By Cowles Liipfert

This article will discuss a surviving spouse’s Elective Share in North Carolina after the death of a deceased spouse.

North Carolina law gives a surviving spouse a guaranteed share of their deceased spouse’s net assets, which a surviving spouse can elect to receive if the election results in a larger share of a deceased spouse’s assets than he or she would otherwise have received under the deceased spouse’s will or – if there is no will – under the state inheritance laws.

The Elective Share statute is intended to protect a surviving spouse from being disinherited or left too small a share of a deceased spouse’s assets, by requiring a minimum percentage of the deceased spouse’s net assets to pass to or for the benefit of the surviving spouse.  The minimum percentages are determined by the length of the marriage.  

NC Gen. Stat. Section 30-3.1 gives a surviving spouse the right to take an Elective Share, which is a certain percentage of a deceased spouse’s “net assets,” (a) if the deceased spouse’s will leaves the surviving spouse less than his or her Elective Share, (b) if the surviving spouse’s share under the N.C. Intestate Succession Act (applicable when the deceased spouse has no will) is less than the surviving spouse’s Elective Share, or (c) if part of the deceased spouse’s assets pass under the will and other assets pass outside the will,   In the last case, the surviving spouse would receive a guaranteed share of the combined value of the assets passing under the will and the assets passing outside the will. 

If you find it odd that a spouse’s Elective Share might be larger than their share under the Intestate Succession Act, please note that a spouse’s “net assets,” which are taken into consideration in determining an Elective Share, include assets which are not part of a deceased spouse’s probate estate, i. e. the assets to which the Intestate Succession Act applies.  We discuss this comparison in more detail below, under the heading, “Intestate Share vs. Elective Share.”

Elective Share issues often arise when a spouse has children from a prior marriage, to whom the parent wants to leave assets, in which case the parent often struggles to find a balance between providing for the surviving spouse and simultaneously making provision for the children. Fortunately, the use of Marital Trusts for the surviving spouse during his or her lifetime, followed by distributions (or further trusts) for the children and their families after the death of the spouse, can count as part of the surviving spouse’s Elective Share.  Thus, a Marital Trust can address both a desire to provide for the surviving spouse and a desire to provide for the children and their families.  See the topic below, titled “Use of Marital Trust to Satisfy Elective Share.”

A Pre-Nuptial Agreement (also sometimes called a Premarital Agreement or Pre-Marriage Agreement), signed by both parties to a marriage, can address these issues prior to the marriage, or a Post-Nuptial Agreement executed after the marriage, can address these issues, with input from both spouses.  See topic below titled “Waiver of Elective Share.”  

                        Comparison of Intestate Share with Elective Share in North Carolina

The percentages applicable to an Elective Share and to a surviving spouse’s share under the North Carolina Intestate Succession Act are completely different, and a comparison of those shares might be helpful.

We have another Article on our law firm’s Blog, titled “What Happens if You Die Without a Will?” to which you might refer for a longer, more detailed description of a surviving spouse’s share under the Intestate Succession Act, but for this article, let us just say:

1. Where there is a spouse and no children, the surviving spouse receives all the deceased spouse’s estate, if neither parent of the deceased spouse is surviving.

However, if one or both parents are then living, then the surviving spouse receives (i) the first $100,000 in personal property (assets other than real property), (ii) one-half of the remaining assets (i.e., personal property in excess of $100,000 in value, if any, and real property) are allocated to the surviving spouse, and the remainder to the parents.

• With a spouse and one child surviving, nothing goes to the parents and the surviving spouse receives the first $60,000 in personal property; everything else is divided one-half to the spouse and one-half to the child.  If the child is a minor, the child’s share goes to the guardian of his or her property, for the child’s benefit.  The surviving parent is often the guardian. 
• With a spouse and two or more children surviving, the spouse receives the first $60,000 in personal property and one-third of the remainder.  The remaining two-thirds share is divided equally among the children.

The Elective Share, on the other hand, is determined strictly by the length of the marriage.  If the surviving spouse was married to the deceased spouse for less than 5 years, his or her Elective Share is 15% of the deceased spouse’s “net assets.”  If married between 5 years and 10 years, the surviving spouse’s share is 25%.  If married between 10 and 15 years, the surviving spouse’s share is 33%, and if married for more than 15 years, the share is 50%.

Just as important – or perhaps even more important – than the applicable percentages, is the distinction between the assets counted and against which any percentage is applied.  The Intestate Succession Share includes only real property and probate property owned by a decedent at death, which does not automatically pass to someone else at death, and does not include certain assets described below, which are not part of the probate estate, but which are taken into consideration in determining an Elective Share.

In determining an Elective Share, the following assets are included, in addition to assets in the probate estate:

• Assets held in a revocable trust created by the deceased spouse;
• Assets over which the decedent had an unlimited power of withdrawal;
• Depository accounts owned by the decedent, but payable on death to a beneficiary or beneficiaries named by the decedent;
• Securities owned by the decedent (either in certificate form or in an account) which are transferable at death to a named individual or individuals.
• Life insurance owned by the decedent, over which the decedent had the power to designate beneficiaries;
• IRAs, pension or profit-sharing plans, or deferred compensation payable to a beneficiary;
• Private or government retirement plans.

