The Elective Share Has No Friends: Creditors Trump Spouse in the Battle Over the Revocable Trust

Abstract

A revocable trust is a popular estate planning tool used to disinherit a spouse in fifteen jurisdictions. In common law jurisdictions a surviving spouse, who is dissatisfied with his or her inheritance, has the right to receive an elective share of the decedent’s estate regardless of the decedent’s estate plan. However, fifteen jurisdictions have defined a dissatisfied spouse’s rights with a fractional share of the deceased spouse’s “net probate estate,” allowing one spouse to disinherit the other, by single-handedly transferring his or her assets to a revocable trust. To add insult to injury seven of these common law jurisdictions have recently codified trust law making it seamless for the decedent’s creditor to be paid from revocable trust assets.

The elective share is one of few limitations imposed on testamentary freedom. Common law property jurisdictions have created a public policy-based statute for married persons that prohibit the first-to-die spouse from disinheriting his or her surviving spouse. To avoid disinheritance, common law jurisdictions statutorily protect a surviving spouse (“spouse”) with an elective share. The elective share arose in the early twentieth century as a replacement of dower and curtesy rights. At that time the nature of wealth shifting from real to personal made dower and curtesy obsolete. The elective share protected the spouse from disinheritance by guaranteeing him or her with a fractional share of the deceased spouse’s net probate estate, a method known as the traditional elective share. However, like the shift from real to personal property there has been a subsequent shift in wealth from probate to non-probate assets (like revocable trusts) making the traditional elective share equally obsolete and inadequate to protect a spouse from disinheritance.

Keywords: Trust and Estates, Will, Estate Planning, Elective Share, Revocable Trust, Disinherit, Non-Probate Assets, Uniform Probate Code, Augmented Estate

JEL Classification: K00, K3, K39