Disinheriting a spouse in Pennsylvania is not easy. The surviving spouse has the right to receive an “elective share” of certain property of the deceased spouse. This election must be made by the surviving spouse within six months of the decedent’s date of death. Failure to comply with the filing deadline will result in a waiver of the right of election.
The property subject to the right of election includes the following:
1. Property passing from the decedent by will or intestacy.
2. Income or use for the remaining life of the spouse of property conveyed by the decedent during the marriage to the extent that the decedent at the time of his or her death had the use of the property or an interest in or power to withdraw the income thereof.
3. Property conveyed by the decedent during lifetime to the extent that the decedent retained the power to revoke the conveyance or use the property for his or her benefit.
4. Property conveyed by the decedent during the marriage to himself or herself and another or others with right of survivorship to the extent of any interest in the property that the decedent had the power at the time of death unilaterally to convey absolutely or in fee.
5. Survivorship rights conveyed to a beneficiary of an annuity contract to the extent it was purchased by the decedent during the marriage and the decedent was receiving annuity payments therefrom at the time of his or her death.
6. Property conveyed by the decedent during the marriage and within one year of death to the extent that the aggregate amount so conveyed to each don’t exceeds $3,000, valued at the time of conveyance.
To the extent it does not pass as part of the decedent’s probate estate, property not subject to the elective share includes:
1. Any conveyance made with the express consent or joinder of the surviving spouse.
2. The proceeds of insurance on the decedent’s life, including accidental death benefits.
3. Broad-based nondiscriminatory employee benefits, including pension, profit sharing, stock bonus, deferred compensation, disability, death benefit or other such plans. Note: These plans may also be governed by federal law requiring a spouse to be named as a beneficiary.
4. Property passing by the decedent’s exercise or non-exercise of any power of appointment given to the decedent by someone else.
Many people are fearful of contemplating their own deaths. However, it is important to prepare an estate plan to control the disposition of your assets. If you do not to create an estate plan and die without a will, the disposition of your assets will be governed by the intestate laws of the state in which you live.
Many people believe that state intestacy laws will transfer all of their property to pass to a surviving spouse. However, this is not the case in Pennsylvania and New Jersey.
If you die while married with no children but a living parent or parents, your surviving spouse is entitled to the first $30,000 of your probate estate, plus one-half of the remainder, and then your parents receive the other one-half. If you have children from a prior relationship, the surviving spouse is only entitled to half of the probate estate and the remaining one-half will be divided among your children or their issue.
A surviving spouse is entitled to the entire probate estate if the decedent is not survived by parents or children. Additionally, the surviving spouse is entitled to the entire probate estate if the children of the decedent are also the only children of the surviving spouse. If there are surviving parents of the decedent or children born outside of the marriage of the decedent and surviving spouse, the amount the surviving spouse is entitled to will varies.
Apart from ensuring that your estate is distributed according to your wishes, a will is especially important if you have minor children. In a will, you can nominate a guardian for your children in the event there is no surviving parent of the children. You can also ensure that your children do not receive a lump sum of cash upon turning 18 years old. A will with trust provisions included can provide for distributions to your children for their health, education and support. Assets can be provided to your children not based on age of majority, but upon the children attaining certain ages. A will can also provide for a surviving spouse during his or her life time and leave the remainder to the children.
A surviving spouse may inherit from his deceased spouse’s estate even if there is a Will that leaves nothing to the surviving spouse. New Jersey laws enables a surviving spouse to inherit from his deceased spouse’s estate under the theory of the ‘elective share’ or the ‘omitted spouse share.’
Under New Jersey law, the surviving spouse is entitled to receive an elective share equal to one third of the deceased spouse’s augmented estate. The augmented estate is generally the deceased spouse’s probate estate including all assets passing under the decedent’s Will. The augmented estate also includes certain assets that the deceased spouse transferred during his lifetime if the deceased spouse had maintained some type of control over these assets. The augmented estate also includes certain transfers made within two years of the death of the decedent.
The augmented estate is reduced by funeral and administrative expenses as well as other enforceable claims that are made against the deceased’s estate.
The elective share is not automatic. Several conditions must be satisfied for a spouse to claim the elective share. These include:
(1) The husband and wife must be living together as spouses when a spouse passes away;
(2) The surviving spouse will need to timely file a complaint in court to claim the elective share; and
(3) If a person has property, either acquired independently or inherited from your spouse, that is equal to or in excess of the elective share amount, the elective share is deemed satisfied; a person will not be entitled to anything beyond what is provided under the Will.
Assume John has $300,000 in assets that pass under his Will. The beneficiaries under John’s Will are solely his children (he leaves nothing to his wife). The elective share amount is equal to one-third of the total assets of the estate or $100,000. However, assume that his wife already accumulated $120,000 of her own assets. Since wife has already inherited more than the elective share amount, the wife would not be entitled to the elective share.
Omitted Spouse Share
Assume that prior to marriage, a person writes a Will that makes no provision for a future spouse. Sometime later, this person marries. Next, this person dies. The surviving spouse may be entitled to an intestate share of the deceased spouse’s estate irrespective of how the Will has been written.
