory period of time after the death of the predeceased spouse. The purpose of these statutes generally was to assure support of the survivor, rather than to achieve an equitable division of the couple’s assets. Uniform Probate Code (“UPC”) - The UPC provision dealing with the surviving spouse’s elective share differs in at least four significant respects from these traditional elective share statutes: It applies to an “augmented estate,” not merely the probate estate, of the predeceased spouse. The augmented estate includes nonprobate transfers made by the predeceased spouse during life, both to the surviving spouse and others, and also includes the surviving spouse’s property and lifetime nonprobate transfers. UPC § 2-203; see also UPC §§ 2-204 to -207. In 1990, the amount of the share was placed on an increasing scale depending upon the length of the couple’s marriage. UPC § 2-202. The maximum fraction, after fifteen years of marriage, is fifty per cent. The commentary to the UPC explains that this fraction is intended to implement a partnership theory of marriage, rather than the traditional support theory. See U.P.C. § 2-202, cmt. to subsec. (a). The UPC provision governing satisfaction of the elective share requires that the surviving spouse’s own assets and any transfers to the survivor passing under the predeceased spouse’s will or by intestacy from the predeceased spouse’s estate be counted first. Other assets of the predeceased spouse may be used to satisfy the elective share only to the extent necessary to make up any deficiency. UPC § 2-209. The purpose of this provision is to minimize distortion of the predeceased spouse’s estate plan. See UPC § 2-209 cmt. Other Survivor’s Rights: Most states also had statutes granting the survivor several other rights in the predeceased spouse’s property: A year’s support out of the estate of the predeceased spouse Certain rights in the family home (“homestead rights”) Rights to furniture and other items of personal property that likely would have been in the home when the predeceased spouse died. Where We Are Today In 1993, the American College of Trust and Estate Counsel (“ACTEC”) compiled a summary of the rights of a surviving spouse under the laws of all 50 states. See Robert B. Joslyn, Surviving Spouse’s Rights to Share in Deceased Spouse’s Estate, Actec Studies, Study 10, May 1994. I have updated the information in the study through the 2000 state legislative sessions. That study, as updated, indicates the following: Roughly half of the states have adopted the augmented estate concept in some form. Many of these, however, include only the predeceased spouse’s nonprobate transfers in the augmented estate. They do not include the surviving spouse’s assets or lifetime transfers. Very few states have adopted the increasing fraction depending upon the length of the couple’s marriage in some form. In about one-fourth of the states, the highest applicable fraction is now fifty percent. In several more, the highest applicable fraction is fifty percent if the predeceased spouse has no surviving lineal descendants. States vary widely on how the elective share is satisfied. The trend, however, is toward reducing the amount that must come from property designated for others by counting transfers from the predeceased spouse to the surviving spouse. In at least one state, such transfers are counted in satisfying the elective share but not in computing it initially. See Tenn. Code Ann. § 31-4-101. The relationship between the elective share and planning to minimize the couple’s federal estate tax liability As long as the elective share is an outright transfer to the surviving spouse out of the assets of the predeceased spouse, it will qualify for the federal estate tax marital deduction. See I.R.C. § 2056(a). Each spouse’s estate is entitled to a separate exemption (“the exemption equivalent amount”) from estate taxation. I.R.C. § 2010. For 2002, the amount is $700,000 and it is scheduled to increase annually to $1,000,000 in 2006. To maximize the benefit of the two exemption equivalents, the property that qualifies for the exemption in the estate of the first spouse to die must be bequeathed in such a way that it will not be included in the estate of the surviving spouse when the survivor dies. In order to give the survivor the economic benefit of this property without having it included in the survivor’s estate at death, the predeceased spouse’s will must place the property in a trust for the benefit of the survivor (a “credit shelter trust”). The survivor may be the trustee of the trust. This may not be the best plan, however, because The survivor can be given greatest economic benefit from the trust by making the trust fully discretionary, and If the survivor is the sole trustee of a fully discretionary trust, the trust property will be included in the survivor’s estate at death, which frustrates the tax plan. Even in those states that require bequests to the surviving spouse to be counted as satisfying the elective share, the property in a credit shelter trust will not be counted to satisfy the elective share. However, the income interest may be counted, if it can be valued actuarially. See, e.g., UPC § 2-208(b)(2). In those states in which the income interest will not be counted to fund the elective share, the survivor may have an incentive to elect against the will of the predeceased spouse in order to receive the property outright. If the survivor does this, any property remaining at the survivor’s death will be included in the survivor’s estate, again frustrating the tax plan. Conclusion: The federal estate tax provisions may require couples to choose between maximum tax savings and maximum economic autonomy for the surviving spouse. This choice generally will be required of all couples whose combined assets are equal to more than one exemption equivalent amount but less than two. Topics