Perry, Audy M., Jr.

Stout, Bruce L.

English

The Research Repository @ WVU (West Virginia University)

Volume 99 Issue 4 Article 5 June 1997 West Virginia Takes a Step Backward in Elective Share Law Bruce L. Stout Huddleston, Bolon, Beatty, Porter & Copen Audy M. Perry Jr. Huddleston, Bolon, Beatty, Porter & Copen Follow this and additional works at: https://researchrepository.wvu.edu/wvlr  Part of the Estates and Trusts Commons Recommended Citation Bruce L. Stout & Audy M. Perry Jr., West Virginia Takes a Step Backward in Elective Share Law, 99 W. Va. L. Rev. (1997). Available at: https://researchrepository.wvu.edu/wvlr/vol99/iss4/5 This Article is brought to you for free and open access by the WVU College of Law at The Research Repository @ WVU. It has been accepted for inclusion in West Virginia Law Review by an authorized editor of The Research Repository @ WVU. For more information, please contact ian.harmon@mail.wvu.edu. WEST VIRGINIA TAKES A STEP BACKWARD INELECTIVE SHARE LAWBruce L. Stout*Audy M. Perry, Jr.I. INTRODUCTION .......................................... 679II. BACKGROUND ........................................... 680A. Pre-1992 Spousal Rights ............................ 680B. 1992 Elective Share Law ............................ 681III. 1995 REVISION AND ITS CONSEQUENCES ...................... 682IV. CONCLUSION ............................................ 685I. INTRODUCTIONIn 1992, when West Virginia became the first state to enact the electiveshare provisions of the 1990 Revised Uniform Probate Code (RUPC), its effortswere applauded for setting the standard in probate reform.' The revised electiveshare provisions were designed to prevent spousal disinheritance, recognize thesurviving spouse's contribution to the marriage, and ensure that the survivingspouse has continued financial support after the death of his or her spouse.2 Theidea of the "augmented estate" was at the heart of accomplishing the statutes'intended purpose. It included all property, real and personal, probate andnonprobate, in which the decedent had an interest.* Partner, Huddleston, Bolen, Beatty, Porter & Copen, Huntington, West Virginia. J.D., Ohio StateUniversity College of Law, 1982; B.A., Ohio State University, 1979."" Associate, Huddleston, Bolen, Beatty, Porter & Copen, Huntington, West Virginia. J.D., WestVirginia University College of Law, 1996; B.A., West Virginia Wesleyan College, 1993.1 Patricia J. Roberts, The 1990 Uniform Probate Code's Elective-Share Provisions - West Virginia'sEnactment Paves the Way, 95 W. VA. L. REV. 55 (1992).2 Mongold v. Mayle, 452 S.E.2d 444, 447 (W. Va. 1994) (holding that premarital will did notpreclude surviving spouse from taking elective share).1Stout and Perry: West Virginia Takes a Step Backward in Elective Share LawDisseminated by The Research Repository @ WVU, 1997WEST VIRGINIA LAW REVIEWIn 1995, by changing just one provision of West Virginia Code,3 the WestVirginia Legislature may have inadvertently destroyed all that it had accomplished.Although Senate Bill 419 was passed as merely a "housekeeping" amendment, ithas created a real mess. The definition of "Augmented Estate" was revised so asnot to include "[l]ife insurance, accident insurance, pension, profit sharing,retirement and other benefit plans payable to persons other than the decedent'ssurviving spouse or the decedent's estate." The exclusion of any one of these fromthe augmented estate is questionable; however, this article will focus on the mostaccessible and dangerous of the spousal disinheritance weapons: life insurance.II. BACKGROUNDA. Pre-1992 Spousal RightsCivilization has confronted spousal disinheritance for centuries.5 Atcommon law, widows were protected by dower, a life estate in one-third of all landsin which her deceased husband owned during their marriage.6 A widower wasprotected by curtesy if there was a child born of the marriage. Curtesy consisted ofa life estate in all of the wife's inheritable land. Neither dower nor curtesy couldbe defeated by will or inter vivos conveyance without the cooperation of the otherspouse.'Dower and curtesy worked reasonably well for the agrarian societies whereland was the major asset. However, as time passed and economies changed, dowerand curtesy did nothing to provide personal property for the surviving spouse andwas lamented for interfering with the alienability of land.8 Thus, many statesabolished dower and curtesy in favor of forced share statutes.Prior to 1992, West Virginia sought to protect the spouse againstdisinheritance by providing a fixed share of the decedent's probate estate in lieu of' W.VA. CODE § 42-3-2(c) (Supp. 1996).4 W. VA. CODE § 42-3-2(c) (Supp. 1996).5 John W. Fisher, II & Scott A. Curnutte, Reforming the Law of Intestate Succession and ElectiveShares: New Solutions to Age-Old Problems, 93 W. VA. L. REV. 61, 101 (1990).6 2 F. POLLOCK & F. MAITLAND, THE HISTORY OF ENGLISH LAW 420-22 (2d ed. 1923).7 Id. at 409-11, 424.' Fisher & Curnutte, supra note 5, at 101.