Today’s topic: rights of spouses and children 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? What about descendants? Can they be intentionally omitted from a will? What if they are unintentionally omitted from a will?

Presidents’ Day George Washington’s will Abraham Lincoln’s will

Rights of surviving spouse to support Social Security Surviving spouse receives worker's monthly benefits. Employee Pension Plans ERISA gives spouse of employee survivorship rights to pension plan. Homestead Right to occupy family home for lifetime (UPC=$22,500). Personal Property Set-Aside Right to tangible personal property up to a certain value (UPC=$15,000). Family Allowance For support of surviving spouse during probate (UPC = “reasonable allowance”). Automatic $25,000 in Indiana. Dower and Curtesy Life estate in one-third (dower) or entirety (curtesy) of land (abolished in Indiana).

Marital property systems Community Property Separate Property 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.

Community property states MT WY ID WA OR NV UT CA AZ ND SD NE CO NM TX OK KS AR LA MO IA MN WI IL IN KY TN MS AL GA FL SC NC VA WV OH MI NY PA MD DE NJ CT RI MA ME VT NH AK HI

Are surviving spouse’s elective share 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

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

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

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

Sullivan v. Burkin 460 N.E.2d 572 (Mass. 1984) Mary Ernest Trustees (Ernest, then friends George and Harold) Residue Real Estate Trust Property Mary elects to take forced share. Harold Cronin George 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? 10

Questions for the court in Sullivan Do we have an invalid will or a valid trust? We have a valid trust It doesn’t matter that Ernest retained full power over the trust property during his lifetime (pages 489-490)

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

What are the facts in Bongaards, p. 492? 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 lifetime power of appointment over a trust established by her mother (and a limited power of appointment over the remainder)

Bongaards v. Millen, 793 N.E.2d 335 (Mass. 2003), p.492 Josephine Nina Jean George Exercise of Power of Appointment Do the trust assets qualify as part of the “estate of the deceased” for George’s elective share? No 14

Why did Bongaards come 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.

Does Bongaards make 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).

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 testators execute a trust in contemplation of their impending death and do so in order to defeat the surviving spouse’s statutory share Dunnewind v. Cook, 697 N.E.2d 485, 489 (1998)

Elective shares and nonprobate assets, problem 1, page 494 In theory, life insurance policies could be illusory since beneficiaries have no meaningful rights until H dies. Nevertheless, courts rarely hold life insurance illusory since H cannot access the payoff value POD accounts could easily be considered illusory since H has complete control (but could be non-illusory if designed for children’s educations and other assets to go to spouse) POD account looks illusory but a joint account does not since the daughter can withdraw from the account—H does not have complete control A joint tenancy is not illusory—the daughters own a fractional share when it is created

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)

The elective share: State statutory approaches New York Delaware Elective Share Amount Property subject to elective share 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.

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).

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

Reece v. Elliott, 208 S.W.3d 419 (Tenn. App. 2006), p. 503 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. Nov. 29, 1999 Dec. 4, 1999 July 5, 2003

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 

Reece and 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).

Protection of pretermitted spouses We’ve seen that surviving spouses receive protection when decedents intentionally decline 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?

In re Estate of Prestie 138 P.3d 520 (Nev. 2006), p. 516 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 2000 2001 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.

Prestie Was Maria an intentionally omitted spouse? No—there was neither a marriage contract nor any provision in the will either providing for her or manifesting an intent not to provide for her What about the amendment of the inter vivos trust a few weeks before they remarried? Wasn’t this like Erickson (p. 345)? The Nevada statute requires language in the will But as fn 23 recognizes, testators amend their pour-over wills by amending their trusts

Notes for Prestie, pp. 518-519 What result under the UPC? Under 2-301(a)(3) (p.518), W.R. provided for Maria by “transfer outside the will” when he amended his inter vivos trust (an amendment he described as a “codicil,” fn 22) What if W.R. had included a bequest in the will he executed before marrying Maria? She would not be considered an omitted spouse under the Nevada statute

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.

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 waiver voluntarily; 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]

Rights of descendants intentionally omitted from a will While spouses are protected when intentionally omitted from a will through the elective share, children are not (except in Louisiana) That said, testators invite challenges to their estate plan when they omit children (unless the estate goes to the child’s surviving parent), and juries and judges tend to be sympathetic to the children (p. 520)

Protection of descendants inadvertently omitted from the will While testators are permitted to deny their children a bequest, the law also protects their children from being left out of the will unintentionally Usually, the statutes apply to children born or adopted after execution of the will Sometimes, though, they also apply to children alive when the will is executed When is an omission considered intentional and when is it considered unintentional?

