If a person is married, can he or she completely disinherit the other spouse in his will? If spouses separate, is there anything they should consider changing about their estate plans? In this episode, your host Jaime Davis discusses inheritance rights and how your marital status might affect those rights with attorney Brooke Dalrymple. In her estate planning work, Brooke counsels clients and prepares the documents necessary to ensure their wishes are honored with regard to their assets, their health care, and the handling of their financial affairs.
Note: Our Podcast, “A Year and a Day: Divorce Without Destruction”, was created to be heard, but we provide text transcripts to make this information accessible to everyone. All transcripts on our website are created using a combination of speech recognition software and human transcribers and could contain errors.
Jaime Davis: Welcome to Episode 3 of Season 2 of ‘A Year and a Day’. I’m your host, Jaime Davis. In Episode 2, I discussed the topic of high conflict divorce cases and how to handle them with therapist Donna Moore. In this episode, I will be discussing inheritance rights and how your marital status might affect those rights with Brooke Dalrymple. Brooke is a partner with the law firm of Howard, Stallings, From, Atkins, Angell & Davis, where she has worked since 2007. She assists clients with estate planning, commercial real estate transactions and general business law matters. In her estate planning work, Brooke counsels clients and prepares the documents necessary to ensure their wishes are honored with regard to their assets, their health care and the handling of their financial affairs. Welcome, Brooke.
Brooke Dalrymple: Thanks for having me, Jamie.
Jaime Davis: So before we get into the nitty gritty of how a separation might affect your inheritance rights, can you explain to our listeners what is included in a typical estate plan?
Brooke Dalrymple: Sure. I’d be happy to, because it is really important for folks to get the estate plan together while they’re still competent and can do so. I always tell folks that it’s something that gives both them peace of mind and their family members where they can set out exactly how they would want their assets, etc., to be handled after their death and obviously upon their death. Or if they become incompetent, they’ve given a roadmap to their families to be able to follow so that they are not questioning, you know, what the decedent would have wanted. So in a typical estate plan, we handle a will for each person in a couple, for example, there’d be one for a husband and one for the wife.
Sometimes we will do what we call revocable trusts. That’s a type of trust agreement that can be changed or revoked at any time while you’re alive and you’re competent. And we also do what are called ancillary documents that would include powers of attorney, a durable power of attorney, which deals with financial matters, and who you would want to handle those financial matters while you’re alive. But if, for example, you were incompetent or just, for example, if you’re traveling out of the country and you need your spouse to handle a real estate transaction for you while you’re away, and also a health care power of attorney, which includes a lot of people speak of as a living will, this is a document where you are appointing a person to make health care decisions for you.
In this case, only if you are incompetent. As long as you are competent, you get to make your own health care decisions. But this appoint someone to determine how your medical care would be handled if you are unable to make those decisions for yourself. And then it also goes into questions of, again, what people think of as a living will, really end of life decisions about whether or not you would want to be kept alive and supported by machines, breathing apparatus, feeding tubes, artificial hydration, at the end of your life when doctors have determined that to remove remove you from those machines would likely result in your death within a relatively short time.
So those documents together. Plus we usually do a HIPAA certification, which you usually sign any time you go to a doctor’s office stating who can have access to your medical records. This one is a document that any physician could look to.
And we’ve recently started doing digital assets releases stating that whoever your agent is under these other power of attorney forms, that they would also be able to access your digital information, your digital life – email accounts, if you have documents or photos on the cloud, basically explaining who would have access to those as well.
Jaime Davis: And do those digital releases, do they also include social media accounts?
Jaime Davis: If a person is married, can he completely disinherit the other spouse in his will?
Brooke Dalrymple: You can not. Or you can try, but your spouse would have the option if something did happen to you and you passed away, they would have the option to elect what we’ll discuss as the elective share, which is really put into place by statute so that people cannot disinherit their spouse entirely, at least without the agreement of their spouse to waive those rights.
Jaime Davis: So can you explain to our listeners what the elective share is and how it works?
Brooke Dalrymple: Sure. So the elective share, again, is put in place by statute and it’s protecting spouses from being disinherited. And basically, the statute says that if someone dies and leaves less than what the statute says the elective share rights are to their spouse, then their spouse would have the opportunity to come in and make a claim for the elective share in lieu of what they have been left under a will, for example. And this is all based on the length of a marriage.