[Vol. 99:2West Virginia Law Review, Vol. 99, Iss. 4 [1997], Art. 5https://researchrepository.wvu.edu/wvlr/vol99/iss4/5ELECTIVE SHARE LAWthe share provided in the will." The forced share statute was designed to achievetwo purposes: (1) ensure support for the surviving spouse, and (2) recognize thecontribution of both spouses to the marital partnership. However, because thestatutory scheme could be easily evaded by depleting the probate estate, neither ofthe purposes for the statute were accomplished. The end result of this forced sharestatute was court battles over fraudulent and illusory nonprobate transfers. 1B. 1992 Elective Share LawThe RUPC sought to create a system whereby spousal disinheritance wasprevented and the uncertainty of ad hoc judicial interpretation was avoided. Theprimary component of this system is the augmented estate. Essentially, theaugmented estate consists of all the property, both real and personal, owned by thespouses. 2 Thus, the RUPC augmented estate prevents disinheritance evasiongames, ensures, to the extent possible, support for the surviving spouse, andrecognizes the contribution of both spouses to the marriage.There are four basic steps to the elective share system in West Virginia. 3First, all the assets of the decedent and the surviving spouse are added together(augmented estate). Second, the augmented estate is multiplied by a percentage setforth in West Virginia Code Section 42-3-1. This percentage is based upon thelength of marriage. 4 The figure obtained by this calculation represents the electiveshare amount. Third, (the crediting stage) all amounts passing to the survivingspouse by testate or intestate succession or by nonprobate transfers are applied firstto satisfy the elective share amount. The surviving spouse is also charged with the9 W. VA. CODE § 42-3-1 (Supp. 1996).10 Fisher & Curnutte, supra note 5, at 102., See Davis v. KB & T Co., 309 S.E.2d 45 (W. Va. 1983); Johnson v. Farmers & Merchants Bank,379 S.E.2d 752 (W. Va. 1989). For discussion of these cases, see Fisher & Cumutte, supra note 5,at 104-107.12 For a more complete discussion of the augmented estate, see Roberts, supra note 1, at 79.13 This Note will provide only a brief overview of the elective share law. For a more detaileddiscussion, see Roberts, supra note 1.14 For example, if the couple had been married for one year, the applicable percentage is only 3%, butif they had been married for 15 or more years, then the surviving spouse is entitled to the highestpercentage under the elective share law, 50% of the augmented estate. This idea of "incremental-vesting" allows the RUPC to accomplish the goal of recognizing each spouse's contribution to themarriage. The longer the marriage, the more contribution is recognized.1997]3Stout and Perry: West Virginia Takes a Step Backward in Elective Share LawDisseminated by The Research Repository @ WVU, 1997WEST VIRGINIA LAW REVIEWamount of any property that would have passed to him or her but was disclaimed.Finally, the surviving spouse is credited with a portion (up to 100%) of his or herown assets. 5If, after the third step, there is no deficit, the process ends. 6 However, ifthere is a deficit or entitlement to a supplemental elective share, West Virginia CodeSection 42-3-6 sets forth a system of contribution. This fourth step prioritizesrecovery. If contribution is required, the shares of the other beneficiaries of thedecedent's probate estate and reclaimables"7 are reduced. The beneficiaries, withthe exception of donees of irrevocable transfers made within two years of death,contribute shares proportional to their interest in the decedent's reclaimable estate.If there is still a deficit after all of the shares of the other beneficiaries have beenexhausted, then the donees of irrevocable