The Elective Share has no Friends: Creditors Trump Spouse in the Battle Over the Revocable Trust

• Author: Angela M. Vallario
• Position: Angela M. Vallario is an Associate Professor at the University of Baltimore School of Law; B.S. (University of Florida); J.D. (University of Baltimore School of Law); LL.M (Georgetown Law Center). I am grateful to Austin Cohen, Alison Graham, Brittney Grizzanti, and Kiernan Waters.
• Pages: 333-360

THE ELECTIVE SHARE HAS NO FRIENDS: CREDITORS

TRUMP SPOUSE IN THE BATTLE OVER THE

REVOCABLE TRUST

ANGELA M. VALLARIO*

I.!INTRODUCTION

A revocable trust is a popular estate planning tool used to disinherit a

spouse in sixteen jurisdictions.1 In common law jurisdictions, a surviving

spouse, who is dissatisfied with his or her inheritance, has the right to receive

an elective share of the decedent’s estate regardless of the decedent’s estate

plan.2 However, sixteen jurisdictions have defined a dissatisfied spouse’s

rights with a fractional share of the d eceased spouse’s “net p robate estate,”

allowing one spouse to disinherit the other, by single-handedly transferring

his or her assets to a revocable trust.3 To add insult to injury seven of these

common law jurisdictions have recently codified trust law making it

seamless for the decedent’s creditor to be paid from revocable trust assets.4

The elective share is one of few limitations imposed on testamentary

freedom.5 Common law property jurisdictions have created a public policy-

based statute for married persons that prohibit the first-to-die spouse from

disinheriting his or her surviving spouse.6 To avoid disinheritance, common

law jurisdictions statutorily protect a surviving spouse (spouse) with an

elective share.7 The elective share arose in the early nineteenth century as a

Copyright © 2016, Angela Vallario.

* Angela M. Vallario is an Associate Professor at the University of Baltimore School of

Law; B.S. (University of Florida); J.D. (University of Baltimore School of Law); LL.M

(Georgetown Law Center). I am grateful to Austin Cohen, Alison Graham, Brittney

Grizzanti, and Kiernan Waters.

1 See Terry L. Turnipseed, Community Property v. The Elective Share, 72 LA. L. REV.

161, 179 (2011).

2 Id. at 161.

3 Id. at 162.

4 See infra note 19.

5 Robert H. Sitkoff, Trusts and Estates: Implementing Freedom of Disposition, 58 ST.

LOUIS U. L.J. 643, 644 (2014) (recognizing that there are some limitations on testamentary

freedom, which include those testamentary provisions that violate public policy as well as the

Rule Against Perpetuities).

6 See John H. Langbein & Lawrence W. Waggoner, Reforming the Law of Gratuitous

Transfers: The New Uniform Probate Code, 55 ALB. L. REV. 871, 874 (1992); Melvin J.

Sykes, Inter Vivos Transfers in Violation of the Rights of Surviving Spouses, 10 MD. L. REV.

1, 2 (1949).

7 Sykes, supra note 6, at 2.

334 CAPITAL UNIVERSITY LAW REVIEW [45:333

replacement of dower and curtesy rights.8 At that time the nature of wealth

shifting from real to personal property made dower and curtesy obsolete.9

The elective share protected the spouse from disinheritance by

guaranteeing him or her with a fractional share of the deceased spouse’s net

probate estate, a method known as the traditional elective share.10 However,

like the shift from real to personal property there has been a subsequent shift

in wealth from probate to non-probate assets (like revocable trusts) making

the traditional elective share equally obsolete and inadequate to protect a

spouse from disinheritance.

A revocable trust is an arrangement created during the decedent/settlor’s

lifetime whereby the decede nt/settlor transfers trust assets to himself,

herself, or a third party as trustee but maintains control by its trust terms

giving the decedent/settlor the ability to revoke, alter, or amend.11 The

titling of the assets in the name of the trustee (even if it is the

decedent/settlor) is what converts the asset from probate to non-probate and

outside the reach of the traditional elective share statute.12

It has been recognized for many years that the traditional elective share

is inadequate to protect a spouse from disinheritance by a revocable trust.13

At first, courts created equitable common law modifications in response to

the ineffective traditional elective share to protect the spouse from being

disinherited with a revocable trust.14 The inequities of the traditional

elective share and common law modifications mandated reform.

Reform efforts in Pennsylvania and New York inspired the National

Conference Commissioners on Uniform State Laws to draft the Uniform

Probate Code (UPC) introducing the “augmented estate” concept.15 The

thrust of the UPC’s augmented estate was to include non-probate assets (like

revocable trusts) into the spouse’s elective share calculation.16 The UPC

promulgated an augmented estate model for other jurisdictions to follow.17

8 Id.

9 Id.

10 See Turnipseed, supra note 1, at 162.

11 Alan Newman, Revocable Trusts and the Law of Wills: An Imperfect Fit, 43 REAL

PROP. TR. & EST. L.J., 523, 524 (2008).

12 See Turnipseed, supra note 1, at 179.

13 See Newman v. Dore, 9 N.E.2d 966 (N.Y. 1937). In Newman, the testator transferred

his entire property into a revocable trust for the purpose of diminishing his estate and reducing

the surviving spouse’s elective share amount. Id. at 968. Finding this to be a contrivance

upon the rights of the surviving spouse, the court held that the trusts were subject to the

spouse’s elective share. Id. at 969.

14 See, e.g., id. at 966.

15 See Langbein & Waggoner, supra note 6, at 872.

16 See id. at 881.

17 See infra Section IV.A. The Uniform Probate Code introduced the “augmented estate”

elective share approach in 1969, which statutorily includes both probate and non-probate