non-probate assets and elective share statute Flashcards
categories of probate/nonprobate assets
- PROBATE ESTATE: property testator owned solely in his name at the time of death is disposed of pursuant to terms of Will or passes by intestacy.
- NON-PROBATE ASSETS: property interests that are not subject to disposition by Will or intestacy—changes to beneficiaries of assets must be made on the assets themselves, not by Will.
a) Property Passing by Right of Survivorship—joint bank account, joint stock account, or payable on death securities; joint tenancy, tenancy-by-the-entirety automatically goes to survivor not via estate)
b) Property Passing by Contract: Life insurance, employee death benefits payable to beneficiary other than insured’s executor or estate
1) But, if insurance or benefits proceeds are paid to the testator’s executor or estate, proceeds become probate assets
2) Note: If parties received a final decree of divorce → statute would revoke the life insurance only in the case of a named beneficiary divorced spouse.
c) Property Held in Trust, including revocable trusts—trust terms govern distribution of assets.
d) Property Over Which Decedent Held Power of Appointment (POA)
elective share in general
(Note: Tested with anti-lapse, domestic relations, intestacy; really important)
ELECTIVE SHARE= greater of $50k or 1/3rd of estate
- PURPOSE: protect surviving spouse against disinheritance, by giving entitlement to minimum share of testator’s net probate estate
a) Context: since the elective share, theoretically, only applies to the testator’s probate estate, a testator could defeat the protection by transferring non-probate assets to others. So, to prevent testator from defeating elective share statute, elective share includes probate estate AND T Subs (aka the augmented estate or elective share estate)
b) Contrast with Intestate Share: If decedent died without Will, surviving spouse’s intestate share is always larger than elective share, (unless T-Subs involved).
c) net probate estate: value of estate after payment of debts, but before payment of estate taxes
Payment of Elective Share Amount
RULE: if elective share amt isn’t satisfied for surviving spouse, others contribute proportionately (pro rata)
-who contributes: beneficiaries under will, beneficiaries of T Subs, and/or intestate distributees
Elective share v. intestacy
1) Intestacy, survived by spouse and issue: spouse gets $50k plus 50% of balance of probate estate.
2) Intestacy, survived by spouse and no issue: spouse gets everything.
3) Example: X dies with a Will providing: “I give $23 to my husband Ben A, one dollar for each miserable year. The rest to my faithful Chris, in appreciation of his many services.” Ben entitled to elective share.
(a) TIP: any question involving a surviving spouse → mention exempt personal property set-aside.
testamentary substitutes
a) Rule of Thumb:
1) If T has interest in property, it’ll be a T-Sub (except gifts within 1 year are T-Subs) → almost all non-probate transfers are T-Subs → non-probate transfers (T-Subs apply to elective share pot).
(a) A disposition (other than irrevocable disposition) is T-Sub, whether before or after marriage.
2) If T does not have interest, not T-Sub (except life insurance—testator has an interest in because T can change beneficiary at any time but life insurance specifically excluded from T-Sub).
3) TIP: any question involving surviving spouse → mention exempt personal property set-aside.
t sub assets
need a LEG UP
1) T: Totten Trust: Bank accounts in testator’s name in trust for another and payable on death securities
(a) Example: “A, Trustee for B” allows A to take all the money at any time, so is a will substitute (A has complete control). 100% of the Totten Trust is a testamentary substitute.
(b) Note: Totten Trusts go in at 100%; joint w/3rd-party consideration test
2) S: Survivorship Estates: Joint tenancies, tenancies by the entirety, joint and survivor bank accounts.
(a) TIP: Watch-out for pre- and post-survivorship estates with marriage.
3) L: Lifetime Transfers with Strings Attached
(a) Transfers where testator retains power to revoke, invade, consume or dispose of principal or name new beneficiaries AND
(b) Irrevocable transfers made during marriage where testator retained a life estate (Revocable trusts or irrevocable trusts made during marriage).
4) E: Employee Pensions, Profit-Sharing, Deferred Compensation Plan: if employee designated beneficiary on or after September 1, 1992 and after marriage (only 50% is applied).
(a) Note: In any case, only one half of a qualified plan is a testamentary substitute
5) G: Gifts made within one year of death:
(a) Gifts in excess of $14k (gift tax annual exclusion) made within one year of death
(b) Gifts Causa Mortis: gifts in fear of impending death (regardless of amount)
(i) Gifts causa mortis automatically revoked if donor survives expected peril.
(ii) A gift is not causa mortis if the testator dies “suddenly” after making the gift. (Tested July 1987)
6) U: US Government Bonds and Other P.O.D. (“Pay on Death”) Arrangements:
7) P: Powers of Appointment: Property over which T held presently exercisable general POA
(a) Test: whether spouse could have owned during her lifetime by appointing herself
(b) Present-General POA only = spouse could appoint to self (general) during lifetime (present) an ownership right in the trust property.
