Think You Can Disinherit Your Spouse? Think Again.

 

Disinheriting a spouse is rarely straightforward in the United States. State laws—particularly those that guarantee a surviving spouse’s elective share—make it very difficult to exclude a spouse from inheriting, even if the will says otherwise. But with proper planning, it may be possible to structure an estate that avoids these default protections.

What Is the Elective Share?

The elective share is a legal right that allows a surviving spouse to claim a portion of the deceased spouse’s estate, even if the will provides them little or nothing. In other words, if your will says, “I leave nothing to my spouse,” the law often says, “Too bad, they still get a share.” The surviving spouse can elect against the will and legally demand their portion.

How Much Can a Spouse Claim?

The elective share percentage and scope vary by state.  For example, in New Jersey, the elective share is one-third of the augmented estate.  It basically means that everything you owned and gave away near the end of your life—plus what’s still in your name when you die.  In New York, it's one-third of the net estate after debts and expenses.  In Florida, it's 30% of the elective estate, including jointly owned and trust-held assets in some cases.

Why Is It Hard to Disinherit a Spouse?

It's because of public policy: States want to avoid widowed spouses relying on public assistance. It is also unfair to cut off a stay-at-home spouse after they have spent decades caring for the household. Also, the law treats marriage as a shared financial life, not just an emotional one. Far-reaching elective share laws also make it difficult to cut one's spouse off.  These laws often apply to more than just the will and include many non-probate transfers.

How to Prevent a Spouse from Claiming the Elective Share?

While you can’t just write your spouse out of your will and assume that will be the end of it, there are some ways to achieve the same objective, with your spouse’s cooperation or significant legal planning.

The most direct and effective method is a written agreement, signed voluntarily and with full disclosure, in which each spouse waives the right to an elective share.  One may use a prenuptial or postnuptial agreement for this purpose.  Divorce also terminates spousal rights. Simply being estranged or separated won’t remove the right to the elective share.  

One may also transfer assets into an irrevocable trust during one’s lifetime.  An irrevocable trust legally removes the assets from the individual’s ownership and from the probate estate—thereby potentially placing them outside the scope of the elective share. However, it also means that you no longer have control over your assets. It is irrevocable, meaning that it is very difficult to make changes or amendments.  Setting up an irrevocable trust can be complicated and costly, not to mention the potential tax and legal consequences.  It is not for everybody. 

Conclusion

Disinheriting a spouse isn’t just difficult—it’s often impossible unless you plan carefully. Elective share laws are powerful tools designed to protect surviving spouses from financial hardship. However, with advanced planning, it may be possible to limit or even eliminate a spouse’s inheritance rights, provided all legal requirements are satisfied.

(The laws change regularly.  If you have any questions regarding this article, please visit www.1visa1.com to schedule a legal consultation.)  

Power of Attorney Can be Broad or Narrow

Powers of Attorney can be very useful tools for estate planning purposes.  A power of attorney (POA) is a written authorization to authorize an agent to act on behalf of the individual establishing the legal document (called the principal).  Most commonly, a power of attorney grants power to the agent to carry out financial and business transactions such as accessing bank accounts, selling properties or paying bills.

Broad Powers of Attorney

A power of attorney can be broad or narrow.  Most people or financial planner would draft broad general powers of attorney to cover all types of transactions.   A broad power of attorney is appropriate when the principal has decided to grant substantial powers to another person that he or she trusts completely, such as a spouse or child.  

A broad (also called general) power of attorney allows the agent to basically do anything that the principal is allowed to do.  Such broad powers would facilitate business transactions when the principal becomes disabled unexpectedly. However, a person should be carefully when preparing a general power of attorney.  A short power of attorney that grants broad powers to an agent may not be accepted by financial institutions or government agencies for fear of fraud.  Hence, a carefully drafted power of attorney may be necessary based on the principal's particular needs and circumstances. 

Narrow/Specific Powers of Attorney

There is no legal requirement that a power of attorney must be broad or comprehensive.  A power of attorney can be narrowly written to make specific business transactions possible.  In fact, this practice is quite common in various types of business transactions.  For instance, an individual may live in one country but own a house in another country.  If one day she decides to sell this house, it would be more convenient to grant a power of attorney to an agent in the country to facilitate the sale.   She may choose a family member, a friend or a professional (real estate agent, lawyer, etc.) to act as her agent.

Duration of Powers of Attorney

Generally speaking, a power of attorney is effective upon execution (signing).  But it can also be written in such a way that it is only effective when something happens.  For example, a person may decide to make a power of attorney effective only when he or she becomes unable to handle business affairs due to mental or physical disability.  This is called a "springing" power of attorney.

A power of attorney is considered "durable" after execution.  It means that the power will continue to exist indefinitely unless it is changed or explicitly revoked by the principal.  Hence, if a person does not intend to have a durable power of attorney, it is important to clearly specify the period of validity or how a power of attorney can be terminated in the document.  

Other Estate Planning Tools

Sometimes people confuse a power of attorney with other documents such as Health Care Power of Attorney and Last Will and Testament.  A Health Care Power of Attorney is used to provide instructions to health care providers regarding when and what life-sustaining procedures should be used, appoint an agent to make health care decisions, and also to grant such agent authority to have access to the principal's medical records.  A Last Will and Testament is a legal documents that allows an orderly disposition of one's properties according to his or her wishes. A Will also allows the naming of executors to administer the estate, trusts to manage any trusts formed, and guardians for any minor children.   Without a valid Will, properties will be distributed based on state's default rules and the court will appoint a legal guardian for minor children.  