Gray v. Gray 947 So. 2d 1045 (Ala. 2006), p.528 Mary Rose John Monica Robert Jack 1981 1984 1989 2004 John executes a will devising his entire estate to his wife Mary. Jack is born. John and Mary divorce. As part of settlement, John creates a trust for Jack. John dies. 34

What was the effect of John’s will after he died? The divorce revoked the provision in the will in favor of Mary, so John’s estate would either pass through intestacy or go to a contingent beneficiary If it passed through intestacy, what would happen? The three children would share Since Jack would have no reason to sue if the estate passed through intestacy, there must be a contingent beneficiary It was John’s brother (footnote 28) Jack takes only if he was unintentionally omitted from the will

Was the omission of Jack unintentional under Alabama law? No. Under provision (a)(2), Jack’s omission is considered intentional What’s wrong with viewing Jack’s situation as an (a) (2) situation? The provision contemplates a situation in which the other parent of the omitted child will provide for the child with the bequest from the decedent In this case, the other parent will not receive a bequest because of the divorce—the statutory provision assumes that the other parent actually takes under the will This point is made explicitly in the 1990 UPC, page 531, under (a)(1)

Would Jack take under the 1990 UPC? No. Under provision (a)(2), Jack’s omission is considered intentional because John had living children when he wrote his will. What would have been a better way for the court to reach the result it reached and which was probably the correct result? Use provision (a)(3) of the Alabama pretermitted child statute (note 1, page 532). John did provide for Jack with the trust. Why didn’t the court go this route? Because it requires an assessment of intent and that becomes more complicated. Was the trust actually intended as a “transfer in lieu of a testamentary provision?”

Note 3, p. 532 Under the second example, C receives $5,000, two-thirds from A and one-third from B—(2(ii) and 2(iv), pages 531-532) (so A takes $6,667, B takes $3,333, and C takes $5,000) Unless the second or third provision of the 1969 UPC is satisfied, C would receive an intestate share—which could be a lot more than A or B would get

Pretermitted child (1969 UPC) a) If a testator fails to provide in his will for any of his children born or adopted after the execution of his will, the omitted child receives a share in the estate equal in value to that which he would have received if the testator had died intestate unless: It appears from the will that the omission was intentional; When the will was executed the testator had one or more children and devised substantially all his estate to the other parent of the omitted child; or The testator provided for the child by transfer outside the will and the intent that the transfer be in lieu of a testamentary provision be reasonably proven. . . . Ala. Code in Gray (pages 528-529) Ind. Code § 29-1-3-8 (a) follows 1969 UPC through (a)(2)

Pretermitted child (1990 UPC, § 2-302(a)(1)) Except as provided in subsection (b), if a testator fails to provide in his [or her] will for any of his [or her] children born or adopted after the execution of the will, the omitted after-born or after-adopted child receives a share in the estate as follows: If the testator had no child living when he [or she] executed the will, an omitted after-born or after-adopted child receives a share in the estate equal in value to that which the child would have received had the testator died intestate, unless the will devised all or substantially all of the estate to the other parent of the omitted child and that other parent survives the testator and is entitled to take under the will.

Pretermitted child (1990 UPC, § 2-302(a)(2)) Except as provided in subsection (b), if a testator fails to provide in his [or her] will for any of his [or her] children born or adopted after the execution of the will, the omitted after-born or after-adopted child receives a share in the estate as follows: If the testator had one or more children living when he [or she] executed the will, and the will [made a bequest] to one or more of the then-living children, an omitted after-born or after-adopted child is entitled to share in the testator’s estate as follows:

Pretermitted child (1969 UPC) a) If a testator fails to provide in his will for any of his children born or adopted after the execution of his will, the omitted child receives a share in the estate equal in value to that which he would have received if the testator had died intestate unless: It appears from the will that the omission was intentional; When the will was executed the testator had one or more children and devised substantially all his estate to the other parent of the omitted child; or The testator provided for the child by transfer outside the will and the intent that the transfer be in lieu of a testamentary provision be reasonably proven. . . . Ala. Code in Gray (pages 528-529) Ind. Code § 29-1-3-8 (a) follows 1969 UPC through (a)(2)

Pretermitted child (1969 UPC) a) If a testator fails to provide in his will for any of his children born or adopted after the execution of his will, the omitted child receives a share in the estate equal in value to that which he would have received if the testator had died intestate unless: It appears from the will that the omission was intentional; When the will was executed the testator had one or more children and devised substantially all his estate to the other parent of the omitted child; or The testator provided for the child by transfer outside the will and the intent that the transfer be in lieu of a testamentary provision be reasonably proven. . . . Ala. Code in Gray (pages 528-529) Ind. Code § 29-1-3-8 (a) follows 1969 UPC through (a)(2)

Will of Calvin Coolidge “The White House” Washington Will of Calvin Coolidge of Northampton, Hampshire County, Massachusetts Not unmindful of my son John, I give all my estate both real and personal to my wife Grace Coolidge, in fee simple – Home at Washington, District of Columbia this twentieth day December, A.D. nineteen hundred and twenty six. /s/ Calvin Coolidge____ Signed by me on the date above in the presence of the testator and of each other as witnesses to said will and the signature thereof. /s/ Everett Sanders___ /s/ Edward T. Clark___ /s/ Erwin C. Geiser___