Intestate means that a person died without preparing a Will. Here, New Jersey law would define the manner in which the deceased person’s estate would be distributed. The distribution would depend on whether the deceased had children or living parents.
The omitted spouse will not receive the omitted spouse share if the contents of the Will demonstrate that the omission was intentional or if the deceased spouse explicitly provided for the surviving spouse outside of the Will.
Assume husband and wife get married but never get around to updating their Wills after their marriage. They have no children, and the husband’s parents are deceased. The husband passes away and his Will designates his siblings as sole beneficiaries of his estate. As an omitted spouse, his wife is entitled to the entire estate irrespective of the provisions of the Will.
If the husband’s parents are surviving, the wife will receive the first 25% of the estate, but not less than $50,000 nor more than $200,000, plus 75% of the balance (the parents receive the remaining 25%).
If the husband designates his daughter from a prior marriage as the beneficiary under his Will rather than his siblings, wife will be entitled to the first 25% of the estate but not less than $50,000 nor more than $200,000, plus one-half of the balance (husband’s daughter will receive the rest).
It is possible for either spouse to waive both the elective share and the omitted spouse share.
Planning for the care of your children may be at the center of your mindset during the COVID-19 pandemic. Who will care for your minor children if you become unavailable? This article explains the concepts of a guardian and a custodian.
For a parent with minor children, the most important issue in the estate plan is usually naming the person who will act as guardian for a person’s children. A will maybe utilized to nominate a guardian. In New Jersey, a minor is an unmarried person under 18 years of age. Guardianship gives legal custody of the minor child and/or the minor’s assets to the appointed guardian.
Selecting a Guardian
Although, a parent may appoint a guardian of the parent’s minor children in the parent’s will, the court may inquire into the custody of the minor and effectuate a guardianship order in the best interest of the minor. While a parent may want to appoint someone other than a child’s other parent as guardian in his will, that appointment will not be effective unless the surviving parent timely consents in writing.
Guardian of Person or Property
If a person dies with minor children and the surviving parent has predeceased or is otherwise unable to care for the child, a guardian of the person of a minor child is necessary. A guardian of the estate of a minor child is useful if the minor child receives funds outright. For example, the minor could receive funds via a will, from sources besides a parent, and by a beneficiary designation (i.e. joint bank account, life insurance, etc..).
A testator can select different guardians for a minor’s person and property. For example, a parent may want one person to have legal custody of a minor child and another person to manage finances of the minor child.
If a person does not want to create a guardianship for his minor children, but still wants to protect assets that may pass to his minor children, a person may nominate a custodian under the New Jersey Uniform Transfers to Minors Act.
A will may nominate a custodian to hold the minor’s property. If the will fails to nominate a custodian, the personal representative may designate a custodian. Custodial property includes real property, tangible personal property, investments, and life insurance policies. A custodial property will only be created once a person effectuates an irrevocable transfer of the property to the nominated custodian. A custodianship can be conditioned on the occurrence of a future event such as a parent’s death. A custodian is generally held to the prudent person standard in managing custodial property. The custodianship terminates when the minor reaches age 18 or 21 (depends on the type of property).
A discussion with the proposed guardian or custodian is necessary to ensure that this person will accept the role given to him. Age, location, and life expectancy are important considerations in choosing a guardian or custodian. A candid discussion with the party will ensure that this person will be a good fit for the assigned role.
ASSET PROTECTION STRATEGIES FOR BUSINESS PROFESSIONALS
Professionals providing services to others are at risk for liability claims. It is important to engage in asset protection strategies to protect wealth and minimize potential liability. Asset protection strategies include:
Gifting strategies are powerful wealth transfer tools. Gifts may be effectuated via (a) an outright gift of an asset, (b) use of an irrevocable trust for the benefit of others, (c) establishing a family limited partnership, or by creating an (d) irrevocable life insurance trust.
Domestic Asset Protection Trust
Under a fundamental Domestic Asset Protection Trust, a person may transfer assets to a trust while retaining the right to receive distributions from the trust. In comparison to gifting, the settlor continues to receive wealth from his assets.
Pre-Marital Asset Protection Planning
Preparing a prenuptial agreement will assist in sheltering assets during a divorce as well as against claims against the married couple.
Tenants by the Entirety Property
Instead of titling assets jointly, assets may be titled tenancy by the entirety. This property designation is recognized in New Jersey, however it only applies to married couples. It is difficult for creditors of only one spouse to reach assets held as tenancy by the entirety to satisfy claims.
Qualified Retirement Plans and IRAs
Qualified retirement plans and certain IRAs are protected from creditor claims to a certain extent. Maximizing contributions to these investment vehicles will enable a person to growth wealth and minimize claims from potential creditors.
Choice of Business Entity
Generally, forming a business entity for a professional services practice will not eradicate a professional’s personal liability from a malpractice claim related to his or her work, however, it will help shield the professional’s personal assets from claims arising from the workplace. Selecting the proper business entity is also important for business succession planning.
