This session of the Legislature is considering a major rewrite of the intestacy and spousal dissent statutes and is contained in House Bill 979. The primary sponsors are Representatives Baddour and Russell. The bill, if passed, would repeal Article 1 of Chapter 30, replace it with Article 1A.
Instead of the present spousal right to dissent from a will the new act would provide a surviving spouse with a right to an elective share. This election would apply whether the decedent spouse died testate or intestate. Section 30-3.1 proposes that the "surviving spouse of a decedent who dies domiciled in this State has a right to claim an elective share, which means an amount equal to (i) the applicable share of the Total Net Assets, as defined in G.S. 30-3.2(c), less (ii) the value of Property Passing to Surviving Spouse, as defined in G.S. 30-3.3(a)."
The elective share is set out differently than the existing dissent statute but generally would produce a similar result in the typical estate. One important difference is that, regardless of the results of computing the formulas under the proposed act, the spousal share of the assets of any estate in excess of $25000 will not be less than $25000. Another major difference is that the elective share statute is much more far-reaching and is well coordinated with the intestacy statute. The proposed legislation would, if passed, be a comprehensive overhaul of the present system. Much existing case law is incorporated into the act by adoption or, in some parts, correction of perceived inequities. One of controversial issues addressed by this bill is the disinheritance afforded by joint and survivor accounts. Funds in such accounts, where the surviving spouse is not a joint owner, would be included in their entirety in the Total Net Assets of the decedent. The legislation should also clarify other issues and unanswered questions surrounding the disposition of other assets of the decedent before and after death.
The definition section 30-3.2 would codify many issues previously dealt with only in appellate decisions and is set forth as follows:
(a) Code means the Internal Revenue Code in effect at
the time of the decedent's death.
(b) Death taxes means any estate, inheritance, succession, and similar taxes imposed by any taxing authority, reduced by any applicable credits against those taxes.
(c) Nonadverse trustee means a trustee who would be deemed nonadverse under section 672 of the Code.
(d) Total Net Assets means, after the payment or provision for payment of the decedent's funeral expenses, year's allowances to persons other than to the surviving spouse, debts, claims, and administration expenses, the sum of the following:
(1) All property to which the decedent had legal and equitable title immediately prior to death;
(2) All property received by the decedent's personal representative by reason of the decedent's death;
(3) All proceeds of insurance on the life of the decedent of which the decedent is the owner, or which is payable to the surviving spouse;
(4) One-half of the value of any property held by the decedent and the surviving spouse as tenants by the entirety, or as joint tenants with rights of survivorship;
(5) The entire value of any property held by the decedent and another person, other than the surviving spouse, as joint tenants with right of survivorship, except to the extent that contribution can be proven by clear and convincing evidence;
(6) The value of any property which would be included in the taxable estate of the decedent pursuant to sections 2033, 2035, 2036, 2037, 2038, 2039, 2040, or 2042 of the Code;
(7) Any donative transfers of property made by the decedent to donees other than the surviving spouse within three years of the decedents death, excluding:
a. Any gifts within the annual Exclusion provisions of section 2503 of the Code; and
b. Any gifts to which the surviving spouse consented. A signing of a deed, or income or gift tax return reporting such gift shall be considered consent;
(8) Any proceeds of any individual retirement account, pension or profit-sharing plan, or any private or governmental retirement plan or annuity of which the decedent controlled the designation of beneficiary, excluding any benefits under the federal social security system;
(9) Any other Property Passing to Surviving Spouse under G.S. 30-3.3; and
(10) In case of overlapping application of the same property under more than one provision, the property shall be included only once under the provision yielding the greatest value."
Property passing to a surviving spouse is defined in section 30-3.3. This section also incorporates or modifies existing case law, is far more comprehensive than the existing statute and is set out below.
" (a) Property Passing to Surviving Spouse. For purposes of this Article, Property Passing to Surviving Spouse means the sum of the following:
(1) One-half of the value of any property held by the decedent and the surviving spouse as tenants by the entirety or as joint tenants with rights of survivorship;
(2) The value of any interest in property (outright or in trust, including any interest subject to a general power of appointment held by the surviving spouse, as defined in section 2041 of the Code) devised by the decedent to the surviving spouse, or which passes to the surviving spouse by intestacy, or by beneficiary designation, or by exercise of or in default of the exercise of the decedent's testamentary general or limited power of
appointment, or by operation of law or otherwise by reason of the decedent's death, excluding any benefits under the federal social security system;
(3) Any year's allowance awarded to the surviving spouse;
(4) The value of any property renounced by the surviving spouse;
(5) The value of the surviving spouses interest, outright or in trust, in any life insurance proceeds on the life of the decedent;
(6) The value of any interest in property, outright or in trust, transferred from the decedent to the surviving spouse during the lifetime of decedent for which (i) a gift tax return is timely filed reporting such gift, or (ii) the surviving spouse signs a statement acknowledging such a gift. For purposes of this subdivision, any gift to the surviving spouse by the decedent of the decedent's interest in any property held by the decedent and the surviving spouse as tenants by the entirety or as joint tenants with right of survivorship shall be valued at one-half of the entire value of that property at the time the gift is made; and
(7) The entire value of any property held in trust for the exclusive benefit of the surviving spouse during the surviving spouses lifetime, where the trust requires a Nonadverse Trustee to utilize the principal and income of the trust for the support and maintenance of the surviving spouse.
