Reforming Florida’s Elective Share Law: Is the Cure Worse Than the Disease?
The surviving spouse of a Florida domiciliary has the right to a percentage elective share from the decedent’s probate assets. The elective share is an amount equal to 30 percent of the fair market value, on the date of death, of all property of the decedent wherever located that is subject to probate administration, except real property not located in Florida, reduced by all valid claims against the estate paid or payable from the estate and all mortgages, liens, or security interests on the assets. F.S. §§732.201, 732.206, and 732.207. The right to an elective share does not extend to nonprobate assets. For example, survivorship bank accounts1 and property conveyed by the decedent in which the decedent reserved a life estate2 are not subject to the elective share. In addition, assets held in a revocable inter vivos trust are not subject to the surviving spouse’s right of election because such assets are not subject to administration in Florida.3
In trying to overcome certain perceived problems of the Florida elective share law, The Florida Bar has proposed major changes to the elective share law over the past several years. So far, the legislature has declined to adopt the proposed changes. This is partly the result of the difficulty in drafting an equitable elective share law that is not unduly complex. This article will explain the problems associated with Florida’s current elective share law, the solutions to these problems adopted by other jurisdictions and by the Florida legislative proposal, and the difficult new problems raised by these solutions.
Current Florida Law
Elective share statutes generally have two key purposes. The first is to provide sufficient assets for the support and maintenance of the surviving spouse. The second is compensatory, in recognition of the fact that a surviving spouse has a claim to a portion of the decedent’s estate to compensate the surviving spouse for his or her contributions to the marriage.4 Both these purposes are considered to promote public policy sufficiently to have caused enactment of some form of elective share legislation in virtually every state.
The problem with the current Florida elective share law is that in substance it allows one spouse, at will, to disinherit the surviving spouse. For example, by placing all assets in a revocable living trust one spouse can readily defeat the surviving spouse’s Florida elective share rights. Thus, as a practical matter, there is no elective share law in Florida.
The unfairness of the current Florida elective share law was illustrated in Friedberg v. Sunbank/Miami, N.A., 648 So. 2d 204 (Fla. 3d DCA 1995). In Friedberg, the decedent and the surviving spouse had been married for 38 years at the time of the decedent’s death. The decedent’s estate was valued at over $7 million with approximately $250,000 passing through probate. The balance of the estate was held in a revocable inter vivos trust established by the decedent two years before the decedent’s death. Under the trust, the surviving spouse received a life estate in their residence and income of $1,500,000 in a charitable remainder trust and $500,000 in a medical trust. In holding that the revocable inter vivos trust was not subject to the elective share, the court stated that this result was unfair to the surviving spouse and poor public policy.5 The court encouraged the legislature to make changes to the Florida elective share law.6
The unfairness of current Florida elective share law can be illustrated further by comparing the rights of a surviving spouse to the rights of a divorcing spouse. A divorcing spouse has the right to an equitable percentage of all assets accumulated during the marriage, including assets held in a revocable inter vivos trust and in joint bank accounts,7 but excluding property acquired by gift or inheritance.
For example, assume a couple has been married for 40 years; the husband is age 70 and the wife is age 65. All assets are titled in the husband’s revocable inter vivos trust. If the couple were to divorce, it is likely the wife would receive one-half of all the trust’s assets as her equitable distribution. Nonetheless, the titling of the assets in the trust allows the husband to avoid giving the wife any assets at death. It makes little sense to have such dissimilar statutory schemes for rights of a divorcing spouse and surviving spouse.
Augmented Estate Law
Most states have attempted to solve the inequities resulting from the form of the current Florida elective share law by enacting an augmented estate provision. An augmented estate provision substantially frustrates the deceased spouse’s attempts to disinherit the surviving spouse by giving the surviving spouse the right to elect against certain nonprobate assets over which the decedent exercised substantial control. Thus, a surviving spouse becomes entitled to a certain minimum percentage of a deceased spouse’s assets, including nonprobate assets. An example of an augmented estate provision can be found in the current New York elective share law.
