Archive for the ‘estate planning’ Category

How to Disinherit Your Spouse

Thursday, February 6th, 2014

Most married people want their surviving spouses taken care of when they die. The statutes of Maryland Virginia and DC reflect this. See a prior article here – Wills and Decedent Estates of Divorced and Divorcing Spouses.

Of course when the marriage breaks down, most people no longer want to provide for their estranged spouse. But divorce takes time. And the state statutes and federal statutes protect spouses. Is there a way to successfully disinherit your spouse before the divorce is final?

State law generally grants the surviving spouse all or part of the probate estate of the decedent by intestate succession when the decedent did not make a Will and by right of election against the Will when the decedent made a Will. Virginia, but not Maryland, expands the spousal protections to the “augmented” estate. The augmented estate includes certain non-probate assets and prior gifts.

Maryland case law suggests that Maryland’s statutory surviving spouse protections can be avoided by the common device of using a revocable trust instead of a Will as the primary estate planning document. Generally this requires executing a revocable trust which includes a clause stating who is to receive the grantor’s property at his or her death and transferring all or some of the grantor’s property to the trust. This keeps the property out of the probate estate and out of reach of the surviving spouse’s election against the Will.

The surviving spouse’s recourse is to seek to invalidate the trust. Karsenty v Shoukroun, 406 Md. 469 (2008) was a case where the decedent transferred property to a revocable trust with a disposition at death other than to his wife. The Court of Appeals of Maryland spent 40 pages discussing fraud on marital rights, unlawful frustration of marital rights and also legitimate estate planning. But the court stopped short of saying you cannot do by a revocable trust what you cannot do by Will. They sent the case back to the trial judge to consider the facts in light of the Court of Appeals 40 page discussion. So if you want to disinherit your spouse so that he or she doesn’t inherit in case you die before the divorce is final, a revocable trust is certainly worth a try in Maryland.

Not so in Virginia. The property transferred to the revocable trust is part of the “augmented estate” and the surviving spouse gets a share of that.
This sort of unilateral action to disinherit the spouse is appropriate only for protracted, contested divorces. In most divorce cases, estate planning is done by each spouse pursuant to an agreement with mutual waivers of estate rights. After all, your spouse doesn’t want you to inherit from him or her either.

New Notice Required in Virginia Divorce Orders

Tuesday, March 5th, 2013

In a prior post here I said: Post-divorce you should review your Will and all beneficiary designations to ensure that you do not unintentionally include a gift to your former spouse. Although we strongly recommend against relying on statutes to correct your estate plan despite your own inaction, there are statutes that provide that the judgment of divorce eliminates prior bequests or certain beneficiary designation to the former spouse. See Va. Code Sec. 20-111, 20-111.1, 64.1-59; Md. Code, Estates and Trusts Article, Sec. 4-105(4); DC Code Sec. 18-109 and Estate of Roscoe H. Liles, 435 A.2d 379; 1981 D.C. App. LEXIS 355. The effect of these statutes on the treatment of a now former spouse in an estate plan is uncertain and incomplete and may be frustrated by federal law spousal protections. The savings statutes are no substitute for a careful review of estate planning documents and beneficiary designations and corrective action based on the divorce settlement or judgment.
The Virginia legislature recently ensured that the Virginia circuit courts tell all divorcing parties what we’ve been telling our clients and the readers of this blog. They added section E to Va. Code § 20-111.1. Revocation of death benefits by divorce or annulment. It provides:
… E. Every decree of annulment or divorce from the bond of matrimony entered on or after July 1, 2012, shall contain the following notice in conspicuous, bold print:

Beneficiary designations for any death benefit, as defined in subsection B of § 20-111.1 of the Code of Virginia, made payable to a former spouse may or may not be automatically revoked by operation of law upon the entry of a final decree of annulment or divorce. If a party intends to revoke any beneficiary designation made payable to a former spouse following the annulment or divorce, the party is responsible for following any and all instructions to change such beneficiary designation given by the provider of the death benefit. Otherwise, existing beneficiary designations may remain in full force and effect after the entry of a final decree of annulment or divorce.

Once you are divorced, review your beneficiary designations and your Will and make changes as necessary.

Post-divorce Review of Estate Plan

Tuesday, June 14th, 2011

          After your divorce you should review your Will and all beneficiary designations to ensure that you do not unintentionally include a gift to your former spouse.  Although we strongly recommend against relying on statutes to correct your estate plan despite your own inaction, there are statutes that provide that the judgment of divorce eliminates prior bequests or certain beneficiary designations to the former spouse.   See Va. Code Sec. 20-111, 20-111.1, 64.1-59; Md. Code, Estates and Trusts Article, Sec. 4-105(4); DC Code Sec. 18-109 and Estate of Roscoe H. Liles, 435 A.2d 379; 1981 D.C. App. LEXIS 355.  The effect of these statutes on the treatment of a now former spouse in an estate plan is uncertain and incomplete and may be frustrated by federal law spousal protections.  The savings statutes are no substitute for a careful review of estate planning documents and beneficiary designations and corrective action based on the divorce settlement or judgment.

