Rights of a Disinherited Spouse
Vicki Kasomenakis and Denis Brody
MAY 2008 - When
an accountant is asked to review an estate plan, the purpose is
usually to analyze a taxpayer’s susceptibility to estate taxes.
The increased federal estate tax exemption has eliminated most estates
from the federal estate tax, but the largest estates are still subject
to taxation. Currently, the federal estate tax exemption is $2 million
and the New York estate exemption is $1 million. An estate worth
$2 million would be totally exempt from federal estate taxes, but
it would be subject to a New York estate tax of approximately $100,000.
federal estate tax also includes a marital deduction for property
passing to a surviving spouse. When reviewing an estate, a tax
advisor must determine what assets will pass to an individual’s
surviving spouse upon the death to capitalize on the marital deduction.
Determining the marital deduction may be important because, upon
death, the value of any interest in property that passes to the
surviving spouse will be deducted from the decedent’s gross
estate. This will help defer the estate tax liability. When a
spouse is disinherited, however, the marital deduction may be
eliminated or substantially reduced. This creates a much larger
taxable estate than originally anticipated, which may result in
an estate tax liability.
advisors should be informed about the property rights that a disinherited
spouse may possess with respect to property owned by a decedent
at the time of death, as well as other property the deceased spouse
may have transferred during the spouse’s lifetime. Certain
trusts and nuptial agreements can be used to protect a individual’s
estate without disinheriting a spouse in ways that can preserve
the marital deduction.
who is legally married to the deceased spouse at the time of death
cannot be totally disinherited, even if the surviving spouse was
omitted either intentionally or unintentionally from the will
of the decedent.
At one time,
a surviving wife was entitled to a life estate interest in a portion
of real property owned by her deceased husband, a right called
a “dower.” A “curtesy,” on the other hand,
represented a husband’s right to a life estate interest
in a portion of his deceased wife’s real property. Individuals
wanting to disinherit their spouse would circumvent the law by
transferring real property prior to death or converting real property
to personal property, thus leaving nothing to the spouse. Most
states have enacted legislation that replaces dower and curtesy
with a “spousal right of election,” which gives a
surviving spouse a choice: Either accept the provisions of the
decedent spouse’s will, or ignore the will and elect instead
to receive a “statutory elective share.” Previously,
the statutory elective share extended only to the decedent spouse’s
probate estate. An individual could, however, easily disinherit
the spouse merely by creating a nonprobate estate through one
or more of the following methods:
assets in a trust;
jointly held property with a nonspouse;
life insurance proceeds payable to a named beneficiary other
than the spouse;
outright gifts; or
a bank account that is payable upon death to someone other than
these deficiencies, most states allow a surviving spouse to claim
an elective share that is based upon a fraction of the decedent
spouse’s augmented estate. Depending on the decedent’s
state of domicile, generally speaking, the augmented estate is
equal to the probate estate plus the nonprobate estate, which
includes but is not limited to the following:
that the decedent spouse placed in trust;
- The decedent’s
fractional interest in property held by the decedent in joint
tenancy with rights of survivorship with a nonspouse;
- The decedent’s
ownership interest in a bank account payable upon death to a
of property made by the decedent spouse within two or three
years prior to death, in which the decedent retained certain
interest in the property transferred; and
the decedent spouse transferred but had the right to retain
income therefrom or the use of the property until death.
All of the
above transfers must have been made by the decedent with full
and adequate consideration, and be made in anticipation of death.
speaking, depending on the decedent’s state of domicile,
the following property that is not considered part of the augmented
estate would include:
- The value
of property the decedent spouse received as a gift or inheritance
during the marriage, providing the property was not commingled
with property owned by the couple jointly;
- The value
of property transferred without full and adequate consideration
(a gift) when written consent was made by the surviving spouse
regarding the transfer; and
- The value
of property transferred to a nonspouse prior to January 1, 1991,
without full and adequate consideration.
has it own laws that are very specific in defining the elective
share that a surviving spouse may take. In addition, each state
has it own prescribed time in which the surviving spouse must
file a written election with the probate court. The timing requirements
are generally strict and must be adhered to; otherwise, the elective
share is lost. If the written election is made on a timely basis,
the surviving spouse’s elective share will take priority
over other shares under the will, as well as other shares involving
property not passing under the will. Debts, taxes, and expenses
of the decedent spouse’s estate must be paid first, before
the elective share is made, in order to arrive at the net estate,
the amount on which the elective share is based. Once the elective
share is made, the remaining assets in the estate will be distributed
according to the will or through other contractual arrangements.
The New York
State Right of Election Law appears in article 5 of the Estates,
Powers, and Trusts Laws (EPTL), “Rights of Surviving Spouse.”
