The Complicated World of the Electing Spouse: in Re Estate of Myers and Recent Statutory Developments

• Publication year: 2022

33 Creighton L. Rev. 121. THE COMPLICATED WORLD OF THE ELECTING SPOUSE: IN RE ESTATE OF MYERS AND RECENT STATUTORY DEVELOPMENTS

Creighton Law Review

Vol. 33

RONALD R. VOLKMER(fn*)

I. INTRODUCTION

The Supreme Court of Nebraska, in its unanimous decision in In re Estate of Myers,(fn1) has given to Nebraska lawyers an authoritative and instructive interpretation of the Nebraska elective share statutes.(fn2) While the decision of the court in Myers on the particular issues raised may not appear to be of national significance, a more detailed review of these issues suggests otherwise. Discussion of the Myers litigation conveniently sets the stage for an extended analysis and provides the backdrop for two elective share(fn3) problems, one of which is of fairly recent vintage, the other a long standing, recurrent issue.

The first elective share issue, sometimes referred to by such terms as "charging" or "offsetting," is not easily captured in a single sentence. At the heart of this first issue is the following: What effect, if any, does spousal election have upon the inter vivos and testamentary transfers, both probate and non-probate, that have been made to the surviving spouse by the decedent spouse? The questions that will need to be addressed more particularly in this context are: (1) whether the surviving spouse is deemed to have either accepted or rejected these transfers; and (2) if these benefits are accepted, are they "charged" against the elective share? Following these fairly generic questions is a more particular one that I first addressed in this review some sixteen years ago: To what extent is an electing spouse charged with assets that would have otherwise passed to the surviving spouse, but were renounced?(fn4) This brings into play what might be called the "disclaimer-is-charged" rule.(fn5)

The second issue is a perennial one that has arisen in many legal contexts: What is the value to be placed upon the interests, particularly life estates and future interests, that have passed to the surviving spouse? (The less than absolute interests given to the surviving spouse will be referred to as "partial interests.")(fn6)

The Myers case, the springboard for an extended discussion of the charging and valuation issues, will be examined in detail in the first part of this article. The focus then shifts to the national level, with particular emphasis on the Uniform Probate Code(fn7) ("UPC") and how the issues discussed have played out at the national level. In this section other recent relevant cases will be dissected to see what the recent case law developments reveal. This will be followed by a selective examination of the most recent statutory developments, with emphasis on those states having made the significant statutory changes. The conclusion will offer some of the author's own perspectives as to the issues discussed and will attempt to draw some lessons that might be learned from the materials previously discussed .

II. THE MYERS CASE EXAMINED

A. THE COUNTY COURT LITIGATION When Harold S. Myers died on December 26, 1996, his survivors included his forty-four year old widow, Lesley, and five children. The three younger children, born of Harold's union with Lesley, were all minors at the time of their father's death. The two older children, born of a previous marriage, were not parties to the litigation because they were not included as beneficiaries of the will and trusts in question.(fn8)

Harold Myers had died testate and his will was admitted to probate, with Lesley qualifying as the personal representative.(fn9) The Harold Myers will was of the "pour-over" variety, with the residuary clause devising his six million dollar residuary estate to the Harold S. Myers Trust, an inter vivos trust with a bank named as trustee. The terms of the inter vivos trust are significant: The trust corpus was to be divided into two shares, referred to by the court as the "marital share" and the "family share." The allocation of assets between the two shares was to be determined by the trustee, based upon a formula that would minimize payment of federal estate taxes. As to the marital share, the trustee was to pay the income from the share to Lesley during her lifetime, and, in addition, the trustee was given the power to invade the trust corpus for Lesley's support. Upon Lesley's death, any unexpended portion of the marital share was to be added to the family share.(fn10)

During Lesley's lifetime, she was to receive all the income from the family share. The family share was to be held intact until Lesley's death, and, if the three younger children of Harold were all over the age of 22 at Lesley's death, the trustee was to divide the family share into equal shares for the benefit of Myers' then living children. The trustee was then given instructions regarding distributions to the Myers' children's separate share trusts.(fn11) It will be noted that the Harold Myers estate plan utilized a fairly standard method of minimizing federal estate taxation.(fn12) As a surviving spouse of Harold, Lesley was entitled to assert her right to take her "elective" share under Nebraska law.(fn13) Lesley timely filed her petition for "elective" share, which under applicable Ne-braska law, would be calculated as 50% of the "augmented estate."(fn14) It was at that point that the contested legal issues began arising in the county court, the court of probate.

