Posted On: DECEMBER 2021
Understand your spouse’s inheritance rights
If you’re getting remarried, you may have very different expectations than you did when you married the first time, especially when it comes to estate planning. For example, if you have children from a previous marriage, your priority may be to provide for them. You may feel that your new spouse should have more limited rights to your assets than your children from your first marriage.
Unfortunately, the law doesn’t see it that way. In nearly every state, a person’s spouse has certain property rights that apply regardless of the terms of the estate plan. And these rights are the same, whether it’s your first marriage or your second or third. Here’s an introduction to spousal rights and some of the strategies you may be able to use to limit them.
State law is key
Spousal property rights are creatures of state law, so it’s critical to familiarize yourself with the laws in your state to achieve your planning objectives. Most states provide a surviving spouse with an “elective share” of the deceased spouse’s estate, regardless of the terms of his or her will or certain other documents. The remaining states (except Georgia) are community property states. This article focuses on elective share states, but similar planning strategies may be available in community property states as well. (See “What about community property?” below.)
Generally, a surviving spouse’s elective share ranges from 30% to 50%, though some states start lower and provide for progressively larger shares as the duration of the marriage increases. Perhaps the most significant variable, with respect to planning, is the definition of assets subject to the surviving spouse’s elective share rights.
In some states, the elective share applies only to the “probate estate” — generally, assets held in the deceased spouse’s name alone that don’t have a beneficiary designation. In other states, it applies to the “augmented estate,” which is the probate estate plus certain non-probate assets, such as one or more of the following:
By developing an understanding of how elective share laws apply in your state, you can identify potential strategies for bypassing them.
Planning strategies
Elective shares are designed to protect surviving spouses from being disinherited. But there may be good reasons for limiting the amount of property that goes to your spouse when you die. For one thing, your spouse may possess substantial wealth in his or her own name. And you may want most of your estate to go to your children from a previous marriage. Or perhaps the bulk of your wealth is tied up in a family business that you want to keep in the family.
Strategies for minimizing the impact of your spouse’s elective share on your estate plan include:
Making lifetime gifts. By transferring property to your children or other loved ones during life (either outright or through an irrevocable trust), you remove those assets from your probate estate and place them beyond the reach of your surviving spouse’s elective share. If your state uses an augmented estate to determine a spouse’s elective share, lifetime gifts will be protected so long as they’re made before the lookback period or, if permitted, your spouse waives the lookback period.
Transferring assets to a revocable trust. In most (but not all) probate-only states, transferring assets to a revocable trust is sufficient to shield them from your spouse’s elective share. In augmented estate jurisdictions, the elective share generally applies to revocable trusts. However, the laws of some states provide that the augmented estate only includes assets transferred to a revocable trust during marriage. In that case, it may be possible to protect assets from the elective share by transferring them to a revocable trust before remarrying.
Purchasing life insurance. Life insurance can be a great way to create wealth and liquidity for your children or other family members, and in probate-only states it’s generally shielded from your spouse’s elective share. Augmented estates usually include life insurance, but in some states, it may be possible to exclude it by holding it in an irrevocable life insurance trust.
Retitling assets. In probate-only states, you may be able to protect assets by holding them jointly with a child or other family member with the right of survivorship. Having your spouse sign a waiver. One thing most elective share states agree on is that your spouse can waive his or her elective share in writing, either through a standalone waiver or as part of a broader prenuptial or postnuptial agreement.
Check beneficiary designations on retirement plans and other accounts and be sure that they name your children or other intended beneficiaries. Keep in mind that changing certain beneficiary designations requires your spouse’s consent.
Get professional help
State elective share laws are complex and can vary dramatically from state to state. If you’re remarrying, consult with us to evaluate their impact on your estate plan and explore strategies for protecting your assets.
Sidebar: What about community property?
Community property states take a different approach to protecting a surviving spouse’s interests. Rather than provide the spouse with an elective share of the deceased spouse’s assets, community property laws generally give each spouse an undivided one-half interest in all money earned and property acquired during marriage, regardless of how it’s titled. Certain exceptions exist.
In other words, there’s no need to give the surviving spouse the ability to override the terms of the deceased spouse’s estate plan, because the deceased spouse lacks the power to dispose of the surviving spouse’s half of the community property.
As in elective share states, there may be strategies to limit the surviving spouse’s rights to marital property. For example, the surviving spouse can waive his or her rights to them in a prenuptial or postnuptial agreement.
© 2021