Ever since the statutory elective share replaced dower and curtesy, courts have been trying to expand the property subject to the spouse's elective share. The courts have used a number of justifications for their attempts to accomplish this. In a previous article, the author offered an interpretation of the proper use of public policy by courts when a statute on the subject has been enacted by the legislature. This article applies that test to attempts by courts to expand the elective share to will substitutes and finds such attempts to be an impermissible use of public policy by courts.
INTRODUCTION: THE ELECTIVE SHARE STATUTES II. ELECTIVE SHARE: THE EARLY TESTS A. The Intent Theory B. The Real vs. Illusory Test C. Status of the Tests III. TAMING THE "UNRULY HORSE" OF PUBLIC POLICY IV. THE ELECTIVE SHARE IN THE COURTS A. Totten Trusts: Since the Courts Created the Device, the Courts Can Subject It to the Spousal Elective Share B. Death Should Be Like Divorce, so the Court May Apply "Equitable Distribution" Rules to the Elective Share C. The Multifactor Approach: Enumerating so Many Factors for Fraud on the Spouse's Share that a Court Can Do Anything It Wants D. Courts Refusing to Improperly Extend the Real vs. Illusory Test to Areas Where the Legislature has the Right to Act E. Summary V. THE RESTATEMENT: A NEW THEORY VI. WILL SUBSTITUTES UNDER THE ELECTIVE SHARE: THE VIEWS OF THE COURTS AND THE RESTATEMENT A. Revocable Trusts B. Totten Trusts C. PODs, TODs, and Similar Registration Forms D. Gifts Causa Mortis (in Contemplation of Death) E. Joint Bank Accounts with Rights of Survivorship and Joint Tenancies F. Life Insurance G. Summary VII. THE RECENT TREND OF DEFERRING TO THE LEGISLATURE VIII. CONCLUSION I. INTRODUCTION: THE ELECTIVE SHARE STATUTES
As a replacement for the dower protection of the spouse under English and early-American law, (1) by the early part of the twentieth-century most states enacted forced share (or elective share) statutes to prevent disinheritance of the spouse. (2) The early version of these statutes, sometimes referred to as the "original" elective share statutes, provided that the surviving spouse receives a portion (usually one-third) "of the decedent's estate." (3) The term "estate" referred to the probate estate. (4) This concept excluded nonprobate property (sometimes referred to as "will substitutes") from the computation of the surviving spouse's share. (5) Later legislation, "pioneered by legislation in New York and Pennsylvania" (6) and brought to fulfillment by the Uniform Probate Code (UPC), developed the concept of the augmented estate, (7) which rectified the problem by specifying that some, but not all, nonprobate property would be included in the elective share and specifying which types of such property would be included. (8)
However, even in states that retained traditional elective share statutes, courts found a way to enlarge the elective share of surviving spouses. (9) These statutes applied to probate property only. (10) If a nonprobate transfer was ruled ineffective (at least for the purposes of the elective share, even if otherwise valid), it then became part of the probate estate and subject to the elective share statute. (11) The courts have for many years decided whether particular nonprobate transfers should be subject to the elective share statute under the heading of "fraud on the spousal share." (12)
The purpose of this article is to evaluate the court cases attempting to apply traditional elective share statutes to nonprobate property under the "fraud on the spousal share" doctrine. Section II will analyze the early tests: the "intent" test (13) and the "real vs. illusory" test developed in the early New York case of Newman v. Dore. (14)
In Section III, I will briefly discuss my previous article, (15) which developed a useful test to evaluate the extent to which a court should employ policy factors to influence a decision where a statute covers the area.
Section IV will discuss later cases attempting to include nonprobate transfers in the share of the surviving spouse in such statutes under several different theories. The application of the analysis will show that the attempts of courts to extend a traditional elective share statute to include nonprobate property wrongly allows courts to introduce public policy factors into areas where the legislative decision deserves primacy.
Section V will move to a new test developed by the Restatement (Third) of Trusts to answer the same question, but with different criteria.
