Spousal Rights: Dramatic Changes in Store

(Last Updated On: February 28, 2017)

The past three decades have encompassed remarkable changes in Virginia’s approach to the entitlement of a surviving spouse to assets of a deceased spouse.

The evolution has stretched from musty common law concepts such as dower and curtesy to a radical change in the determination of a survivor’s share, and then again, beginning in January 2017, a division more reflective of a “partnership” approach to the institution of marriage.

Perhaps this evolution (or radical change) can best be illustrated with an example that will demonstrate three different regimes since 1989.

Example:  Sam and Jane have been married for seven years when Sam suddenly and unexpectedly dies.  The marriage was Sam’s second, and he is survived not only by Jane but by a daughter, Ellen, from his first marriage.  Over the past few years, Sam and Jane’s relationship had become increasingly brittle.  Nevertheless, hoping for the best, they had remained together.  In fact, two years ago Sam had purchased a new residence that was titled in the names of Sam and Jane as tenants by the entirety (meaning the second to die had survivorship rights).  Sam’s will is duly admitted to probate, and it makes no provision whatsoever for Jane, rather leaving everything to Ellen.

Sam was definitely a man of means, although this was not reflected in his will.  While he was married to Jane, he effected the following transactions:

  • Over the past four years, he has made annual $250,000 cash gifts to Ellen.
  • Two years before his death, Sam transferred all of his financial accounts at banks and brokerage houses to a revocable trust which provided for distribution of all of the assets to Ellen upon Sam’s death. At his death, the value of these assets was $3 million.

Has Sam effectively disinherited Jane?  The answer depends upon the laws in effect the time of Sam’s death.

Sam dies in 1989.  Before 1990, a surviving spouse was entitled to a forced share.  However, this was limited to a fraction of a decedent’s net probate estate (plus whatever rights the surviving spouse’s dower or curtesy interest gave her or him – not relevant with Sam and Jane).  The forced share was a fraction of the net probate estate (net meaning after payment of debts and expenses) amounting to one half if the decedent had no children, or one third if there were children of a previous marriage.

The point is that Sam has arranged his affairs such as to produce a net probate estate of $0.  Under the law then in effect, non-probate transactions such as life insurance, IRAs and retirement plans, joint property, lifetime gifts, and living trusts were not included in a surviving spouse’s forced share.

Jane will get the house and perhaps some tangible personal property such as household effects, but otherwise she is out of luck.

Note:  This could be a two way street.  Sam might have made gifts to Jane and made her the beneficiary of a retirement plan and a life insurance policy, believing that Jane would thus be adequately provided for.  This would not stop her from “double dipping” by adding a forced share of probate property to the property acquired during Sam’s lifetime.

The pre-2017 augmented estate.  Under the law that went into effect in 1990, the probate estate was “augmented” by other assets.  In very basic terms, an augmented estate equals the probate assets of the decedent plus assets passing outside the probate estate, plus certain transfers by the decedent during his lifetime minus assets received by the surviving spouse from the decedent spouse through probate and non-probate means.  The statute contains specific rules that apply to determining the property to be included and excluded from the augmented estate, rules for valuing this property, and rules adding back in property already received by the surviving spouse.  There were also provisions for liability of third parties (e.g., Ellen) who received augmented estate assets to contribute to making up the elective share of the surviving spouse.

Note:  It has always been the case, and will remain so after 2016, that the parties can settle all their rights by a prenuptial agreement or an agreement made during the marriage, and the augmented estate rules will not apply.

In the case of Sam and Jane, she will be entitled to a monetary award in an amount equal to one third of the value of the probate estate ($0), plus the value of the revocable trust at the time of his death ($3 million), plus the value of gifts made within the year of death and the five preceding years to the extent that the aggregate value of transfers in any years exceeds $10,000 ($960,000).

Thus, Jane is entitled to a monetary award of one third of the value of the trust and $240,000 for each of the years in which gifts were made to Ellen.  Thus, she would be entitled to $1,320,000, less the value of Sam’s interest in the residence that he purchased for the two of them.

Post-2016 regime.  For decedents dying on or after January 1, 2017, the elective share becomes remarkably different:

The new law removes the distinction of whether a decedent left children or descendants.  The elective share is now set at fifty percent (50%) of the marital property portion of the augmented estate, regardless of whether a decedent left descendants.

The length of the marriage now affects the amount a surviving spouse is entitled to receive.  Now, a surviving spouse will be entitled to increasing percentages of the 50% elective share based on the length of the marriage, from 3% for marriages of less than one year to 100% for marriages of fifteen years or more.  For example, in a marriage of six months, the surviving spouse will be entitled to 3% of the 50% elective share, or 1.5% of the augmented estate.

Under the table effective as of January 1, a surviving spouse’s share where the marriage has lasted for seven years, but less than eight years, will be forty-two percent (42%) of the 50% share, or twenty-one percent (21%) of the amount awarded in the pre-2017 previous example.

Note:  Perhaps most importantly, the augmented estate will include the value of Jane’s separate assets held at Sam’s death, plus any property that would have been included had Jane predeceased Sam (e.g., assets she may have recently transferred to other persons and other non-probate assets of her own).  Thus, depending on the value of Jane’s own property, her entitlement to an award from Sam’s estate may evaporate altogether.

The new set of rules certainly exhibits a more modern sensibility as to the nature of marriage.  However, this sensibility makes the determination of a surviving spouse’s rights more complex than ever.  It is important for married persons who have crafted or contemplate an estate plan that will benefit persons other than a surviving spouse to review these rules so that the election of a forced share by a surviving spouse will not disrupt the planned-for disposition of the decedent’s property.