for Discussion What do the statistics above tell us about the legislatures’ view of a couple in the twenty-first century? The most common fractional share still is one-third, although the number of states that have increased the fraction is increasing. A number of states still require the survivor to prove fraud or illusoriness in order to include nonprobate assets in the predeceased spouse’s estate for purposes of computing the elective share. And the effect of proving fraud sometimes is invalidation of the nonprobate transfer in its entirety. See, e.g., Tenn. Code. Ann. § 31-1-105. To what extent should a couple’s individual definition of “partnership” control the disposition of their assets after one dies? Currently, in the majority of states, the surviving spouse’s elective share can be waived by prenuptial agreement. In a smaller number, but still a majority, it can be waived by postnuptial agreement. personal autonomy versus unequal bargaining positions the value of nonfinancial benefits once one spouse has died, under what circumstances should the survivor be able to change the disposition agreed upon when both were alive? How should provision be made for an incompetent spouse? Currently, in a majority of states, the surviving spouse’s elective share rights survive incompetency and are exercisable by a fiduciary on behalf of the surviving spouse (e.g., guardian, conservator) See, e.g., UPC § 2-212(b). Should it matter whether the spouse was incompetent when the competent spouse planned the asset disposition? Should it matter if this was the first marriage for both spouses? Isn’t maximum realization of the partnership model of marriage impossible without a change in the unified credit provisions of the federal estate tax? Specifically, shouldn’t any unused portion of the unified credit equivalent be transferable from the predeceased spouse to the survivor? Some Troubling Examples for Discussion Are the results in the examples below appropriate? If not, what should the result be? Should the laws governing the surviving spouse’s elective share be changed to implement the more desirable result or should it be achieved in a different way? In all of the examples, the couples live in common law states and own no community property. Example 1: Estate Equalization During Life Harold and Wilma, a middle-aged married couple, both were married before. Each had two children by a previous marriage. They did not consult an attorney before they married and therefore executed no prenuptial agreement or other estate planning documents. After several years of marriage, they decided to do some estate planning. Their attorney suggested that they retitle their assets so that half of the family’s wealth is in each spouse’s name. The attorney also suggested wills in which each spouse’s individual assets are left in a discretionary trust during the survivor’s life. At the survivor’s death, the assets in the trust under the predeceased spouse’s will are to be distributed to that spouse’s children, and the assets in the survivor’s estate are to be distributed to the survivor’s children. The attorney did not recommend a postnuptial agreement as part of this estate plan because the effect of postnuptial agreements was uncertain under applicable state law. Harold and Wilma retitled their assets in accordance with the attorney’s suggestion and executed the wills that the attorney drafted. In connection with the asset retitling, Harold transferred $300,000 worth of assets to Wilma to equalize their estates. Harold died. The two estates were still relatively equal, valued at approximately $750,000 each. Wilma decided the elect to receive the surviving spouse’s share, which is equal to fifty percent of the predeceased spouse’s estate under applicable state law. Result: The assets in the trust under Harold’s will are equal to approximately one-fourth, rather than one-half, of the couple’s joint wealth. Thus Wilma may either consume or leave to her own children roughly three-quarters of the couple’s joint wealth. Example 2: The Have-not Spouse Dies First Herman and Wanda were a married couple in their sixties. This was a first marriage for both of them. They were married for thirty-five years and they had three adult children, all of whom also were married. During most of their marriage, Herman worked full time outside of the home and Wanda was a full time homemaker. Most of the couple’s assets were titled in Herman’s name alone. Wanda died intestate survived by Herman, the three children, and Wanda’s aged mother. Wanda and Herman had been contributing to Wanda’s mother’s support for about ten years before Wanda died. With Wanda gone, Herman no longer wishes to continue providing for his mother-in-law. Example 3: Incompetent Survivor Henry and Wendy were in their fifties and had been married for fifteen years when Wendy suffered a stroke that caused permanent brain damage. Before Wendy’s illness, neither had done any estate planning. Henry and Wendy had no children together, but Henry had two grown children by a previous marriage. In order to assure that Wendy would be properly cared for if he predeceased her, Henry executed a will that left all of his assets in a discretionary trust for Wendy for life, and provided for distribution to Henry’s children of the assets remaining at Wendy’s death. Henry’s will appointed a corporate trustee and Wendy’s sister, Sarah, as co-trustees of the trust. Henry predeceased Wendy. Shortly after Henry’s death, Wendy’s brother, Bernard, petitioned the appropriate court to have himself appointed Wendy’s conservator. He then exercised Wendy’s right to an elective share of Henry’s estate under applicable state law. Wendy is unlikely to regain competence and currently is intestate. Thus, what remains of the proceeds of the elective share, as well as all of Wendy’s own assets, will pass to Bernard and Sarah at Wendy’s death.