Wills and Elections Against the Will

Monday, June 13th, 2011

             You can improve on the intestate estate outcome by unilateral action.  You can make a Will or a new Will; or revoke a Will that leaves everything to your now estranged spouse.  We encourage clients to consider taking these actions early on in the process.

            However you cannot freely disinherit your spouse.  In each local jurisdiction the surviving spouse can renounce the gift, if any, to the spouse in the Will and elect to take a statutory share of the estate.  The surviving spouse is entitled to claim an elective share as follows:

Maryland – an allowance of $5,000 and one-half of the net probate estate if there are no surviving issue of the decedent and one-third if there are surviving issue.  Md. Code, Estates and Trusts Article, Sec. 3-201 and 3-203.

Virginia –  one-half of the augmented estate if there are no surviving issue of the decedent and one-third of the augmented estate if there are surviving issue.  Va. Code Sec. 64.1-16.1.

 District of Columbia – the surviving spouse who renounces the gift under the Will is entitled to the amount he or she would take if the decedent did not make a Will.  D.C. Code Sec. 19-113.

Spousal Claims in Intestate Estates

Saturday, June 11th, 2011

If you die intestate (without a valid Will) your spouse is entitled to the following percentages of your net probate estate:

Maryland – the surviving spouse takes entire net probate estate unless there are surviving decedents or surviving parents of the decedent;

the surviving spouse takes $15,000 plus one-half of the net probate estate if the decedent is survived by decedents who are not minor children, or by parents of the decedent; and

the surviving spouse takes one-half of the net probate estate if the decedent is survived by his or her minor children.

See MD Code, Estates and Trust Article, Sec. 3-102.

 Virginia – surviving spouse takes entire net probate estate unless there are surviving descendants of the decedent who are not descendants of the surviving spouse, in that event the surviving spouse takes one-third of the net probate estate;

the surviving spouse also has a claim to one-half of the augmented estate if the decedent is not survived by descendants and one-third if the decedent is survived by descendants,

See Va. Code Sec. 64.1-1.

 District of Columbia – D.C. law provides that the surviving spouse or domestic partner, and minor children, are entitled to a reasonable allowance from the probate estate for maintenance during estate administration.  D.C. Code section 19-101.04

The surviving spouse or domestic partner takes the entire net probate estate if the decedent is not survived by descendants or parents;

The surviving spouse or domestic partner takes two-thirds of the net probate estate if the decedent is survived only by descendants who are issue of the decedent and the surviving spouse;

The surviving spouse or domestic partner takes three-fourths of the net probate estate if the decedent is not survived by descendants but is survived by a parent;

The surviving spouse or domestic partner takes one-half of the net probate estate if the decedent is  survived only by descendants who are issue of the decedent and the surviving spouse, and the surviving spouse has other issue; and

The surviving spouse or domestic partner takes one-half of the net probate estate if the decedent is survived by descendants one or more of who are not issue of the surviving spouse.  D.C. Code section 19-302.

            Also in each local jurisdiction there is a statutory preference for the surviving spouse to be the personal representative or executor of the estate.

Spousal Rights and Non-Probate assets

Friday, June 10th, 2011

Generally spousal claims apply to the probate estate which only includes assets that the decedent owned at death and which did not pass by operation of law or beneficiary designation or other contract provision.   Virginia expands the spousal protections to the “augmented” estate, the calculation of which includes certain non-probate assets and prior gifts.  A federal law known by the acronym ERISA protects spouses’ rights to certain retirement plans and accounts.  Often the vast majority of a decedent’s property passes outside of probate.

            For example, many spouses own the marital home and sometime other real property in a form of ownership called tenants by the entirety (“T by E”).  One of the characteristics of this tenancy is survivorship – if one tenant dies the other succeeds to ownership of the entire property by operation of law.  A Will cannot change this result.

            Often spouses hold bank accounts as joint tenants with right of survivorship (“JTWROS”) or name each other as pay on death (“POD”) beneficiaries of their financial accounts.  These arrangements can be changed by transferring the funds or changing the beneficiary.

            You can freely change the beneficiary designation on your IRA’s.  However 401(k) accounts are subject to ERISA spousal protections.  You cannot name a beneficiary other than your spouse without your spouse’s consent and if you name no beneficiary your spouse takes by default.  A spouse’s ERISA rights in 401(k) accounts, 403(b) accounts, pensions, etc. can be eliminated only by a final judgment of divorce, or completion and delivery of a beneficiary designation with spousal consent to the plan administrator.

Spousal Estate Rights

Thursday, June 9th, 2011

The marital contract that spouses enter into at the time of the marriage includes many provisions that I often find are a surprise to some people.   One area where marriage makes a big difference is how property passes at death. 

If you are married at the time of your death your spouse has important rights to your estate, whether or not you made a Will.  And the law does not consider you unmarried just because you are separated or there is a divorce case pending.  Only the final judgment of divorce changes your status for decedent estate purposes.  A limited divorce does not terminate spousal estate rights although Virginia, but not Maryland and the District of Columbia, bars the estate claims of surviving spouses who abandoned the decedent. See Va. Code Sec. 64.1-16.3.

 
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