Under current New York elective share law, for decedents dying after August 31, 1992, the surviving spouse of a New York domiciliary has the right to an elective share in an amount equal to the greater of 1) $50,000, or 2) one-third of the net estate. As of September 1, 1994, the New York elective share must be satisfied outright; a trust does not qualify. The “net estate” is determined by reducing the decedent’s elective share estate by debts, administration expenses, and reasonable funeral expenses. The decedent’s elective share estate consists of the property passing under his or her will or in intestacy, plus various testamentary substitutes as described under the statute. Some of the testamentary substitutes included in the decedent’s elective share estate are as follows:
(1) Gratuitous transfers of property made after August 31, 1992, and within one year of the decedent’s death, except to the extent that such transfers are excludable from gift tax by operation of Internal Revenue Code §2503(b) [the $10,000 annual exclusion] and Internal Revenue Code §2503(e) [the medical and tuition exclusion].
(2) Dispositions of property and contractual arrangements made by the decedent after August 31, 1992, in trust or otherwise, insofar as the decedent retained the right to the income from, or the possession or enjoyment of, the property for his or her life, or for any period which is not ascertainable without reference to his or her death or for a period that does not in fact end before his or her death, except to the extent that such disposition or contractual arrangement was for an adequate consideration in money or money’s worth.8 [Similar to §2036 of the Internal Revenue Code].
(3) Property payable under a thrift, savings, retirement, pension, deferred compensation, death benefit, stock bonus or profit-sharing plan, arrangement, system or trust.9
(4) Totten trust bank savings accounts whenever created.
(5) Joint bank accounts if created after August 31, 1966.10
(6) Property held in joint tenancy with right of survivorship, or as tenants by the entirety if created after August 31, 1966.11
The augmented estate method takes away the ability of one spouse easily to disinherit a surviving spouse. If the deceased spouse retained control or equitable ownership of assets, the surviving spouse is given the right to claim an elective share over those assets. Thus, holding title through a revocable living trust would not avoid an elective share.
Although the augmented estate method solves several of the problems associated with the current Florida elective share law, an elective share based on a fixed percentage of an augmented estate has its own problems, one of which is that under an augmented estate method, a spouse of a short term marriage has the same elective share entitlement as a spouse of a long term marriage. Another problem is a surviving spouse, even if having received substantial assets during the marriage from the deceased spouse and having no need for support, still has an entitlement to an elective share against the deceased spouse’s estate.
For example, assume the marriage is the second for each spouse, and that each has children from the respective first marriages. Further assume that husband brings $1 million into the marriage and wife brings $2 million into the marriage. Each has a will leaving all of his or her assets to their respective children. Six months after the marriage, the husband dies and the wife claims an elective share of $300,000. It is arguable that the elective share is inequitable because the marriage was too short to justify the wife receiving $300,000 of the husband’s assets, and because the wife does not need the funds for her support. No valid societal purpose is promoted by such an elective share entitlement scheme.
Again, it is helpful to compare Florida divorce law with elective share law. In determining entitlement to support in a divorce, the court considers the duration of the marriage and the economic circumstances of the parties. In the immediately preceding example, if the husband and wife were divorced after a six-month marriage, it is unlikely the court would award the wife any support from the husband’s assets. In contrast, the current Florida elective share law does not take into consideration the length of the marriage between the deceased and surviving spouses. It treats a marriage of six months the same as a marriage of 30 years. Current law also ignores the fact that the wife in the example already has substantial independent assets.
The augmented estate method worked well in a society in which there were few divorces and individuals generally married only once. In today’s multiple marriage society, however, the augmented estate method can result in inequities. Second or third spouses in short term marriages can receive a far greater percentage of the estate than fairness would dictate. Although this result can be avoided through a prenuptial agreement, many spouses are reluctant to negotiate such an agreement prior to marriage. F.S. §732.702(1) provides that the right of election may be waived by a written contract, agreement, or waiver signed by the waiving party. F.S. §732.702(2) provides that the nonwaiving party is not required to disclose his or her estate if the written agreement, contract, or waiver is executed before marriage. The same section requires a “fair disclosure” if the written agreement, contract, or waiver is executed after the marriage.