(c) Not general testamentary power or specific power = couldn’t exercise ownership rights because could not appoint to self.
not t subs
(LOGPIT) (do not affect elective share)
1) L: Life Insurance Proceeds: whether payable to surviving spouse or third-party.
2) O: One-Half (50% ) of Qualified Pension and Profit-Sharing Benefits.
3) G: Gifts Of less than $14k Within One Year of Death (unless gift causa mortis, always T-sub)
4) P: Pre-Marriage Irrevocable Transfers (ie gift to friend prior to marriage)
5) I: Irrevocable Transfers Made More Than One Year Before Death: testator did not retain power to revoke, invade, consume or dispose of principal or name new beneficiaries.
6) T: Irrevocable Transfers During Marriage where Testator Retains Life Estate
calculating elective share estate
full value of T sub is included, EXCEPT below
1) Step 1: Augmented Estate = Net Probate Estate + Testamentary Substitutes
(a) Special Rules for Survivorship Estates (joint bank accounts/property):
(i) Survivorship estates held by deceased spouse (testator) and surviving spouse (joint tenancy, tenancy by entirety, joint bank account)—50% is T-Sub (automatically), regardless of which spouse furnished consideration for property’s acquisition (no consideration furnished test).
(1) TIP: Sever joint-tenancy, half to each, don’t ask why (NO MATTER WHAT)
(ii) Survivorship estates held by deceased spouse (testator) and third party created during marriage (joint tenancy, joint and survivor bank account)—apply Consideration Furnished Test (so surviving spouse has burden of proving the amt of the dead spouse’s contribution to asset).
(iii) Survivorship estates held by deceased spouse and third party created before marriage (joint tenancy, joint and survivor bank account)—apply Consideration Furnished Test, but only 50% is T-Sub; the other 50% is irrevocable dispositions before marriage so not T-Sub:
2) Step 2: Gross Elective Share = Greater of 1/3 of Augmented Estate OR $50k
(a) Plus 6% interest beginning 7 months after issuance of Letters Testamentary to executor (or letters of Administration to the administrator appointed by the court).
(b) Elective share applies to net estate after payment of debts, but before payment of estate taxes
3) Step 3: Net Elective Share = Gross Elective Share – amounts passing to spouse in the Will (100%) – amounts passing to spouse as T-Sub (50%)
(a) If surviving spouse’s elective share is satisfied via intestacy, the spouse has NO right of election.
4) Step 4: In making up Net Elective Share (i.e. spouse’s entitlement) all other beneficiaries contribute pro rata, including beneficiaries under Will, beneficiaries of T-Subs, intestate distributes → each of the beneficiaries contribute this portion from their gifts (by multiplying fraction x gift)
(a) Formula: Divide Net Elective Share by Remaining Assets (i.e., Total Gifts to Contributing Beneficiaries, excluding gifts to spouse) → multiple that by each of the other beneficiary’s gifts
(b) Note: beneficiary does not have to give back actual asset; just the value.
(c) TIP: State all beneficiaries contribute pro rata and then do the math.
elective share and intestacy
f) Intestate Example: Heath dies survived by wife Whitney, no children. Heath left $100k in bank account in his name in trust (Totten Trust) for cousin Claude. No other assets in his name (no probate estate). Heath also had joint bank account with friend Felicia, created after marriage to Wallis (consideration furnished). Heath contributed all the money to the joint bank account. At time of death, account’s balance $140k. Heath also left real property worth $120 purchased and held with Wallis as tenants by entirety.
1) Under Intestacy: Whitney still gets nothing (The property passes via operation of law, not intestacy).
2) Via Elective Share: add T-Subs: (1) TT with Claude (100k), full amount comes in; (2) after-marriage joint bank account (140k consideration furnished); (3) 50% of 120 property
→ Augmented Estate = 300 = 0 + 300. Elective Share = greater of 50k or 1/3 * 300 = 40k or 100 = 100k. Net Elective Share = 100 – 60 (fiction: sever joint estate, he gives half to her) = 40.
3) But If: Heath also left intestate property in his name of $90k
(a) Under Intestacy: 150k (90k from probate estate + $120k via survivorship)
(b) Via Elective Share: add the intestate property to get 390k Augmented Estate. Gross Elective Estate = 130 (390/3). Net Elective Share = 130 – 90 – 60 = -20, so no right of election.
NOTE: if surviving spouse’s elective share is satisfied, spouse has NO right of election
NOTE: all beneficiaries contribute to elective share pro rata
NOTE: beneficiary doesn’t have to give actual asset received
elective share trusts
summary-lecture p. 74
elective share trusts do not satisfy the surviving spouse’s right of election
a) Background: Testators dying pre-1994 could eliminate spouse’s elective share right using Elective Share Trust (gave surviving spouse life estate (income interest for life) and $50k outright) if sum of (i) outright dispositions of at least $50k plus (ii) Corpus of Trust, hit one-third elective share amount.
b) NYS: Estates of decedents DYING (not date of will) on or after Sept. 1, 1994: Life estates (“terminable interests”) no longer satisfy the elective share entitlement. Outright disposition vests in spouse, but life estate in trust does not (goes to remainder, then top-up).
