The Capricious Operation of the Kansas Elective Share: Feast or Famine for the Surviving Spouse
| Citation | Vol. 61 No. 12 Pg. 32 |
| Pages | 32 |
| Publication year | 1992 |
61 J. Kan. Bar Assn. December, 32 (1992). THE CAPRICIOUS OPERATION OF THE KANSAS ELECTIVE SHARE: FEAST OR FAMINE FOR THE SURVIVING SPOUSE
Vol. 61, December, 1992
Copyright (c) 1992 by the Kansas Bar Association; John F. Kuether and Willard B. Thompson
The financial protection offered a surviving spouse by the Kansas elective share has become capricious and quixotic. As a result of precedent and uncoordinated legislative enactments, in a given case the Kansas elective share may provide little or no protection for the spouse, while in other cases it will allow an electing spouse to needlessly override the decedent's legitimate intent to benefit others. As our society lives longer and marries later, especially with children from an earlier marriage, the injustices resulting from a capricious elective share are becoming commonplace. Rational elective-share provisions should protect the surviving spouse's legitimate property interests in marital assets, protect the decedent's legitimate beneficiary designations and protect the spouse from poverty.
*33 I. The Existing Kansas Elective Share
The 1992 provisions of the Kansas elective-share [FN1] provide that a surviving spouse is entitled to an elective share if that right has not been waived. The elective share is the homestead [FN2] and the family allowances [FN3] and one-half of the decedent's probate estate, after the payment of expenses and allowable claims. [FN4] The surviving spouse is also entitled to one-half of all realty the dececent conveyed during the marriage while the spouse is, or previously has been, a resident. [FN5] By judicial gloss in the landmark case of Ackers v. First National Bank of Topeka, [FN6] the spouse can also claim an elective share in intervivos transfers by the decedent which are 'illusory' and only colorable, but the holding of that case and the cases since then have only applied the illusory transfer doctrine to trusts created during the marriage where the settlor has retained the income and the right to revoke.
The 1992 amendments to the elective share were brought on by decisions of the Kansas Supreme Court and Court of Appeals which set aside transfers and awarded assets entirely to the spouse or beneficiaries other than those chosen by the decedent. The decisions will be discussed below.
The Kansas elective-share provisions have not achieved the intended goals of protecting the surviving spouse and decedent's intent. If the decedent has not planned on the possibility of spousal election and the couple has evenly divided their assets, the elective-share provisions provide for a windfall to the surviving spouse. The survivor will get the homestead, family allowance and an additional one-half of the decedent's property (plus any other nonprobate transfer to the spouse, insurance and retirement beneficiary designation and joint tenancy property). The decedent's intended beneficiaries, often adult children from a prior marriage, will lose out.
If the decedent has carefully planned to disinherit the spouse, on the other hand, the current Kansas elective-share provisions do not provide any effective protection for a needy spouse. Many will substitutes avoid the elective share, but can be set up so the decedent retains the enjoyment and use of the property.
A. The Right of Election Against Nonprobate Assets
1. Revocable Trusts. Ackers v. First National Bank of Topeka [FN7] is the first major case which held that the spouse could elect against assets outside of the probate estate, allowing the wife an elective share of a revocable living trust in which the settlor had retained the right to income and the right to direct trustee investments. The trust provisions essentially reserved income for the settlor for life, then to a daughter and granddaughter, and then to the University of Kansas Endowment Association.
The court treated the surviving spouse as having the rights of a creditor. The general statute of frauds for chattels, K.S.A. 33-101, provided that a trust to the use of the grantor was void as to creditors. The trust statute of frauds, K.S.A. 58-2414, [FN8] provided that the settlor of a revocable trust of lands would be treated as the owner with regard to creditors and purchasers. The 'use' of property was defined as a power of revocation. The decision required the trustee to turn over one-half of the trust's assets to the administrator to satisfy the spouse's rights under the right of election. The trust was held to be valid as to the other one-half of the property.