Since assets under these types of ownership are not part of a decedent’s probate estate, those types of ownership, or powers to designate beneficiaries, are often used to avoid court administration of a decedent’s probate estate, to which the Intestate Succession laws are applicable, so the Elective Share Statute includes many more assets than are included in the deceased spoue’s probate estate.

                                     Use of Marital Trust to Satisfy Elective Share

If you do not want to satisfy the Elective Share by leaving property outright to the surviving spouse, a Marital Trust (as described in NCGS Sections 30-3.2(3c)g and 30-3.3A) satisfies the Elective Share requirement.  The Marital Trust must be for the exclusive benefit of the surviving spouse during his or her lifetime.  That is, there may not be any other beneficiaries during that time, even discretionary ones. The following terms are applicable:

• The surviving spouse must generally receive all the trust’s income, but the Trustee may be given the power to make discretionary distributions of income to the spouse, subject to a legally-enforceable “ascertainable standard,” for health, education, maintenance and support, in which case the unneeded income must be retained in the trust and cannot be distributed to others.
• The Trustee may also have the discretionary power to distribute trust principal for the spouse’s health, support and maintenance.
• In exercising the Trustee’s discretion, the Trustee may be allowed or required to take into consideration the surviving spouse’s other means of support.
• The Trustee must be a “non-adverse” Trustee as defined under NCGS Section 30-3.2(3)  

Please note that no distributions – not even distributions based on need – may be made to anyone other than the spouse, including children or other descendants of the deceased spouse.  If a parent wants to make provision for distributions to descendants based on need, the parent needs to make such provision for them in his or her other estate planning documents other than the marital share and not as part of the Marital Trust, which is intended to count towards the Elective Share of the surviving spouse.

A tax benefit of using a Marital Trust to comply with the above requirements is that the entire value of the trust assets will qualify for the Estate Tax Marital Deduction in determining the deceased spouse’s federal estate tax, if any, but if used to qualify for the marital deduction for the deceased spouse’s estate taxes, those assets would be considered as part of the surviving spouse’s taxable estate (and could utilize the surviving spouse’s estate tax exclusion, if applicable, to minimize federal estate tax at that time. 

                Waiver of Elective Share

A spouse or prospective spouse may waive his or her right to an Elective Share by Pre-Nuptial or Post-Nuptial Agreement.

NCGS Section 30-3.6 provides that a surviving spouse may waive his or her right to an Elective Share, in writing, either wholly or partially, with or without consideration, either before the marriage or afterwards.

Such a waiver is often included in Pre-Nuptial Agreements, particularly when one or both spouses have children from their prior marriages.  Although the waiver is often a full waiver, frequently a partial waiver is more appropriate, and provides that the surviving spouse will get a specific dollar amount or percentage of the deceased spouse’s assets, instead of waiving all their rights to receive any portion of the decedent’s assets.  The waiver often provides that the deceased spouse can make provision for a larger inheritance for the surviving spouse, in which case the waiver will not preclude the deceased spouse from making larger provision for the surviving spouse, and will not prevent the surviving spouse from receiving the larger amount.

Post-Nuptial Agreements can be executed, whereby a surviving spouse waives, partially or completely, his or her Elective Share rights.  Practically, however, there is often little incentive for a spouse to execute such a document after the marriage.

A written waiver may not be enforceable if the surviving spouse can prove that he or she did not receive a fair disclosure of the other spouse’s financial information prior to executing the waiver document, even though a party to the waiver agreement specifically waives the right to a disclosure.  See NCGS Section 30.36(c).  We have heard that Ivana Trump was presented with a Pre-Nuptial Agreement and signed it, literally at the church and with the organ playing the Wedding March.  When she was later divorced, the Pre-Nuptial Agreement was set aside.  We also understand that Jackie Kennedy signed a waiver without a full financial disclosure from Aristotle Onassis.  After his death, she was awarded a much larger amount that was provided in the waiver document, even though it was common knowledge by everyone, including Jackie Kennedy, that he was extremely wealthy.

Consequently, it is very important that the parties be represented by separate counsel in the negotiation of a Pre-Nuptial or Post-Nuptial Agreement which waives the right to an Elective Share.  It is recommended that a party be represented by an attorney or attorneys with expertise in both domestic relations law and estate planning law, to ensure that the procedures are strictly followed, to avoid a later challenge by the surviving spouse after the deceased spouse’s death.

                                                Review of Old Waiver Documents

North Carolina’s current Elective Share Act was adopted effective October 1, 2013, which significantly changed our statutory law and increased the Elective Share of a surviving spouse. If you have a Pre-Nuptial or Post-Nuptial Agreement which was executed before that date, or if your estate planning documents are at least partially based on that Agreement, we suggest that you have your document reviewed by a knowledgeable attorney or attorneys.  Unless the document provides otherwise, the surviving spouse may be entitled to a larger percentage or amount than provided in your documents.  If you were made aware of that possibility, you may be able to up-date your estate plan to address your concerns more effectively.

If you want to discuss  a surviving spouse’s Elective Share under North Carolina law, please contact our law firm at (336) 725-2900.