The minimum spousal right of election is one-third of the net
estate. The spouse’s share of the estate is reduced by the
value of any interest that passes directly from the decedent to
the spouse. This election must be made within six months from
the date of the issuance of Letters Testamentary or of Letters
of Administration and no later than two years after the date of
the decedent’s death. The election must be in writing and
must be served in accordance with the statute. Only the Surrogate’s
Court may extend the time period for making the election. In New
York, a spouse’s right of election can be circumvented only
by a written agreement between the spouses, such as a prenuptial
agreement or a separation agreement. Each of these agreements
must specifically provide that each party is waiving their right
of election under this specific New York statute.
It was common
practice in New York for wills drafted prior to August 31, 1994,
to contain qualified terminable interest property (Q-TIP) trusts,
which provided the spouse with income only while qualifying for
the unlimited martial deduction. Under the current EPTL section
5-1.1A, however, in combination with the Q-TIP election [as provided
in IRC section 2056 (b)(7)], a surviving spouse is permitted to
satisfy the right of election by taking income for life and the
marital deduction is allowed as long as no other person has any
rights in the Q-TIP trust during the surviving spouse’s
benefit applies to a credit shelter trust, where a will may provide
that the spouse receives income for the rest of the spouse’s
life. The spouse may, of course, choose to use the right of election
It is important
for a CPA to see the distinction between a person dying with a
will and dying without (intestate). If a person dies without leaving
a will and is married with children, then only 50% of the estate
goes to the surviving spouse, and 50% goes to the children, thus
creating a marital deduction of only half of the estate. If an
estate is subject to taxation, the loss of one-half of the marital
deduction could be costly and avoidable. In this case, disinheriting
the spouse was accidental, which may potentially result in greater
estate scenario 1. Bradley
Jones has been legally married to his wife, Beatrice, since 1958.
They live in a state where the surviving spouse may elect to take
one-half of the net estate if there are no surviving children
of the decedent, and one-third of the net estate if there are
surviving children. Bradley has one son, George, from a previous
marriage, and another son, Harry, from his marriage to Beatrice.
Bradley died in 2007, leaving all of his property to his son George.
The estate was subject to $75,000 in debts and administrative
expenses. The property values on the day of Bradley’s death
were as shown in Exhibit
In some cases
a surviving spouse chooses to take the statutory elective share,
disrupting specific bequests that are made under the will to a
estate scenario 2. Assume Thomas Jenkins has been
legally married to his wife, Karen, since 1970. They live in a
state where the surviving spouse may elect to take one-half of
the net estate if there are no surviving children of the decedent,
and one-third of the net estate if there are surviving children.
Jenkins dies in 2007, leaving $2,125,000 in his will to his son
Jacob and the rest of his estate to his childhood friend Bernie.
Jenkins intentionally omitted his wife, Karen, from his will.
The estate is subject to $95,000 in debts and administrative expenses.
The property values on the day of Jenkins’ death were as
shown in Exhibit
It is important
to note that if a taxpayer abandons a spouse and the abandonment
continues until the death of the spouse, the deserting spouse
is not entitled to claim the statutory elective share.
can be legally disinherited by a waiver of a spousal right of
election or by a nuptial agreement, which can be executed before
the marriage (prenuptial) or after the marriage (postnuptial).
When advising someone who seeks to disinherit a spouse and is
unaware of the estate tax consequences, the first step is to determine
the individual’s intentions.
perhaps the individual’s only intention is to limit the
spouse’s access to the estate in the case of a subsequent
marriage, while wishing the spouse to have sufficient income to
live on. Upon the spouse’s death, this individual wishes
to have the balance of the estate distributed to the children,
with the estate tax consequences as favorable as possible. In
such a situation, an advisor should point out that using certain
types of trusts, such as credit shelter trusts and Q-TIP trusts,
could accomplish this goal. The marital deduction may be preserved
while providing the spouse with sufficient income and passing
the balance of the estate to the children at reduced estate taxes.
A prudent financial planner should point out that it is possible
to protect the estate and accomplish the individual’s goals
without disinheriting the spouse.
taxes are always an important factor, other components generally
covered by a pre/post-nuptial agreement, such as support, possession
of the family home, distribution of personal property, and other
personal matters, are also important and can be dealt with in
a pre/post-nuptial agreement in such a way as to avoid impacting
the marital deduction while reducing estate taxes.
governing property rights of disinherited spouses are very complex
and vary in each state. The authors highly recommend that an experienced
attorney specializing in estate planning be consulted.
Kasomenakis, CPA, CFP, is an assistant professor of accounting
at Queensborough Community College, Bayside, N.Y. Denis
Brody, Esq, CPA, has 30 years of experience in estate planning
and estate taxation, with offices in Jericho, N.Y.