transfers within two years of death arerequired to contribute.III. 1995 REVISION AND ITS CONSEQUENCESThe Floor Book Memo on Senate Bill 419 states that the new law wasneeded to clarify "the rights and liabilit[ies] of payors and third parties withrespect[] to proceedings involving a petition for an elective share of an estate."'8In discussing the list of assets excluded from the augmented estate, the memo statesthat these were excluded to allow the "intentions of the deceased to control [their]disposition .... ""One argument for the exclusion of life insurance0 from the augmentedestate is that if a spouse could challenge the contract by invoking the elective share," West Virginia Code § 42-3-6(a)(4) credits the surviving spouse with the applicable percentage ofproperty which he or she already owned. The applicable percentage is twice the elective sharepercentage used from West Virginia Code § 42-3-1.16 Note that West Virginia Code § 42-3-1(b) provides for a supplemental elective share amount if, afterthe deficit is added to the assets owned by the surviving spouse, the sum is less than $25,000. If thisis the case then the surviving spouse is entitled to whatever additional amount is necessary to bring thissum up to $25,000.1" The reclaimable estate consists of the decedent's nonprobate assets. W. VA. CODE § 42-3-2(b)(2)(Supp. 1996)."' WEST VIRGINIA SENATE COMMITTEE ON JUDICIARY, FLOOR BOOK MEMO, COMMITTEE SUBSTITUTEFOR SENATE BILL NO. 419, (February 17, 1995).19 Id.20 And the other assets excluded in West Virginia Code § 42-3-2(c) (Supp. 1996).[Vol. 99:4West Virginia Law Review, Vol. 99, Iss. 4 [1997], Art. 5https://researchrepository.wvu.edu/wvlr/vol99/iss4/5ELECTIVE SHARE LAWinsurers would have to proceed to court to determine who to pay.?' The argumentis that it is too burdensome on the insurance agencies to determine if they have paidthe proper beneficiary or whether they are exposing themselves to potential liability.However, Senate Bill 419 also sets forth elaborate provisions that protect theinsurance agency and other third party payors from liability or involvement.Section 42-3-2(e) provides that third party payors (e.g., an insurance company) can,without liability, pay the policy's named beneficiary if the surviving spouse has notgiven them actual notice of a contrary claim. If the surviving spouse does make aclaim prior to payment, the proceeds are simply made to the court with no courtcosts or proceedings necessary for the insurance company. In either case, theinsurer has no further liability and need not expend resources on investigating orlitigating potential elective share claims.With regard to the freedom of disposition argument, state law has longprotected surviving spouses from disinheritance by will (probate transfers). If thepublic policy of this state is to protect surviving spouses from disinheritance bywill, why would we allow disinheritance by a will substitute? Recognizing this fact,the federal government protects surviving spouses from being deprived of employeedeath benefits under plans covered by the Employee Retirement Income SecurityAct (ERISA), as amended by the Retirement Equity Act of 1984 (REACT)!2Furthermore, there is a profound parallel between the RUPC augmentedestate and the federal estate tax. The federal estate tax includes both probate andnonprobate transfers (including life insurance). The reason is that if the federalgovernment only taxed probate transfers, the tax would be ineffective becausepeople could avoid taxation simply by using nonprobate transfers. Likewise, if thegovernment taxed both probate and nonprobate transfers, but omitted one form ofnonprobate transfer-life insurance-then people would use life insurance to avoidthe estate tax. The same point is true for the elective share.' If life insurance isexempted, then life insurance will be the "estate-depleting transfer of choice" forpeople wanting to disinherit their surviving spouse24The drafters of the RUPC recognized this estate-depleting danger in thecomments: "Although the augmented estate under the pre-1990 Code did not2" Jane Bryant Quinn, Insurance Ploy Can Leave Spouse Penniless, CHI. TRIB., Nov. 19, 1995, § 5,at 3.22 Memorandum from the Joint Editorial Board for Uniform Probate Code, Response to the LifeInsurance Lobby, 2 (1996) (on file with author) [hereinafter "Memorandum"]. For ERISA provisionsee 29 U.S.C. § 1055 (1994).2' Id. at 