Does a Spouse have a Right to Inherit?
New York does not allow a spouse to be disinherited. Children, yes. It has not always been the case that spouses were protected over children. Some countries, and even Puerto Rico, still have forced heirship laws, mandating assets to pass down the blood line. But New York allows the spouse a right of election if disinherited.
Why Would Someone Want to Disinherit a Spouse?
Usually a spouse is not disinherited for spite, but for practical reasons. I have met couples who have lived apart for decades, sometimes amicably, and they are just not each other’s first choice to inherit. They just never get around to that divorce. Some seniors receiving government benefits could lose their eligibility by receiving an inheritance. Others don’t need the money and just want to pass assets directly to their children or grandchildren. If both couples agree to disinherit, then this plan can work. However, just making Wills leaving assets to other is the equivalent of a handshake deal – not enforceable. The surviving spouse can always change their mind. A prenuptial or postnuptial is a much better idea.
What is a Spouse’s Right of Election?
In New York, the surviving spouse has the legal right under New York State Estates Powers and Trust Law § 5-1.1A to an “elective share” of their deceased spouse’s estate. The elective share is the greater of up to $50,000 or one-third of the deceased spouse’s net estate.
The right of election usually applies when someone dies with a Will or Trust that either leaves out the spouse completely or leaves an amount that falls short of the elective share. If someone dies without a Will, the surviving spouse is entitled to more than a 1/3 because of New York’s intestacy statute. If a married individual dies without a Will, the surviving spouse is entitled to $50,000 plus one half of the estate when there are children. When the decedent had no children, the spouse inherits 100% of the estate.
When the Elective Share Upsets the Plan
Estate planning attorneys routinely work with couples from blended families. This means second marriages where there are children from a previous relationship. To make sure the new spouse and the children are provided for, we sometimes draft trust provisions that leaves assets to the spouse for life and remainder to the children. Assets placed in a Q-Tip (qualified terminable interest property) must provide the spouse income for life but can direct that the remaining assets go to the children at death. The terms of the trust can allow the spouse to receive principal from the trust but doesn’t have to be structured to allow an invasion of principal. A Q-Tip trust does not satisfy the surviving spouse’s right to an elective share. It used to so long as the spouse could withdraw $50k, but since 1994 it does not satisfy the elective share because it does not “pass absolutely” to the spouse. The surviving spouse can then take an elective share and the Q-tip trust is disregarded.
Small Business Owners
Leaving a small or closely held business vulnerable to a spouse’s right of election could have devastating effects on your partners and the business. If children are running the business successfully, how will a spouse inheriting a portion change the dynamics? Non-family members with ownership interests in the business would likely object to having a surviving spouse become a part-owner. A properly drafted operating agreement or buy-sell agreement can at least avoid a surviving spouse taking a controlling position in the business. Make sure organizational documents account for this possibility.
How to Calculate Spouse’s Elective Share
This right of election applies to any assets the decedent had in their own name that normally pass through Probate, as well as “testamentary substitutes.” Under EPTL § 5-1.1-A, testamentary substitutes include:
- Gifts causa mortis – Gifts made by the decedent in contemplation of death.
- Gifts made within 1 year of death.
- Transfer-on-Death accounts.
- Joint bank accounts.
- Property held with rights of survivorship.
- Retirement accounts.
- Deferred compensation and pension plans.
- Trust over which decedent held a general power of appointment.
Testamentary substitutes include any accounts the spouse’s held together or the deceased held with anyone else, in calculating the net estate for elective share purposes. This means assets not necessarily going through probate court that pass directly to a beneficiary can be brought back into the estate.
The only asset that does not count is life insurance. This cuts both ways – life insurance proceeds are not considered a testamentary substitute nor used to determine the spouse’s elective share. A spouse who received a million-dollar life insurance policy can still elect against the Will and a non-spouse beneficiary of a life insurance policy can keep it.
Once the net estate is calculated, the value of the elective share amount is reduced by the decedent’s debts, estate expenses, and the value of any interest which passed outright to the surviving spouse. A spouse’s elective share is satisfied with property that passes “absolutely” from decedent to surviving spouse. Think specific bequests, joint bank accounts, real estate owned as tenants by the entirety.
Don’t, Don’t, Don’t, Don’t Miss the Statute of Limitations
A surviving spouse must exercise the right of election within 6 months of the issuance of letters testamentary. If no letters testamentary are issued, then the spouse has no more than 2 years from date of death. There are always exceptions made but certainly nobody should rely on the court making one. If the surviving spouse passes away – the right dies with her. A right of election must be served on the Executor of the estate and filed with the Surrogate’s Court.
If the assets already passed to beneficiaries outside of the Will, you want to act quickly so they don’t spend it! Those who have received or are entitled to inherit assets must give a pro rata portion to the spouse to satisfy the elective share – but that is much harder to do if the assets already passed into their hands.
If you believe you may be entitled to more than what your late spouse left you, consult an attorney right away as there is a limited amount of time to make this election. There are circumstances when a surviving spouse is not entitled to an elective share due to abandonment, judgment of separation, or failure to provide support under EPTL 5-1.2. I am happy to sit down and discuss whether you have a viable right of election, gratis.
When drafting an estate plan, it is crucial that your estate planning attorney take into consideration a spouse’s right to an elective share when all assets aren’t passing outright to the spouse. It is easy with an experienced attorney to avoid these pitfalls and accompanying expensive attorney fees.