This session of the Legislature has passed a major rewrite of the intestacy and spousal dissent statutes and is contained in House Bill 979. We discussed the pending bill in an article during the 1999 legislative session. Changes in the bill and further reflection on the language of some of its provisions suggest a revisit now. The bill repeals Article 1 of Chapter 30, and replaces it with Article 1A and was approved on August 2, 2000.
The act replaces the former spousal right to dissent from a will by providing any surviving spouse with a right to an elective share. This election applies whether the decedent spouse died testate or intestate. Section 30-3.1 provides 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 old dissent statute but generally should produce a similar result in most typical estates. One important difference is that, joint and survivor accounts not payable to the surviving spouse are accounted for in calculating the elective share unless contribution can be proven by the beneficiary of the account. Another major difference is that the elective share statute is much more far-reaching and is better coordinated with the intestacy statute. The proposed legislation is a comprehensive overhaul of the present system. Existing case law is incorporated into the act. Some parts of the bill correct perceived inequities by eliminating the ability to disinherit a spouse that resulted from appellate interpretation of the old statutes. One of the controversial issues addressed by this bill is the potential for disinheritance afforded by joint and survivor accounts. Funds in such accounts, where the surviving spouse is not a joint owner, will now be included in their entirety in the Total Net Assets of the decedent. This inclusion can increase the elective share of the surviving spouse yet such assets were unavailable under the old statutes. The legislation may create other issues and unanswered questions surrounding the disposition of other assets of the decedent before and after death.
The definition section 30-3.2 codifies some issues previously dealt with only in appellate decisions. There are significant changes in the definitions set out in this bill from the version presented in 1999. The period that gifts to parties other than the surviving spouse will be included was reduced from three years to six months. Gifts made prior to marriage are now clearly excluded from consideration, which is a major improvement from the version of the bill originally submitted. The inclusion of 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 has been eliminated as an express provision but policies payable to or for the benefit of the spouse should be captured under Sec. 30-3.2(d)(8) in order to avoid inequitable treatment.
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. It should be noted that the inclusion of life insurance proceeds in the definition of property passing to the surviving spouse provides individuals an opportunity to protect specific property from the election by securing adequate life insurance during their lifetime. If the value of the property passing to the surviving spouse exceeds the applicable share of the total net assets of the decedent, there is no right to claim an elective share. A surviving spouse who is qualified for the elective share, has no right under the act to demand specific property, and rather is only entitled to the value of the share. The statute makes it permissible to have the insurance proceeds payable to a qualifying trust, but valuation in such cases may present issues that could lead to disputes.
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.
When a surviving spouse is entitled to an elective share and any assets included in the Total Net Assets are not in the control of the personal representative the statute provides a remedy. The personal representative, under section 30-3.5, is entitled to recover, from certain 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. Any person responsible for contribution may pay their elective share liability 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 is unable to reasonably collect the amount of the elective share apportioned to a person, that amount shall be apportioned pro rata, with the clerks approval, among the other persons who are also subject to apportionment. The remedy that is provided by this section will likely provide many opportunities for litigation since it does not provide any mechanism for recovery of assets. It merely states that the personal representative is "entitled" to recover "a sufficient amount" to pay the elective share.
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 prohibiting any recipients from disposing of any of the decedents 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 old statute. Similar provisions are included by implication in G.S. 29-30, coupled with the application of the provisions of G.S. 52-10. The act provides for an express 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." The inclusion of 30-3.6(b) will substantially increase the uncertainty of real estate transactions relying on such a waiver for the conveyance of property interests without the joinder of a spouse by permitting the non-joining spouse to attempt to refute the waiver after the fact. Purchasers for value should be entitled to rely on a recorded waiver but this provision makes it uncertain.
An additional shortcoming of the new act is that it does not provide for existing waivers of the right to dissent to operate as waivers of the new elective share. A well-worded agreement will usually contain a comprehensive waiver that should be effective. However, many agreements are not well drafted or they contain limited or highly specific waivers that may be construed as not constituting a waiver of the new elective share. The better practice will be for drafters of such agreements to include broad waiver language as well as appropriate provisions regarding coercion and waiving disclosure in order to prevent subsequent avoidance of these waivers. We would also recommend that these agreements contain a provision that third parties are conclusively entitled to rely on the terms of a recorded agreement until such time as an instrument is recorded revoking the agreement.
This legislation makes 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 becomes effective Januray 1, 2001, and applies to estates of decedents dying on or after that date.
This act may cure some of the difficulties perceived to exist in the law it replaces. However, failure of a spouse to join in a conveyance may produce title defects far more likely to result in litigation than before. Under the old statutes, the failure of a spouse to join would result, in the relatively rare case, in a claim of an elective life estate. Even in such instances, the failure would not result in a total failure of title. Failure to join would only result in a loss of the present possessory interest since there was no recovery of such property in the case of the intestate share under the dissent statute. Under the new act, there is great potential for dispute since the property itself might be recoverable if it is conveyed without consideration and the donee is unable to pay its value. We anticipate the recovery provisions will engender litigation as to what constitutes sufficient consideration for grantees to avoid becoming "gratuitous inter vivos donees", Sec.30-3.5(a) and as to what property may specifically recovered by the personal representative.
An additional complication may arise in the attempt to convey property administered in an estate prior to the expiration of seven months (six months for share election plus one month for life estate election) after letters are issued in an estate. A surviving spouse will likely be required to join in such a conveyance or record a satisfactory waiver in order to convey good title. Section 30-3.2(d)(1) includes "all property to which the decedent had legal and equitable title immediately prior to death". Section 30-3.5(a) permits the personal representative to "recover proportionately from all persons, other than the surviving spouse, receiving or in possession of any of the decedent's Total Net Assets a sufficient amount to enable the personal representative to pay the elective share." The original recipients of property comprising the decedent's Total Net Assets are required to contribute their pro rata share to the extent they have the property or its proceeds on or after the date of decedent's death. There is no exception in the statute for bona fide purchasers for value. To illustrate the problem, we can assume a $100,000 net estate consisting of land valued at $50,000 and cash and securities valued at $50,000. Also, assume an estranged spouse with no separation agreement and a probated will leaving all property to a sole adult child. The property is sold at value, the debts paid and distribution made prior to the expiration of the election period. Heir immediately squanders the distribution and all other assets gambling in Lost Wages. Survivor then claims the elective share within the time period. The personal representative would be required to take reasonable steps to recover the property to pay the share. The purchaser is obligated to contribute under the wording of the statute. Arguably, reasonable efforts to recover property would include a court ordered reconveyance of the property. This is probably not an intended outcome by the drafters of the legislation. Nevertheless, who wants to pay for litigation to get an interpretation when a revision of the statute could clear up these issues? It might be helpful if the provisions of G.S. 28A-17-12(a)(2) were integrated with this act so as to make a surviving spouse a creditor with rights only against the personal representative in transactions where value was given for the conveyance.
The text of the bill is too lengthy for inclusion in this issue and may be found on the Internet at www.ncga.state.nc.us