The effect of Ackers was to allow a spouse to will, or transfer by a revocable living trust, one-half of the estate. Further, Ackers allowed the surviving spouse to elect against a will or a revocable living trust to the extent the will or trust exceeded one-half of the estate under K.S.A. 59-602, after homestead, allowances, claims and expenses. The part of the trust that did not exceed the spousal share remained valid.
In 1988, the Kansas Supreme Court decided Newman v. George. [FN9] Albert Newman died intestate, without children or issue. He was survived by his wife of many years, Loretta, who had an adult son by a prior marriage. Loretta lacked capacity and was in a nursing home when Albert, shortly before his death, created a revocable living trust providing income for Albert, Loretta, or the survivor. The remainder was to go to Albert's sister and Loretta's sister. Loretta did not consent to the trust (and could not because she lacked capacity). When an election was made against the trust on behalf of Loretta, the court held that Loretta was entitled to the entire trust corpus. The court reasoned that since Albert had reserved the power to revoke the trust, it was as though he still owned it. Thus, Loretta was entitled to her intestate share-the entire estate. The court relied on dicta in Poole v. Poole [FN10] which stated that where there is a conveyance by a husband with a reserved right to revoke, the court will treat the property as still being owned by the husband on the wife's election. [FN11] The court *34 held that Albert did not have the right to convey the property under K.S.A. 59-602 because that provision applied only to wills. Albert died intestate, and therefore Loretta's intestate share was the entire estate. [FN12] Under Newman v. George, then, if the survivor elects against a trust, the survivor will take the entire estate if the decedent died without a will and with no children or issue. This result occurs despite K.S.A. 33-101, which would only void the trust to the extent of the creditor's claim.
The next significant development in the right to elect against a trust is found in the 1990 decision of McCarty v. State Bank of Fredonia. [FN13] In McCarty, a surviving widow successfully elected against her husband's IRA which designated his brother as beneficiary. Because an IRA is in the form of a revocable trust the court ruled it was subject to the right of election. The husband had also executed a will which left his estate to his parents. The Kansas Court of Appeals, relying on the reasoning in Newman v. George which voided the trust, held that the election pulled the IRA into the estate. The court allowed the widow one-half of the IRA funds since there was a will, and ordered that the remainder of the trust funds be paid to the parents under the terms of the will. The decision effectively negates the holding in Ackers which explicitly ordered the district court to "enter judgment directing the trustee to deliver to the administrator one-half of the corpus of the trust as it existed at the death of Frank Ackers, plus increments accruing therefrom. . . ." [FN14]
Prior to the 1992 amendment of the elective share provisions, the case law had developed that if the spouse had elected against a revocable trust, or presumably any other colorable transfer, the entire asset would be pulled back into the estate and be distributed under the terms of the will or by intestacy. If there were no children or issue, the spouse could take the entire estate. Voiding the trust frustrates and overrides the decedent's intent, not just as to the portion subject to election, but for the entire transaction. The purpose of the 1992 amendments was to uphold the trust (or any other disposition found to be merely colorable), and to restrict the elective share to one-half, whether or not the decedent had children, issue, or a will.
2. Joint Tenancies with the Right of Survivorship. In the 1932 case of Malone v. Sullivan, [FN15] the Kansas Supreme Court held that the creation of a valid joint tenancy would defeat the spouse's right of election. The right to elect against a joint tenancy has been raised twice since the 1963 decision in Ackers. In Winsor v. Powell, [FN16] a surviving second wife of a twelve-year marriage challenged joint tenancies created by her husband with children of his first marriage. The second wife alleged that the tenancies were created with the intent of depriving her of her share of his estate. The claim was apparently settled at trial. [FN17] In Eastman, Administrator v. Mendrick [FN18] a surviving husband claimed that his wife's act of placing money, and stocks and bonds in joint tenancy was only a colorable transfer and thus constituted a fraud on his elective share. The court rejected the claim, citing Malone v. Sullivan. The court described the facts in Ackers, and reasoned:
Under this set of facts the court held that by reason of the husband reserving the power to revoke the trust, the transfer was colorable only and could not deprive the widow of her distribution share under K.S.A. 59-504. The court in Ackers recognized that prior decisions appeared to lean...
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