Segregation of Business and Investment Assets
It is not uncommon for professionals to own other business assets such as real estate, investments, equipment, collectibles, or land. It is important to consider shielding these assets in separate business entities and leasing these assets back to the operating entity. For instance, a physician may own an office building from which he operates his practice. This physician could create one entity as the operating entity for his practice. A separate entity could own the building from which the practice operates. The physician would remit rental payments to the entity that owns the building.
In addition to having business insurance, professionals should ensure that their home and auto insurance coverage is sufficient to protect against claims. An umbrella policy will cover gaps in other policies or policies in which the claims exceed the policy limits.
Irrespective of the size of your estate, an estate plan can help to take care of both you and your family. Below are some of the common estate planning documents:
Health Care Power of Attorney and Living Will. A Health Care Power of Attorney and Living Will document allows you to appoint an agent to make health care decisions on your behalf if you are incapacitated as well as to articulate health care decisions if certain conditions surmount.
General Durable Power of Attorney. A general durable power of attorney allows you to appoint an agent to effectuate financial decisions.
Last Will and Testament. A Last Will and Testament names your executor and provides what will happen to your property at your death. Executor refers to the person that will manage your estate upon your death.
Guardianship. A Last Will and Testament may be utilized to engage in planning for your minor kids. You may name the person you wish to serve as guardian for your child or children under your Will. If you fail to name a guardian, a court may appoint someone. Additionally, minor children cannot hold title to property in their own names. A Will enables you to create a testamentary trust and appoint a trustee to manage assets for the benefit of your children.
Revocable Trust. A Revocable Trust can be used to plan for incapacity as well as to avoid probate expenses. During your lifetime, you are the owner of any assets in your revocable trust. You can also manage these assets as a trustee during your lifetime. After your death, you can name a successor trustee to manage your assets. Assets already in a revocable trust are generally not subject to probate, which may be a cost and administrative savings for your estate.
It is important to review your estate plan periodically especially if you have had a major change in your family structure, such as a birth, death, divorce, or health issues.
A written document does not need to be signed by a testator (person writing a will) to admit the document into probate in New Jersey. Probate is the formal legal process to establish the validity of a decedent’s will.
Procedurally, a person desiring to admit a writing to probate must demonstrate by clear and convincing evidence that the decedent actually reviewed the document in question AND that the decedent assented to the substance of the document.
In a recent New Jersey court case, an heir challenged the validity of a will by asserting that the written document in question constituted the basis for a subsequent will that the decedent intended–but was unable to draft.
The court held that under New Jersey law the writing was sufficient to constitute a will because the substance of the writing demonstrated that the decedent desired to provide precise instructions for decedent’s estate. This included burial instructions, appointment of an executor, and liquidation/distribution of decedent’s assets.
Further the court held that under the harmless error doctrine the writing need not be signed to be admitted to probate under N.J.S.A. 3B:3-3. Additionally, the fact that the decedent signed the will at the beginning will not invalidate the will as long as the proponent of the will establishes by clear and convincing evidence that the decedent intended the writing to represent decedent’s signature.
The clear and convincing standard should produce in the mind of the trier of fact a firm belief or conviction as to the truth of the allegations sought to be established.
Under New Jersey law, a will must be: (1) in writing, (2) signed by the testator or in the testator’s name by some other individual in the testator’s conscious presence and at the testator’s direction; AND (3) signed by at least two individuals, each of whom signed within a reasonable time after each witnessed either the signing of the will as stated in (2) or the testator’s acknowledgement of that signature or acknowledgement of the will.
A will may be valid irrespective of whether it is witnessed if the signature and material portions of the document are in the testator’s handwriting.
After a New Jersey court has issued a judgment, prior to filing an appeal a party may ask the court reconsider its ruling. R. 4:49-2 governs the reconsideration process in the New Jersey Civil Courts. The motion for reconsideration must be filed with the court no later than 20 days after the service of the final order upon all parties. The service is effectuated by the party obtaining the order. The motion must concisely state the basis for reconsideration including a statement of matters or court decisions which the aggrieved party asserts the court overlooked or applied erroneously.
The reconsideration must be filed with the court that issued the judgment.
The Delaware Chancery Court recently held that directors in companies without classified boards may be moved from office without cause irrespective of the provisions of a company’s corporate charter. This ruling should encourage companies to review their bylaws and amend these bylaws as necessary.
A significant amount of Delaware companies have non-classified boards with bylaw provisions that only allow removal of directors ‘for cause.’ The Delaware Chancery Court reasoned that these provisions were not valid under Delaware law. In in re Vaalco Energy Shareholder Litigation, the court held that under Delaware General Corporation Law Section 141(k), a majority of stockholders have a right to remove directors without cause unless the corporation has a classified board or cumulative voting.
This ruling may present Delaware as a less friendly place to do business. However, this mandatory removal provision will not apply to limited liability companies or limited partnerships. Further, this ruling will not apply to companies that decide to adopt cumulative voting or companies that adopt a classified board.