Spousal Allowance
Generally, a surviving spouse is entitled to claim the first $60,000 of a probate estate (formerly $30,000). The right to claim the Spousal Allowance may be waived through a valid prenuptial or postnuptial agreement.
Surviving Spouse Elective Share
Most states, including North Carolina, have what is known as Elective Share statutes. Elective Share statutes describe a minimum portion of a deceased spouse’s estate for which a surviving spouse may petition the court for in the event that their deceased spouse’s Last Will and Testament disinherited the surviving spouse or left the surviving spouse a smaller amount than the surviving spouse is entitled to under the Elective Share statutes.
While you can execute a Last Will and Testament that disinherits your spouse, if you do so, after your death, your surviving spouse can petition the court to claim the Elective Share amount unless the two of you had a valid prenuptial agreement or postnuptial agreement that waived rights to any Elective Share amount. The reason it’s called an Elective Share is that it’s not automatic. The surviving spouse has a 6-month window from the date of death to come forward to the court and elect to claim the Elective Share amount.
In 2013, North Carolina changed its elective share rules to be based upon the length of the marriage. Thus, in North Carolina, the elective share amount is as follows:
- 15% if the couple was married for less than 5 years;
- 25% if the couple was married for more than 5 but less than 10 years;
- 33% if the couple was married for more than 10 but less than 15 years; and
- 50% if the couple was married for 15 years or older.
Under the elective share laws, if the amount of property passing to the surviving spouse, through both the right of survivorship (a shared home, shared bank accounts, etc.) and their allotment in the Will, is less than their elective share, then the surviving spouse can petition the court to recover the difference between the allotment and the elective share. For example, if Sue was left $50,000 in her husband’s Will, but the value of her elective share is $80,000, then Sue can petition the court to receive the additional $30,000.
So when might the use of the Elective Share statute be necessary? Consider a famous case involving the founder of the Hooters franchise, Mr. Brooks, and the Elective Share statute. When Mr. Brooks died, his Will divided up his expansive estate accordingly: 30% to each of his two children, 10% to Clemson University, and the remaining 30% to various family members. He left his second wife, Tami, $1 million a year for 20 years. Tami rejected that offer and instead she used the Elective Share statute to petition the court for a third of Mr. Brooks’ estate. Mr. Brooks’ son was unsuccessful in challenging Tami’s claim, as Elective Share statutes have consistently been held constitutional.
What Is Countable for Calculating the Elective Share Amount?
In looking at the deceased spouse’s estate and calculating the surviving spouse’s elective share amount, the elective share applies to the decedent’s “Total Net Assets”. Total Net Assets consists of “Total Assets” less any allowances for dependents such as minor children or claims against the estate (such as debts of the decedent). Total Assets is very broadly defined to include pretty much everything. Here are the most common assets that are included:
- Assets owned by the decedent at the time of decedents death.
- Property that decedent owned in a revocable living trust.
- Benefits payable due to decedent’s death such as life insurance proceeds, accidental death benefits, annuities, employee benefits, individual retirement accounts (IRAs), pension or profit-sharing plans, deferred compensation plans, or any other private or government retirement plan.
- Securities held in an account owned by the decedent with a payable on death or transfer on death designation.
For the full list and definition of “Total Assets” see North Carolina General Statutes Section 30-3.2(3f).
Calculating the Surviving Spouse’s Share
In determining whether a surviving spouse is entitled to claim an Elective Share, the court will also calculate the “Net Property Passing to the Surviving Spouse” to determine what the surviving spouse already received and whether the surviving spouse has a claim to any additional assets.
Net Property Passing to the Surviving Spouse consists of the “Property Passing to the Surviving Spouse” minus any death taxes or claims paid from the Property Passing to the Surviving Spouse.
Property Passing to the Surviving Spouse includes pretty much anything that the surviving spouse receives including property passing to the surviving spouse outright or in trust including assets received from the estate, any spousal allowance received, plus assets received from any trust, by a beneficiary designation such as life insurance or retirement plan proceeds.
Use a Trust to Protect Assets—Especially in a Second Marriage
A common scenario where we encounter clients wanting to disinherit their surviving spouse is in second marriages and blended families. Often in a second marriage, the couple agreed to keep their assets separate. However, if the couple does not have a valid prenuptial agreement or postnuptial agreement, then the surviving spouse could potentially claim the Elective Share amount.
Since assets left to a surviving spouse in trust satisfy the elective share amount, a popular planning strategy is to incorporate a trust for the surviving spouse in the estate plan. The trust can then ensure that when the surviving spouse dies, the remaining assets of the trust must revert back to the intended beneficiaries (generally the children of the first spouse to die).
Let Us Help You Create a Well-Designed Estate Plan For Your Blended Family
We’ve helped thousands of Wake County-area residents design and create an estate plan. We understand the unique concerns faced by our married clients in second marriages or blended family scenarios and can help you design a plan that fits the unique needs of your family. Call us at 919-443-3035 to discuss how to get started.