Section VI will discuss the court's treatment of different types of will substitutes for elective share purposes. (16)
In Section VII, some very recent cases will be discussed that may represent an emerging trend to limit elective share statutes application to nonprobate property to the statute's terms.
Lastly, the article will conclude that the court should not attempt to expand traditional elective share statutes to nonprobate property because to do so takes the court beyond the permissible judicial function of courts.
Before proceeding, I should note a significant limit on this analysis. This article excludes augmented estate statutes that apply to nonprobate property by the terms of the statute. (17) The article covers only traditional elective share statutes as described in this introduction.
Elective Share: The Early Tests
The Intent Theory
Until the late 1930s, courts decided cases attempting to invalidate lifetime transfers for the purpose of the spouse's statutory share (that is, include the transferred property in the decedent's estate for the purposes of the spouse's election) under several different theories. (18) One of these theories was the "intent" or "motive" theory. (19) This theory tested the validity of the transfer for elective share purposes by asking whether the decedent's intent or motive in making the transfer was to deny the surviving spouse the right to the property on the transferor's death. (20) Illustrative of the reasoning of such cases is In re Estate of Sides. (21) In Sides, decedent made gifts during his lifetime to some of the children (and, in one case, his grandchildren) of his first marriage. (22) In some cases, the children executed notes in favor of the decedent with four percent interest. (23) The notes contained a provision that the notes would be cancelled on the death of the decedent. (24) On decedent's death, his second wife contended that the notes were part of decedent's estate for the purposes of her statutory share despite the cancellation provision. (25) The court stated its test as follows:
On the question of the effect of the transfer of personal property by a husband during his lifetime which operates to diminish the distributive share the wife would otherwise have in the estate ... substantially all authority is to the effect that the question of good faith is controlling. If the transfer of personal property by the husband during his lifetime is a mere device and means by which he retains to himself the use and benefit of the property during his lifetime, and at his death seeks to deprive the widow of her distributive share, it is to be regarded as fraudulent as to the wife.... On the issue of fraud presented, the burden of proof is upon the surviving widow to establish by a preponderance of the evidence that, in making these gifts to his children, the father was actuated by bad motive and fraudulent intent, and that the entire transaction was a mere device by which he sought to defraud her. (26) B. The Real vs. Illusory Test
Many courts were dissatisfied with the intent test. In 1937, the New York Court of Appeals considered the question in the leading case of Newman v. Dore. Three days prior to his death, Ferdinand Strauss created trusts to which he transferred all his real and personal property, (27) leaving almost no property in his estate to which the elective share could attach. (28) In those trusts, decedent reserved the right to revoke the trusts, the right to receive the income from the trusts, and control over the powers given to the trustees. (29) The court characterized the situation as:
[B]y the trust agreement which transferred to the trustees the settlor's entire property, the settlor reserved substantially the same rights to enjoy and control the disposition of the property as he previously had possessed, and the inference is inescapable that the trust agreements were executed by the settlor, as the [lower] court has found "with the intention and for the purpose of diminishing his estate and thereby to reduce in amount the share" of his wife in his estate upon his death and as a "contrivance to deprive ... his widow of any rights in and to his property upon his death." They had no other purpose and substantially they had no other effect. (30) In finding that the trusts were subject to the widow's elective share, the court rejected the intent test:
[In a few states] it is the intent to defeat the wife's contingent rights which creates the invalidity and it seems that an absolute transfer of all his property by a married man during his life, if made with other purpose and intent than to cut off an unloved wife, is valid even though its effect is to deprive the wife of any share of the property of her husband at his death.... Motive or intent is an unsatisfactory test of the validity of a transfer of property. In most jurisdictions it has been rejected, sometimes for the reason that it would cast doubt upon the validity of all transfers made by a married man ... sometimes because it is difficult to find a satisfactory logical foundation for it.... [I]t would seem that the only sound test of the validity of a challenged transfer is whether it is real or illusory.... The test has been formulated in different ways, but in most jurisdictions the test applied is essentially the test of whether the husband has in good faith divested himself of...