02 Nov Important Change to the North Carolina Elective Share Statute
During the 2013 General Assembly Session, a fundamental revision was made to Chapter 30, Article 1A, of the North Carolina General Statutes – the NC Elective Share Act. This revision changes the amount a surviving spouse may be entitled to as an elective share in the estate of his or her deceased spouse. Before discussing the details of that change, however, it is important to remember the basics of elective shares in North Carolina.
An elective share is a statutorily granted right of a surviving spouse to claim a particular share in the estate of his or her deceased spouse, with the amount of the share determined according to the procedure set out in the statutes. What this means is that a surviving spouse can claim a particular amount of the decedent’s estate, even if (i) the decedent leaves a will devising property to the surviving spouse (but less than the amount of the elective share), or (ii) the decedent leaves a will that disinherits the surviving spouse (absent a valid and enforceable pre- or post-nuptial agreement).
The primary purpose for this right is to try to prevent a surviving spouse from being left with nothing. The General Assembly recognized that it is, to say the least, against public policy for our spouses to be left without any means of supporting themselves. Granted, this is not a perfect world and there is no way to truly guarantee that a surviving spouse won’t be left destitute, but the elective share is one device implemented to try to stop that from happening. The goal is to provide for the fair treatment of surviving spouses.
It is that basic goal of fairness that explains why the 2013 revisions to the Elective Share Act were made. Under the previous version of the Elective Share Act, the amount of a surviving spouse’s elective share depended on how many children and/or lineal descendants of children the deceased spouse had, and then a reduction would be applied if the surviving spouse was a second or successive spouse. For example, if husband and wife had two children together and one spouse passes away, the surviving spouse could claim an elective share of 1/3 of the Total Net Assets (as defined in the statutes) of the deceased spouse, less property actually received by the surviving spouse. This share would be reduced to 1/6 (less deductions) if the children were from a prior marriage.
The problem with this method of determining a surviving spouse’s share is that it didn’t necessarily result in a fair solution to the decedent’s children or to the surviving spouse. The surviving spouse’s share was automatically reduced if she or he was not the first spouse, regardless of whether they had been married 5 months or 50 years. The revised Elective Share Act, however, makes the amount of the elective share contingent solely on the length of the marriage, regardless of whether the decedent was survived by any children or other lineal descendants.
According to the revised statutes, if a decedent dies on or after October 1, 2013, his or her surviving spouse is entitled to claim an elective share of his or her Total Net Assets of (i) 15% if married less than 5 years, (ii) 25% if married at least 5 years but less than 10, (iii) 33% if married at least 10 years but less than 15, or (iv) 50% if married at least 15 years.
You may see problems with this approach, too. For instance, younger couples and late-in-life successive marriage couples will probably not have been married long enough to qualify for the larger percentage shares, potentially leaving the widow or widower without much of a share in the estate of his or her deceased spouse. But policy considerations such as comparing the earning capacities and abilities of younger versus older individuals and the greater likelihood of other planning mechanisms in place or lower need for the elective share in the case of the late-in-life successive marriage couples perhaps make this a fairer, if not completely fair, approach.
It is important to note that there are strict procedural requirements that must be met in order to successfully claim an elective share, including a time limit in which the right must be claimed. Also, there are additional statutory protections, in addition to other estate planning tools, that can be utilized for the benefit of surviving spouses. These statutory protections include the right to a year’s allowance and, if the decedent died intestate (without a valid will), to claim a life estate (instead of the intestate share as provided by law) in 1/3 of the value of the real property owned by the deceased spouse during the marriage. But these are topics for another day’s blogging.