1) Effect on Life Estate Trust: When spouse files for elective share, we kill trust by reading it as though surviving spouse predeceased T (as though no life estate) and accelerate to remainderman who takes trust (i.e. kill trust) → spouse takes outright disposition; other gifts vest; then others top-up spouse.
2) EXCEPT: If surviving spouse gets at least 1/3 outright plus trust with income for life → surviving spouse satisfied → do not kill the trust
c) Example: H dies leaving a Will that devises Blueacre (worth $50k) outright to wife W, and 50% balance of estate in trust: “Income to W for life, remainder to son S if he survives W, otherwise to daughter D.” The Will devises remaining 50% to daughter D. Net value of Brad’s estate (after debts and expenses) is $450k, which includes Blueacre. Thus, trust is funded with assets worth $200k. No T-Subs.
1) W can file elective share because the 200k in Trust Income for Life is a life estate (terminable interest) which doesn’t count anymore. Therefore, W only got 50k outright, but needed to get 150 outright.
2) Net Elective Share = 450 + 0 = 450 * (1/3) = 150 – 50 = 100.
(a) W still needs to receive $100k from other sources (100/400=25%) from each
(b) D gets 200k from will.
(c) S takes the 200k from killing the trust, pretending W predeceased T and accelerating to remainder S.
(d) Each kicks in pro rata, 200*25=50k to make her whole.
d) Recent NY Case: when person enters marriage without capacity, domestic relations law only renders marriage voidable, but not void → even if marriage voidable (i.e. no final decree) at death, surviving spouse is entitled to elective share; cannot retroactively void marriage for elective share purposes.
procedural rules governing elective share
a) Filing:
1) If Estate Admitted to Probate: surviving spouse’s notice of election must be filed within 6 months after Letters (Letters Testamentary or Letters of Administration) are issued by Surrogate’s Court
2) If No Estate Administration: election must be filed no more than 2 years after testator’s death.
b) Personal Right: Right of election is personal to surviving spouse
1) Executor, administrator of deceased spouse, cannot elect.
2) But, guardian or conservator of incapacitated spouse may elect on their behalf with court approval.
3) Shows purpose of elective share is to protect surviving spouse, not heirs.
c) Waiver: the Elective Share Right (the right itself, not actual bequests) can be waived with or without consideration; before or after marriage; as to particular Will or T-Sub or as to all.
1) Writing: must be written, signed and acknowledged before notary public (e.g., pre-nup)
2) General Waiver of All Rights: waiver waives right to an elective share only, but DOES NOT waive the right to receive actual specific bequests that the testator makes in his Will, to his spouse (spouse must specifically disclaim these individual gifts).
multi-jurisdictional problems
a) Domicile Required: Under EPTL, only spouse of decedent domiciled in NY at time of death has right of election
1) Except: If decedent expressly states in Will that disposition of real property located in NY to be governed by NY law, surviving spouse can claim an elective share with regard to testator’s real property in NY
b) If Non-Domiciliary: T’s will be admitted to probate in domiciliary state and entire estate administered there.
1) But, Situs Rule: an “ancillary administration” proceeding in NY required to clear title to NY land.
c) Property Out-of-State: In NY probate proceedings, although NY court can’t adjudicate ownership of real property in other states, NY takes account of value of real estate in other states to calculate Elective Share.
1) Although NY Courts cannot adjudicate ownership of FL property, NY rules govern the Will. There will be ancillary proceeding in FL to determine ownership.
exempt personal property
In addition to elective share, surviving spouse gets off-the-top, before anything else (wills, intestacy, elective share, creditors), exempt personal property up to $92.5k, including
a) 1 Car (up to $25k);
b) Furniture, appliances, computers, etc. (up to $20k);
c) Cash allowances (up to $25)
1) not subject to creditor’s claims, other than for funeral expenses (or JT creditor)
d) Animals, farm machinery, tractor, etc. (up to $20k); and
e) Books, pictures, movies, software, etc. (up to $2.5k)
f) TIP: In any question involving a surviving spouse → always mention exempt personal property set-aside, but unless question specifically put this into play, add it as afterthought (By the way, surviving spouse is entitled to exempt personal property up to $92.5). Otherwise, it’ll screw up your other calculations.
circumstances disqualifying spouse from taking elective share (and exempt property)
a) Under EPTL, as with intestacy, “DISMAL” disqualifies spouse from making right of election or exempt personal property set-aside (and taking as heir in intestate distribution, wrongful death action recovery).
b) These are one-way defenses, they punish a wrongful spouse. But, rightful still takes