Accrual Method of Uniform Probate Code
An attempt to deal with these issues is the accrual method of elective share under the Uniform Probate Code. The accrual method views marriage as an economic partnership between spouses. Based on this premise, the criteria for determining the elective share of a surviving spouse is similar to the criteria used in dividing assets in the event of a divorce.
Under the accrual method of the Uniform Probate Code, the surviving spouse’s right to an elective share increases with the length of the marriage. The elective share accrues at the rate of three percent per year until the 11th year of marriage, and then accrues at the rate of four percent per year until it reaches a maximum of 50 percent. Accordingly, spouses in short term marriages have a lesser percentage elective share than spouses of long term marriages.
Under the accrual method, the applicable percentage is then applied against the combined probate and nonprobate assets of both the decedent and the surviving spouse. For example, assume that at the decedent’s death he owned $1,000,000 in assets held in a revocable inter vivos trust, and the surviving spouse owned $500,000 in assets. Further assume the spouses had been married for 30 years. The elective share percentage would be 50 percent. This percentage is applied against the combined augmented estates of both spouses, having a value of $1,500,000. Accordingly, the elective share amount is $750,000. Since the surviving spouse already has $500,000 in assets, the surviving spouse would receive an additional $250,000 as a result of the elective share.
In the immediately preceding example, the spouses were married for a long time, long enough under the accrual method to be considered equal economic partners in the marriage. Consequently, under the accrual method the surviving spouse leaves the marriage with one-half of the combined assets.
Although the accrual method under the Uniform Probate Code appears to solve all of the problems associated with both the current Florida elective share law and the augmented estate method, the accrual method has been adopted only by a few states. This lack of acceptance could be a result of the complex administrative problems of the accrual method. Under this method, it is more difficult to do estate planning because it is impossible to calculate the size of an elective share without having information about both spouses’ assets. When an elective share is claimed, there is also the prospect of litigation involving the valuation of assets, similar to the litigation that frequently occurs in divorce proceedings.
Community Property Law
Another potential solution to the elective share problem involves community property. Nine states have adopted a version of community property law. Under this system, there generally are three classifications of property: community property, separate property, and quasi-community property.
Community property generally is classified as property acquired by a spouse during the marriage, except property acquired by gift, devise, or descent. Included in the definition of community property is compensation earned during the marriage and income generated by the community property. Separate property generally is classified as property acquired before the marriage and property acquired during the marriage by gift, devise, or descent. There is disagreement among the nine community property states as to whether income earned by the separate property during the marriage is separate property or community property. Quasi-community property is property acquired during the marriage while the spouses resided in a common law state and that was brought into the community property state. Some states treat such property as community property for both divorce and probate considerations. Other states treat it as community property for either divorce or probate purposes, but not for both.
Under a community property system, each spouse owns 50 percent of the community property regardless of how such property is titled. There is no need for an elective share, because the surviving spouse is the automatic owner of one-half of the community property.
Although the community property system implements the partnership theory of marriage, converting an elective share system to a community property system raises asset tracing problems. Inadequate recordkeeping could lead to commingling of assets. Because a community property system typically is applied both upon divorce and at death, the adoption of a community property solution to the Florida elective share problem would require the elimination of Florida’s equitable distribution divorce system. That is highly unlikely.
Florida Legislative Proposal
As indicated earlier, The Florida Bar has proposed elective share legislation for the past several years. The Florida Bar’s proposal has adopted portions of the augmented estate method and portions of the accrual method. Instead of limiting the elective share to the assets subject to administration, the proposal brings most nonprobate assets into the equation. For example, the following nonprobate assets would be subject to the elective share: 1) property passing by right of survivorship; 2) property in a revocable inter vivos trust; 3) an interest in qualified and nonqualified retirement plans; and 4) certain transfers within a year of the decedent’s death.12
Under the proposal, the amount of the elective share is based on a percentage of the estate ranging between 10 percent for marriages of less than five years to 40 percent for marriages of 25 years or more.13 In addition, the proposal imposes a minimum elective share of the lesser of $50,000 or one-half of the estate.14 In determining the amount of the elective share, property passing in trust for the benefit of the surviving spouse is counted against the amount of the elective share.15
The proposal does not take into consideration the surviving spouse’s assets. This intentional omission leaves open the possibility that an independently wealthy spouse, or a spouse already holding title to most of the assets accumulated during the marriage, could claim an elective share against a poorer deceased spouse. Nonetheless, this approach by The Florida Bar reduces the administrative complexity discussed under the accrual method. The fact that the surviving spouse’s assets are not considered in determining the elective share explains why the percentage amounts under the Florida legislative proposal are lower than under the accrual method of the Uniform Probate Code.
