Assume the following scenario. Husband writes a Will omitting his current wife from inheriting any of his assets. The Will is controlled by New Jersey law. Can the husband get away this this? Absent a prenuptial agreement, the answer is no. By statute, a surviving spouse has a right to demand an elective share of the deceased spouse's "augmented estate". The question then becomes determining the value of the augmented estate. Simple? Not so.
A. Summary of Elective Share and Augmented Estate
New Jersey probate law entitles a surviving spouse the "right of election to take an elective share of one-third of the augmented estate. N.J.S.A. 3B:8-1. A decedent's "augmented estate" consists of:
(i) the net estate at the time of death, plus property which the decedent transferred without adequate consideration before death, N.J.S.A. 3B:8-3;
(ii) property which the surviving spouse transferred to third parties without adequate consideration, N.J.S.A. 3B:8-6b; and
(iii) property owned by the surviving spouse at the time of, or as a result of, the decedent's death, N.J.S.A. 3B:8-6a.
All of the surviving spouse's property "is presumed to have been derived from the decedent except to the extent that any party in interest establishes that it was derived from another source." N.J.S.A. 3B:8-9.
A surviving spouse may take one-third of the augmented estate only to the extent that his or her own assets do not satisfy the elective share (N.J.S.A. 3B:8-18(a)); In the Matter of the Estate of Bilse, 329 N.J. Super. 158, 161-62 (Ch. Div. 1999); Aragon v. Estate of Snyder, 314 N.J. Super. 635, 640 (Ch. Div. 1998). Under N.J.S.A. 3B:8-18(a), the wife's elective share shall be satisfied first by applying:
[t]he value of all property . . . owned by the surviving spouse in [her] own right at the time of the decedent's death from whatever source acquired or succeeded to by the surviving spouse as a result of decedent's death notwithstanding that the property . . . succeeded to by the surviving spouse as the result of decedent's death has been renounced by the surviving spouse.
Id.
"The [above] quoted language [of N.J.S.A. 3B:8-18(a)] says two things. First, the value of the survivor's own independently acquired property must be deducted from her calculated elective share. If it is greater than her share, she gets nothing more. If it is less, she gets the difference." In re Estate of Cole, 200 N.J. Super. 396, 403 (Ch. Div. 1984). Second, "the value of property coming to the survivor by reason of the decedent's death is deducted from her calculated share." Id. at 404. "That means, among other things, that, if the decedent leaves anything to his spouse in his will or by non-testamentary transfer taking effect on death, its value is deducted from her share." Id. So, in summary, "the elective share is to be satisfied first out of the survivor's independent wealth and out of the decedent's bequests and non-probate transfers to her. If they are not sufficient, liability for the balance is not limited to residuary legatees or probate estate beneficiaries." Id. at 405. In other words, "an estate does not incur any liability for an elective share unless the value of the surviving spouse's own property plus any property that spouse acquires as a result of decedent's death, including property devised by will, is less than one-third of the augmented estate." Matter of Estate of Friedlin, 230 N.J. Super. 100, 104-105 (App. Div. 1989).
Thus, the value of certain inter-vivos (lifetime) and non-probate transfers of property made by the decedent to the spouse is included in fixing the value of the decedent's augmented estate. Property transfers made by your decedent years earlier must therefore be identified and, if they are within the scope of the statute, a determination must be made whether the decedent received "adequate and full consideration" (i.e., money) for each transfer. (This would include not only property transferred to the spouse but also property transferred to children) If the decedentr did not receive such consideration, then the value of the transferred property is included in the augmented estate (N.J.S.A. 3B:8-3), requiring a determination of value for some transfers "as of the date the donee came into possession or enjoyment of the property." N.J.S.A. 3B:8-4.
Likewise, the value of the surviving spouse's elective share is also impacted by certain transfers made by her to any person other than her husband at any time during the marriage. N.J.S.A. 3B:8-6(b). While the values of such transfers are to be included once they are determined, the statute then allows substantial value to be placed beyond the reach of the wife as the surviving spouse by excluding the value of life insurance, accident insurance, joint annuity or pension payable to a person other than the wife from the augmented estate (N.J.S.A. 3B:8-5), further eroding the value of the augmented estate.
