Changes to the Spouse’s Elective Share and a Warning to Planners

In any case where a married citizen of North Carolina dies and leaves a valid will, the surviving spouse has a choice.  The spouse can simply have what is provided to them in the will; or, they may instead choose to take an elective share.  The elective share is defined by North Carolina statutes and can be valued at drastically different amounts depending on the situation and the type of assets that the decedent owned at his or her death.  In the past, the size of the elective share was based on the number of children between the decedent and the spouse as well as children from prior marriages.

For any persons dying on or after October 1, 2013, the elective share has nothing to do with children or prior marriages.  In fact, the amount of the elective share is now based solely on the length of the marriage.  The size can be anywhere from 15% to 50% of a person’s “Total Net Assets,” and the amount changes at intervals from the date of the marriage through the 15 year anniversary.

Any financial or estate plan must consider the elective share.  Directing a person’s assets to avoid that person’s estate (for example, using trusts, ‘payable on death designations’, or joint property with rights of survivorship) will not necessarily avoid the elective share.  Many assets outside the estate are taken into account when calculating the amount of the elective share.

To give you a horror story, a Western North Carolina lady died recently with a substantial amount of money invested in securities.  All of her accounts were designated as “payable on death” and therefore did not pass through her estate.  She married late in life, so she and her husband had separate families and separate financial plans.  The lady’s intention was that her investments pass free and clear to her nephew; however, after she died, her surviving husband filed a claim for elective share.  The husband then died himself, leaving two children from his previous marriage as the sole recipients of the lady’s elective share—two children that the lady never dreamed might be entitled to 50% of nearly all her assets.

If a client is married or considering marriage in the future, and their financial plan provides anything less to their spouse than the value of the elective share, the client should consult an attorney.  The elective share can be waived by a valid agreement between the spouses, whether before the marriage or during it.