For example, assume a spouse dies after a 25-year marriage. The deceased spouse has $2 million in a revocable inter vivos trust. The surviving spouse has $1 million in assets. Under the Florida legislative proposal, the elective share would be $800,000 (40 percent of $2 million). Under the accrual method, the elective share would be $500,000 (50 percent of $3 million less $1 million). Under current Florida law the elective share is $0.
Conclusion
The Florida Bar proposal appears to be a compromise between the fairness (and complexity) of the accrual method and the inequities (and simplicity) of the augmented estate method. The Florida Legislature so far has not adopted a new elective share provision due to objections regarding the fairness of the proposal. As can be seen, although the current Florida elective share statute has many problems, drafting a better statute is no simple matter. Each form of elective share proposal has its own advantages and disadvantages. Unless the Florida Legislature adopts a solution, Florida will continue to operate under current law, under which the elective share easily can be avoided.
1 In re Estate of Solnik, 401 So. 2d 896 (Fla. 4th D.C.A. 1981) (The court held the surviving spouse’s elective share did not extend to joint savings accounts with rights of survivorship decedent had established in the names of himself and his daughter because such property was not subject to administration.)
2 Kelley v. Hill, 481 So. 2d 1311 (Fla. 2d D.C.A. 1986) (The court held the surviving spouse’s elective share did not extend to property the decedent validly conveyed to her daughter from a prior marriage and in which the decedent reserved a life estate and the power of sale because the property was not subject to administration.)
3 Friedberg v. Sunbank/Miami, N.A., 648 So. 2d 204 (Fla. 3d D.C.A. 1995); see Traub v. Zlatkiss, 559 So. 2d 443 (Fla. 5th D.C.A. 1990) (The court held that the surviving spouse’s elective share did not extend to completed inter vivos transfers of assets even if made with the specific intent to diminish or eliminate a surviving spouse’s elective share.)
4 Waggoner, The Multiple-Marriage Society and Spousal Rights Under the Revised Uniform Probate Code, 76 Iowa L. Rev. 223 (1991).
5 Friedberg, 648 So. 2d at 206.
6 Id.
7 Fla. Stat. §61.075 (1995); Carrison v. Carrison, 486 So. 2d 1363 (Fla. 1st D.C.A. 1986).
8 N.Y. EPTL 5-1.1-A(b)(1)(F)(i) and (ii).
9 N.Y. EPTL 5-1.1-A(b)(1)(G).
10 Id.
11 Id.
12 Powell, Proposed Changes in Florida’s Elective Share Provisions, 69 Fla. B.J. 94 (Dec. 1995).
13 Id.
14 Id.
15 Id.
Abraham M. Mora is a partner in the West Palm Beach office of Kaye, Scholer, Fierman, Hays & Handler, LLP. He received a B.A., magna cum laude, from the University of Pennsylvania in 1975 and a J.D. from Stanford University School of Law in 1978. He has lectured and written extensively, including a two-volume practice guide, Estate Planning in Florida.
Sanford J. Schlesinger is a partner in the New York office of Kaye, Scholer, Fierman, Hays & Handler, LLP. He received a B.S., with honors, from Columbia University in 1963 and a J.D. from Fordham University in 1966. He has been a fellow of the American College of Trusts and Estates Counsel since 1980.
This column is submitted on behalf of the Real Property, Probate and Trust Law Section, Bruce M. Stone, chair, and Brian C. Sparks and William P. Sklar, editors.