So the statute sets out certain percentages of assets that someone is entitled to based on the number of years you were married to your spouse. So, for example, if you have been married for under 5 years at the time your spouse dies, then you are entitled to 15 percent of their net assets. If you have been married for at least 5 years, but less than 10, then it goes up to 25 percent and then it goes up to 33 percent if you’ve been married for more than 10, but less than 15 and then up to 50 percent if you’ve been married for 15 years at the time that your spouse dies.
Jaime Davis: Does the elected share ever go up to 100 percent?
Brooke Dalrymple: It does not. So 50 percent is the maximum. And again, that is not automatic. It’s the amount that someone could claim – come in and make an actual claim for after the death of their spouse or their spouse has not left them at least that amount. And that’s taken into account things such as life insurance proceeds, property that your spouse jointly owned with you or with someone else. So the statute lists out all of the different types of assets that you take into account.
Jaime Davis: So if a person is married and his or her spouse dies, and in the will the spouse left everything to, I don’t know, their children from a prior marriage. What could the living spouse do in that situation?
Brooke Dalrymple: So a living spouse would in fact, during the administration of the deceased spouse’s estate, they would come in and actually file to make a claim for that elective share.
Jaime Davis: So the electric chair is not automatic. It’s not going to just automatically happen for the person?
Brooke Dalrymple: Right. That’s correct. They would actually have to ask the court to grant that.
Jaime Davis: What if you don’t want to be subject to the elective share? Are there any ways for married folks to get around that?
Brooke Dalrymple: Sure. No, that’s a good question. Certainly prior to a marriage and you would certainly be able to speak to this would be a prenuptial agreement in which the parties waive the rights to claim and elect a share upon the death of one of the spouses. If it’s not done prior to marriage, it could be done after with a post-nuptial agreement where again, each of the parties waive to the extent that they agree some of the entirety of the elective share or some portion of the elective share. And if that doesn’t take place prior to, for example, a separation, then during a separation period, for example, the parties could potentially ask each other for some type of waiver at that point as they’re working through that process.
Jaime Davis: You know, I will say, Brooke, and my line of work separation agreements are often used by the parties to go ahead and waive any estate rights that either spouse may have in the property of the other. And also, I think the premarital agreements are so important for people that have children from a prior relationship if they want to be able to leave that property solely to their children they really need that pre-marital agreement to go ahead and waive those estate rights.
Brooke Dalrymple: Yeah, no, I completely agree. And it’s great for people to think about these things up front. They can be hard discussions to have obviously, especially going into a marriage. You don’t necessarily, as I’m sure you deal with all the time, don’t want to, you know, folks not wanting to talk about what happens when this marriage ends or if one of us dies. It’s not the happy stuff to talk about, but it can really save everybody from a lot of grief later when you’re then in a situation where tensions are high, emotions are high and it’s harder to think clearly and harder in some cases to to protect your rights or to change your mind about what you would want a spouse to receive. And another thing to understand is that there’s a method of dealing with an elective share, known as a marital trust.
Jaime Davis: And what is that?
Brooke Dalrymple: So a marital trust is a type of trust to be put in place that in which you allocate a certain percentage of assets, a certain number of your assets that add up to what the elective share would be. And yet, rather than those funds all going directly to your spouse, it’s put into a trust with a third party trustee, someone who isn’t going to be really working for you as the Grantor or working for your spouse, specifically your spouse’s interests. They’re really supposed to be impartial. So they’re a third party and they would have the discretion to distribute principal to the spouse. And again, this is after you as the decedent have passed away. Then those funds have gone into the into the trust during your spouse’s lifetime. Trustee could distribute in their discretion certain amounts of the principal to your surviving spouse. And your surviving spouse would also be entitled to generally all of the net income of the trust itself.
But this means that at the time of your then spouse’s death, if there are assets that are still remaining in the trust, those could be passed on to, for example, your children from a prior marriage. So again, this is a way of allocating the entire elective share to sort of the use of your spouse, but they don’t actually have access to all of it and very well may not use it at all during their lifetime. And therefore, you’re able to protect some of those funds, hopefully, for your other beneficiaries who you would have wanted to receive a larger portion of your estate.
Jaime Davis: In your experience what would you say is the most common way that people try to deal with the elected share?
Brooke Dalrymple: You know, it really depends on the particular case. And I’d say that it’s greatly impacted by whether you’re dealing with someone who is in a second marriage, who has children from a prior marriage, or whether or not there is a large disparity in the amount of assets that are brought into the marriage by each of the spouses. And so it really depends.
