Question: My spouse and I each have children from previous marriages. While we want to provide for our surviving spouse when the first of us passes away, we want to ensure that each of our respective estates is ultimately going to our respective children. Is there a way to accomplish this?
Answer: That is not an uncommon question at all. There are several issues for you to consider, the first consideration being the execution of a post-nuptial agreement, wherein each of you agree to waive certain interests that spouses have in the other’s estate.
New York law states that a surviving spouse has a right of election, that is, a right to receive one-third (1/3) of their spouse’s assets at the death of the first spouse. That means that even though you might effectively “disinherit” your spouse by distributing probate and non-probate assets to your respective children, the surviving spouse can still elect to receive one-third of your estate (this may include assets that pass through or outside of your Will, such as joint accounts). Although you each may profess to have no interest in the other spouse’s estate, that does not prevent the surviving spouse from changing his or her mind when the first spouse dies. A pre-nuptial agreement or a waiver of the right of election can solve this problem. In this way, each spouse mutually waives their right to take 1/3 of the first deceased spouse’s estate. While the right of election is usually only exercisable by the surviving spouse, there are some instances where someone appointed to act on behalf of the survivor could receive court approval to assert this right to an elective share.
The manner in which assets are titled and the type of investments make a difference. The surviving spouse may have a right of election against some but not all of your assets. The simple use of designated beneficiaries, or holding property jointly with another person with rights of survivorship, may pass those assets to your selected beneficiary but may not prevent the spouse from electing against those assets. By changing the way assets are invested, you may be able to avoid the right of election. For instance, life insurance is not subject to the elective share. Finally, you should carefully review all of your assets (including life insurance and retirement funds) to see how they are titled and review the designation of beneficiaries as well.
However, just because the spouse waives their right of election does mean that they cannot be provided for at all. Typically, the first spouse to die may want to transfer certain property to the survivor so that the surviving spouse has some rights to the property the spouses shared. In order to ensure that the decedent spouse’s share ultimately goes back to his or her children, the prudent planning is to provide that any assets which do pass to the surviving spouse are transferred to him or her in trust. This gives the surviving spouse certain rights to the other’s property for the remainder of their life, but ensures that the remaining trust property be distributed to the decedent’s children when both spouses have passed away.
A well thought out estate plan, one to which both spouses have consented, will make sure that your assets pass to those whom you have designated while still providing for the surviving spouse during their lifetime.