After Lesley filed her petition for elective share, the trustee bank, alleging a conflict of interest, filed a motion asking the court to appoint a guardian ad litem to represent the interests of minor children. The motion was granted and a guardian for the minor children was appointed.(fn15) It was then the parties began in earnest their efforts to determine the amount of the augmented estate,(fn16) which calculation in turn would determine the amount of the elective share. From there it would be a matter of determining what amounts were to be "charged" to Lesley as required under applicable Nebraska law.(fn17) By the time the issues were sorted out and presented to the county court judge, three issues were before the county court: (1) whether Lesley's interest in the Harold Myers trust "passed to her subject to the provisions of section 30-2319;" (2) whether the elective share should be "offset" by the "value" of Lesley's interests in the trusts; and (3) if an "offset" is appropriate, how is the value of Lesley's interest to be determined.(fn18) Lancaster County Court Judge John Hendry,(fn19) construing Nebraska Revised Statute section 30-2319, ruled against Lesley on the first two issues. He found that the statutory language clearly dictated the finding that Lesley's interest in the trust did "pass" to her under the statute and that this interest be "applied first to satisfy the elective share."(fn20) As to the third issue, Judge Hendry ruled against Leslie once more, finding that the method of valuation proposed by the guardian ad litem, relying upon standard mortality tables and the "IRS regulations and State Inheritance Tax Regulations," was appropriate.(fn21) Using this method, the court found that the "spouse's elective share has been fully funded by the surviving spouse's interest in the [t]rust . . . "(fn22) Finally, Judge Hendry rejected the argument that the valuation method was improper in light of the fact that five-sixths of the property payable to the trust was "unproductive." The "unproductive" nature of the property was due to the fact that the property consisted of stock of a company that was "paying no dividends."(fn23) Lesley Myers appealed the Lancaster County Court's ruling to the Nebraska Court of Appeals; the Supreme Court of Nebraska subsequently removed the case to its own docket, thereby bypassing the Court of Appeals.(fn24)

B. THE RULINGS AND RATIONALES OF THE NEBRASKA SUPREME COURT

According to the Nebraska Supreme Court's opinion, written by Judge Gerrard, Lesley Myers assigned as error the following rulings of the county court: "(1) in determining that her elective share should be offset by the value of her interest in the trust; and (2) in determining the value of her interest in the trust."(fn25) The court's analysis, rulings, and conclusions on the two issues presented will be undertaken under the headings utilized by the court: "Offset of Elective Share" and "Valuation of Trust Interest."

1. Offset of Elective Share

Judge Gerrard began the analysis of this topic by referencing two sections of the Nebraska Probate Code, section 30-2313(a),(fn26) the section granting to a surviving spouse the right of election, and section 30-2314,(fn27) the section defining the "augmented estate." The over-all purposes of these sections, according to the court, are two-fold: (1) to protect a surviving spouse against transfers by the decedent spouse that would deprive the surviving spouse of a "fair share" of the decedent's estate; and (2) to prevent a surviving spouse from receiving more than his or her fair share.(fn28) The court then noted that in the instant case the parties had agreed that the residual estate of Harold Myers, devised to the trust, was part of the augmented estate.(fn29) Turning to the first assigned error relating to the issue of "offset," the court viewed the problem as a statutory one, to be decided by the interpretation of the governing statute, section 30-2319(a) of the Nebraska...