Jaime Davis: If a married couple separates is there anything the spouses should consider changing about their estate plan?
Brooke Dalrymple: Sure. Absolutely. Definitely something to be keeping in mind if you do separate from from your spouse. Obviously, they would be working with someone like you, a family law attorney, to determine how to approach the separation agreement and the final agreement with ending the divorce.
But from an estate planning standpoint, because there are certain things you can do, you can’t, as we’ve said, necessarily disinherit your spouse entirely. However, you don’t have to leave them more than the elective share. So if you choose to, through that process, reduce the amount or set up some type of marital trust to put something in place to deal specifically with that elective share situation, that would be one option.
And certainly assets are one thing. But who you would want to actually administer your estate, for example, if you have your spouse in place and your documents to be the executor of your estate, so that’s the person who’s actually going to go down and probate your will and make sure assets are distributed properly.
Jaime Davis: And for folks who may not know what does probate the will mean?
Brooke Dalrymple: Sure. So that’s a good question. So at the time of your death, if you have died with a will in place, then that will has to be filed with the courthouse and an estate file is actually opened up for your will and various filings are made with the with the clerk of court showing what assets you had at the time of your death, who your creditors are, sending notices to creditors, gathering the assets and then making sure that your creditors are paid and that your beneficiaries receive the assets that they’re supposed to receive.
Jaime Davis: And so I can imagine if you were married and you had your spouse named as the executor, you certainly would not want this person to continue as executor if you separated?
Brooke Dalrymple: Right. I mean, obviously, depending on the situation, perhaps you have a very loving separation where, you know, both of you get along very well and you both trust each other, then, you know, perhaps you’d leave them in place. But in many situations, you would at least consider who else you would want to serve in that role. Same thing for the trustee of a trust. If you have a trust in place that your assets are to go into after your death. And if it is a trust that your spouse was going to be the trustee of perhaps a trust for children from a prior marriage, for example, that you wanted some of your funds to go into, perhaps you want to put someone else in place there.
When we talked about those various power of attorney forms for financial matters or health care matters, you know, again, perhaps you don’t want your estranged spouse to be the person who would handle your financial matters if you became incompetent during the separation period. You also may not want them making your final health care decisions, again, if you if you become terminally ill during during the period of separation. And we’ll probably talk about this. But again, obviously, after the divorce is finalized, certain things go into effect where your spouse is sort of taken out of those roles. But yeah, during the separation period, thinking about those things, or for example, whoever you have selected as guardian for, again, perhaps your current children with your spouse or children from a prior marriage, obviously if you pass away and your spouse is still living and you have children together, you’re not going to be able to take the rights away from them to raise your children. But, your estate documents would often say if you and your spouse were to die simultaneously, or if your spouse predeceases you, who you would want to take guardianship of your children after that time, perhaps you’ve named your spouse’s sister and you go through a separation. You know, everyone is a strange from each other, there are hard feelings, etc., and perhaps you’re wanting to think about putting someone else in place to be the guardian of your kids if that situation were to arise.
Jaime Davis: That’s a really good point. I think people don’t realize how long a separation can last. I mean, it’s at the very least going to be a year and a day. It could very well be longer. And so at what point during that separation do you recommend that folks begin making these changes?
Brooke Dalrymple: I’d say right away. It’s something because it might, it certainly might take some thought. You might be having to think through who of your other family members you would suddenly want to put into this role. Obviously, you’re dealing with a lot of different things during that separation period. But I would say don’t put it off, because just as we tell clients who are doing their estate documents, even in a perfectly happy marriage, the reason to get these things into place is because, unfortunately, you know, tragedies happen. Sometimes you don’t see it coming. So best to get get these documents in place and to change what you can while you’re still able to.
Jaime Davis: Right. Like we said earlier, once the separation agreement is in place, if the folks are able to agree upon the terms of a separation agreement, of course, you know, some of these estate rights are dealt with. But even getting the separation agreement in place can take months, if not a year or more. And so, you know, I agree with you that people really should consider addressing these estate issues early on. What about beneficiaries of life insurance policies? When do you think folks should change those?
Brooke Dalrymple: So from an estate planning standpoint, there’s certainly no reason why you wouldn’t go ahead and changes beneficiary designations upon the time that you separate.