Till Death Do We Part With Our Property, But How?

There are only two things that are certain in life, death and taxes, as the American saying goes. Even at death, one still cannot escape Uncle Sam's taxing power.  Advance planning is important not only for tax purposes but also for an efficient distribution of your assets.   Before we can come up with a plan, we need to first understand how property passes at death.

Broadly speaking, when a person dies, her assets are divided into three categories.  First, assets can be passed down through contractual arrangement to a predesignated beneficiary. Retirement accounts such as 401(k), 403(b), IRA, SEP, KEOGH, etc., belong to this category.  Other assets such as life insurance contracts, annuity contracts, transfer-on-death (TOD) accounts, etc., also have named beneficiaries.  These assets will pass down according to the beneficiary designation without regards to the provisions of our wills unless we specifically name our estate as the beneficiary.

The second category of assets are those that are held in joint tenancy with rights of survivorship (JTWROS).  Like the named beneficiary above, the surviving joint tenant will take property automatically by "operation of law."  For examples, many couples hold their bank accounts as joint tenants with rights of survivorship. Again, these assets are not controlled by our wills.

The last category of assets include everything that is held in our individual names, regardless of what they are or where they are located. Assets held as community property and tenants in common are also in this category.  The significance of this category of these assets is that we can control how and to whom they are distributed.  The legal instrument that we use to distribute these assets is our last will and testament, or our will.  It is important to note that the contracts and JTWROS above take effect first before the provisions of our will are executed. Although the first two groups of assets are not probated, some of them (e.g., retirement accounts) are still considered part of our estate for tax purposes.

It may seem easier to place assets in the first two categories, but your will is the legal tool that can achieve efficiency and tax savings.  For instances, many couples employ tools such as credit shelter trusts and marital trusts in their wills to maximize their tax savings.  In addition to a will, a durable power of attorney and a combined health care power of attorney/living will are also critical legal documents for estate planning and other legal purposes.  A durable power of attorney allows you to designate a legal representative to take care of your financial affairs if you become physically or mentally incapable.  Similarly, a health care power of attorney and a living will will allow you to make health care decisions in advance and also appoint another person to make such decisions for you when you become disabled or sick. 

Three Legal Documents that Most People Should Have

America is a melting pot in its truest sense. People from different countries and background migrate and settle down here. Most immigrants adapt to the American lifestyle and culture well.  However, there are certain things that newcomers may not fully understand - preparing for the unexpected and death is among one of them. To prepare for the uncertain future, three legal documents are critical: a will, a power of attorney and a living will.

Will
A will ensures an orderly disposition of one's assets upon death according to her wishes. Dying without a will means that the person's property is distributed according to the state law rather than her wishes.  A will is an important estate planning tool but it is not only for the rich. Most middle class families require some form of estate planning.  For example, in New Jersey, an estate tax return must be filed if the decedent's gross estate exceeds $675,000, a threshold that can easily be reached with the ever increasing real estate values and also life insurance proceeds. Another overlooked scenario is when a person died in an accident, the value of the person's estate could be increased significantly by monetary compensation.  Without a will, a court will appoint an administrator to oversee the distribute the estate, and a bond must also be posted.

Another important function of a will is to ensure that one's children will be properly cared for if both parents pass away. It is not uncommon for both parents who die in a common accident together.  Without a will, a state family court will take over custody of the minor children after the passing of both parents.  An legal guardian will be appointed to care for the children.  This person may not share the same beliefs, religious and otherwise, as the parents in how to raise the children.  This problem can be avoided with a properly drafted will.

Power of Attorney
When young and healthy, most people don't think about what would happen when they became very sick or disabled.  Who would pay their bills?  Who would handle their assets and regular business transactions?  A power of attorney allows one's spouse, significant other, or another pre-determined person to handle one's assets and affairs when he becomes disabled to do so.  A power of attorney is a written legal authorization to allow another person to handle your business and financial transactions upon disability.  You may give authorization to this person immediately or when you become disable.  You can grant broad general powers or specific authorizations to this person.  You can also cancel a power of attorney at any time without reason. 

Living Will
Despite its name, a "living will" has nothing to do with a will.  A living will is a document that serves one main purpose - to let doctors and other medical professionals know your wishes in terms of medical treatment and other health care matters when you become unable to communicate your wishes due to a medical condition.  One example is when a person becomes a "vegetable" in the hospital due to brain damage, should life-prolonging treatment be withheld or provided?  A living will, also known as "healthcare directive",  that was properly drafted and executed when the person was mentally fit provides specific instructions to the physicians on critical medical decisions like this one.  A person with religious belief can also use a healthcare directive to make sure that healthcare will be provided according to the tenets of his religion.  For example, the Catholic church provides specific healthcare directives for Catholics to follow.  

A living will may also be used as a medical power of attorney or "health proxy".  Like a power of attorney, a health proxy pre-assigns another person, usually a family member, to make medical and healthcare decisions on your behalf when you are not able to.  It is not possible for a person to put down all their medical wishes beforehand in writing. By sharing your beliefs with a family member, and giving legal power to this person to act as your medical power of attorney, you can be sure that your  medical wishes are followed.