B. Valuation Date used to Determine Augmented Estate
Property transferred for purposes of the augmented estate "is valued as of the decedent's death except that property given irrevocably to a done during the lifetime of the decedent is valued as of the date the donee came into possession." N.J.S.A. 3B:8-4.
C. Examples of Property Transfers Excluded from Augmented Estate
Certain property transfers are excluded from the augmented estate, such as "life insurance, a joint annuity or pension payable to a person other than the surviving spouse." N.J.S.A. 3B:8-5. In addition, property transferred by the written consent of the surviving spouse is also excluded from the augmented estate. Id.
D. Assets Owned by Spouse or Derived from Husband are Included in the Augmented Estate
The value of the augmented estate includes assets owned by the surviving spouse at the time of the husband's death, or as a result of the husband's death "to the extent that the property is derived from the [husband] by means other than testate or intestate succession without a full consideration in money or money's worth. N.J.S.A. 3B:8-6.a.
The statute creates a presumption regarding property owned or previously transferred by a surviving spouse at the time of decedent's death.
Property owned by the surviving spouse or domestic partner as of the decedent's death, or previously transferred by the surviving spouse or domestic partner, is presumed to have been derived from the decedent except to the extent that any party in interest establishes that it was derived from another source.
N.J.S.A. 3B:8-9.
The following are examples of "property derived from a decedent" for purposes of N.J.S.A. 3B:8-6:
- Beneficial interest of the surviving spouse in a trust created by the decedent in his lifetime;
- Any property appointed to the spouse by the decedent's exercise of a general or special power of appointment also exercisable in favor of others than the spouse;
- Any proceeds of insurance, including accidental death benefits on the decedent's life attributable to premiums paid by him;
- Lump sum payment from annuity contracts in which the decedent was the primary annuitant attributable to premiums paid by him;
- Commuted value of amounts payable after decedent's death under any private or public pension, disability compensation, death benefit or retirement plan, exclusive of social security;
- Value of the surviving spouse's share of community property acquired in another state formerly owned with the decedent.
N.J.S.A. 3B:8-7.
E. Assets Transferred by Surviving Spouse During Marriage to Others
Further, the augmented estate also assets transferred by the surviving spouse at any time during the marriage to any other person other than the decedent which would have been included in the spouse's augmented estate if the surviving spouse had predeceased the decedent. N.J.S.A. 3B:8-6.b.
F. Prenuptial Agreement Waiver of Elective Share
The right of a surviving spouse to receive an elective share can be waived before or after marriage by a written contract, agreement or waiver i.e., a prenuptial agreement. See N.J.S.A. 3B:8-10. Did your father and Leniann have a prenuptial agreement.
G. Time to File Complaint for Elective Share of Augmented Estate
The surviving spouse has 6-months from the appointment of the personal representative of decedent's estate in which to file a complaint in the Superior Court of New Jersey seeking to take his/her elective share of the augmented estate. N.J.S.A. 3B:8-1.
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[1] The term "augmented estate" is defined in N.J.S.A. 3B:8-3 as
. . . the estate reduced by funeral and administration expenses, and enforceable claims, to which is added the value of property transferred by the decedent at any time during marriage, or during a domestic partnership, to or for the benefit of any person other than the surviving spouse or domestic partner, to the extent that the decedent did not receive adequate and full consideration in money or money's worth for the transfer, if the transfer is of any of the following types:
a. Any transfer made after May 28, 1980, under which the decedent retained at the time of his death the possession or enjoyment of, or right to income from, the property;
b. Any transfer made after May 28, 1980, to the extent that the decedent retained at the time of his death a power, either alone or in conjunction with any other person, to revoke or to consume, invade or dispose of the principal for his own benefit;
c. Any transfer made after May 28, 1980, whereby property is held at the time of decedent's death by decedent and another with right of survivorship;
d. Any transfer made, after May 28, 1980, if made within 2 years of death of the decedent, to the extent that the aggregate transfers to any one donee in either of the years exceed $3,000.00.
N.J.S.A. 3B:8-3