(b) Death Taxes. The value of Property Passing to Surviving Spouse shall be reduced by any death taxes that are a charge against or apportioned against the surviving spouse on property interests included in Property Passing to Surviving Spouse.
(c) No Duplication. In case of overlapping application of the same property under more than one provision, the property shall be included only once, under the provision yielding the greatest value.
A claim for an elective share must be made within six months after the issuance of letters testamentary or of administration. The right must be exercised during the lifetime of the surviving spouse, by the surviving spouse, their agent under a power of attorney, or the guardian of their estate. The procedure is set out in section 30-3.4 and spells out detailed and extensive provisions for the following subsections: Time Limitations, Time for Hearing, Preparation of Tax Form, Valuation, Findings and Conclusions and Appeals.
The personal representative, under section 30-3.5, would be entitled to recover from all persons in possession of any of the decedents assets sufficient property to enable the personal representative to pay the elective share. The only persons subject to contribution in order to make up the elective share will be the original recipients of the property comprising the decedents Total Net Assets, and subsequent gratuitous inter vivos donees A person receiving, or in possession of, any of the decedents assets may pay their elective share liability, attributable to that property, by conveyance of the property, payment of the value of the liability in cash or, if agreed to by the surviving spouse, other property equal to the liability. If the personal representative cannot reasonably collect, from any person required to contribute, the amount of the elective share apportioned to that person, that amount shall be apportioned among the other persons who are also subject to apportionment with the clerks approval.
Section 30-3.5 (b) makes provision for a standstill order. "After the filing of the petition demanding an elective share, either the personal representative or surviving spouse may request the clerk to issue an order that any recipients not dispose of any of the decedents Total Net Assets pending the hearing. The decision to issue such an order shall be in the discretion of the clerk."
Of particular interest to real property practitioners is section 30-3.6, which has no direct counterpart in the current statute. Similar provisions are included by application when the G.S. 29-30 election of surviving spouse to take a life interest in lieu of the intestate share has been chosen. The pending act proposes a spousal waiver of rights in subsection (a). "The right of a surviving spouse to claim an elective share may be waived, wholly or partially, before or after marriage, with or without consideration, by a written waiver signed by the surviving spouse." Subsection (b) limits the benefit by making the waiver refutable. "A waiver is not enforceable if the surviving spouse proves that . . . The waiver was not executed voluntarily; or . . . The surviving spouse was not provided a fair and reasonable disclosure of the property and financial obligations of the decedent, unless the surviving spouse waived, in writing, the right to that disclosure." If this bill passes the better practice will be for drafters of such agreements to include appropriate disclosure provisions in order to prevent avoidance of these waivers.
One major shortcoming of the bill is that it does not provide for existing waivers of the right to dissent to operate as waivers of the new election. A well-worded agreement will usually contain a comprehensive waiver that should be effective. However, many agreements are not well drafted and contain limited or highly specific waivers that, arguably, will not constitute a waiver of the new elective share. It should be also noted that a gift of real property, to someone other than the spouse, within three years of death in excess of the annual exclusion could, in effect, be brought back into the estate if the surviving spouse does not join in the conveyance, (proposed 30-3.2(7) and 30-3.5(a)). If this interpretation proves correct this would constitute an entirely new right for spouses of intestates dying after the effective date of the act. The nearest comparable provisions arise under the elective life estate provisions of G.S. 29-30. It would appear that sales to bona fide purchasers for value would be exempt from the recapture provisions of the proposed act and therefor should not be of significant concern to title examiners.
The legislation if adopted would also make conforming changes to Section 4 of G.S.§ 30-15 governing when spouse entitled to allowance, § 31-5.3 providing that a will is not revoked by marriage, Section 6 of G.S. 31A-1(b) acts barring a spouse rights, Section 7 of G.S. 31C-3 regarding community property, Section 8 of G.S. 84-5(2) prohibiting corporations from practicing law and G.S. 29-30 election of surviving spouse to take life interest in lieu of intestate share. This bill would become effective October 1, 1999, and would apply to estates of decedents dying on or after that date.
If this legislation is passed it will obviously cure some of the major difficulties of the present scheme. However failure of a spouse to join in a conveyance may produce title defects far more likely to result in claims than before. Under the current statutory scheme failure to join would result in a claim in the relatively rare case of an elective life estate. Even then it would result in a loss of the present possessory interest not a total failure of title.
As of April 28, 1999 this bill has passed the House and is in the Senate Judiciary II Committee. The text of the bill is to lengthy for inclusion in this issue and may be found on the Internet at http://www.ncga.state.nc.us