Jaime Davis: Yeah, I think from the family law perspective, you know, in some cases you might want to wait. And of course, you should always consult with an attorney before you make these decisions. But if you are a supporting spouse and your spouse has stayed at home, been out of the job market for a long time and there is a high likelihood that you are going to be paying this person some amount of support, whether it be alimony or child support, you know, you may have a good bargaining chip if you are able to say to the other spouse in negotiations, “hey, I’m willing to leave you as the beneficiary of my policy, you know, up to the amount of what I owe you in support”. A lot of times a gesture like that will really help get the deal done. But again, every case is different and you should always consult with a lawyer before you make these decisions. So we’ve talked about some things that could and should be changed during a period of separation. You know, the will the beneficiaries of the life insurance, possibly guardian designations for the children, depending on who those folks were that were designated. Is there anything that a spouse can’t change during that period of separation as it pertains to their estate planning?
Brooke Dalrymple: So one of the only things that can’t be changed would be your 401K beneficiary designations, specifically with respect to your spouse. That would require your spouse to sign an actual waiver waiving their right to be the beneficiary of your 401K.
Jaime Davis: And I would say from a family law perspective, odds are good that spouse is not going to do that, especially if they’re going to be entitled to half or some portion of that 401K in a future property distribution. You know, I think one way that you can handle this 401K beneficiary designation is with a pre-nup. If you have a pre-marital agreement in the agreement, you can actually provide that each spouse will sign whatever waivers are necessary to waive any interest they may have in the retirement account. But again, with the pre-marital agreement, you would also, you know, at that point be saying, hey, this retirement account is going to be my separate property. Your retirement account is going to be your separate property. And so, you know, a pre-marital agreement may not be right for you, but that is one way you could try to handle that issue on the front end.
We’ve talked a lot about wills and married people and separated people. But what happens if a separated person dies and they don’t have a will?
Brooke Dalrymple: And that’s something that’s important to understand. North Carolina has what is known as an intestacy statute. And so that is the statute that deals with where do your assets go if you die without a will. And it sets out a specific list of the folks who would be eligible to receive your assets and who would receive your assets upon your death if you die without a will. And some people might be surprised to see how that statute works. It’s not necessarily that your spouse would get everything upon your death. It depends on whether or not you have children. It depends on whether or not you have living parents. Some people, for example, don’t realize and this doesn’t specifically relate to the separation, but for example, if you pass away and you have no will and you have no spouse and you have no children, then your assets are going to go to your parents and will be split equally between your mother and father if they’re alive.
So again. Another reason, if you do not have any estate planning documents in place and you know, we’ve talked about ways to change them if you get separated, but also putting them in place at all. If you get separated and you have no documents, definitely a good idea to address that at that time. Because if you don’t have them, then certainly your spouse would be entitled to certain portions of your estate. And again, setting things up, such as who you would want to have make medical decisions for you if you became incapacitated when, if you have no document in place, it’s very possible that even if you are separated, you know, you end up in the ER and you’re unconscious. It’s very possible that someone will be reaching out to your spouse as your closest kin at that time. And perhaps that’s not what you want.
Jaime Davis: I’ve actually had that happen. I’ve had a client who was called to the hospital because she was still the health care power of attorney. And not only was that probably uncomfortable for her spouse, but for her as well. She didn’t want to be in that position of having to make any of those sorts of decisions. And so I think it’s really important for people to understand that these documents are not set in stone. They can be changed. And if the circumstances warrant, for example, you’re separated. You really should consider consulting with your estate planning lawyer to change those documents.
Brooke Dalrymple: Exactly. And we always advise folks who we’ve done estate planning for, every 5 years pull out your documents, take a look at them and just see what life changes you’ve gone through in that period of time, whether or not it is a separation or perhaps you named some other family member, you know, a sister, as the person who you would want is the successor agent to make decisions for you and perhaps you become estranged from even just another family member. So always important to review those documents, really think about what you want your plan to be and then consult with an attorney to make sure that your plan is actually documented well.
Jaime Davis: Brooke. Thank you for joining me today. If any of our listeners would like to contact you, what is the best way for them to reach you?
Jaime Davis: I hope you all enjoyed this episode of ‘A Year and a Day’. If you have any suggestions for future episodes, I would love to hear from you. You can email me at email@example.com. If you like what you heard today, please leave us a review on iTunes. As a reminder, while in my role as a lawyer, my job is to give folks legal advice, the purpose of this podcast is not to do that. This podcast is for general informational purposes only, should not be used as legal advice and is specific to the law in North Carolina. If you have questions before you take any action, you should consult with a lawyer who is licensed in your state.