3.24 Id.199715Stout and Perry: West Virginia Takes a Step Backward in Elective Share LawDisseminated by The Research Repository @ WVU, 1997WEST VIRGINIA LAW REVIEWinclude life insurance... the revisions do include their value; this move recognizesthat such arrangements were, under the pre-1990 Code, used to deplete the estateand reduce the spouse's elective-share entitlement."'25 Inclusion of life insurancein the property subject to the elective share is supported by the Uniform LawConference (in the UPC), the American Law Institute (in the Restatement, Second,of Property: Donative Transfers), the American Association of Retired Persons(AARP), and by the Consumer Federation of America.26In addition to being contrary to the purpose of the elective share provisions,the 1995 revision to West Virginia law also renews questions that existed prior tothe 1992 adoption of the UPC all-inclusive augmented estate. For example, in thepre-1992 days, there was always the looming question of whether the transfer of aprobate asset into nonprobate form was fraudulent as to the surviving spouse.27 Anillustrative case is Johnson v. Farmers & Merchants Bank.28West Virginia law, at the time of Johnson, only allowed the survivingspouse to elect a statutory share of the decedent spouse's probate estate. Thus, onecould still legally disinherit his spouse as long as he used nonprobate assets.Nevertheless, the Court in Johnson allowed nonprobate assets to be countedtowards the elective share where such nonprobate transfer was found to be illusory.In Johnson, the decedent husband had created an inter vivos trust into which heplaced most of his assets. The court, using a "balancing of equities" approach, heldthat the transfer into trust was illusory and thus ineffective against the survivingspouse's elective share claim because the husband had retained dominion andcontrol over the assets placed in the trust.Leaving the elective share to ad hoc judicial interpretation is unacceptable.Indeed, West Virginia's adoption of the RUPC was due, in part, to avoid the needfor such continual judicial intervention. The elective share laws will now be morecomplicated than ever. As in the days of Johnson, neither the estate planner nor theclient will be able to know whether the estate plan they have designed willwithstand judicial scrutiny under this new law. Now that life insurance has beenexempted,2 9 how long will it be before counsel for surviving spouses argue that apurchase of life insurance was fraudulent and thereby should be included in theaugmented estate?25 UNIFORM PROBATE CODE § 2-205 cmt. (1993).26 Memorandum, supra note 22.27 See supra note 11.28 Johnson, 379 S.E.2d at 752.29 And the other assets excluded in West Virginia Code § 42-3-2(c) (Supp. 1996).[Vol. 99:6West Virginia Law Review, Vol. 99, Iss. 4 [1997], Art. 5https://researchrepository.wvu.edu/wvlr/vol99/iss4/5ELECTIVE SHARE LAWIV. CONCLUSIONIt took just three years and one sentence for West Virginia to fall frombeing a national leader in probate reform. Removing life insurance' from theaugmented estate is a step in the wrong direction. The primary reasons WestVirginia adopted the RUPC legislation were to prevent spousal disinheritance andto ensure that the surviving spouse has continued financial support after the deathof his or her spouse. The exclusion of life insurance contradicts those statedpurposes. While Senate Bill 419 painstakingly sets forth new provisions so thatpayors would not need to be unnecessarily burdened with administrative costs ormalpractice liability, it turns around and exempts the third party payors affected bythose provisions. The West Virginia Legislature must revisit this matter for theyhave forgotten the purposes behind this legislation. Maybe in their "housekeeping"rush they overlooked the reasons the "house" was built in the first place.30 And the other assets excluded in West Virginia Code § 42-3-2(c) (Supp. 1996).199717Stout and Perry: West Virginia Takes a Step Backward in Elective Share LawDisseminated by The Research Repository @ WVU, 19978West Virginia Law Review, Vol. 99, Iss. 4 [1997], Art. 5https://researchrepository.wvu.edu/wvlr/vol99/iss4/5

West Virginia Takes a Step Backward in Elective Share Law

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West Virginia Takes a Step Backward in Elective Share Law

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