Tuesday, January 22, 2013

Statutory Distributions under a Will

We spend a great deal of time in the estate planning process discussing gifts and distributions with our clients. It is worth noting that when a person dies with a Will, Michigan law provides for certain automatic distributions over and above the terms of the Will. These statutorily authorized distributions exist to protect surviving spouses and children by providing them immediate access to funds needed for normal expenses. These provisions also guarantee their right to retain a substantial portion of personal property over the claims of any potential creditor. Before we continue, this is an opportune time to review legal terms commonly used in estate planning, as these terms appear often in legislation.
  • Decedent: The individual who died, also known as the Deceased Individual.
  • Surviving Spouse: The person married to the decedent at the time of the decedent's death.
  • Descendants: The children, grandchildren, great-grandchildren, etc. of the decedent.
  • Estate: The individually owned property of the decedent that must pass through the probate process at the decedent's death.
  • Intestate: The state of dying without a Will

The Michigan the Estates and Protected Individuals Code ("EPIC") provides for three allowances for either a surviving spouse or surviving children. These allowances take priority over other claims against the estate, except for administration costs and expenses and reasonable funeral and burial expenses:
  • Homestead Allowance: The surviving spouse or surviving children are entitled to a Homestead allowance of $15,000, adjusted for inflation. This allowance ensures that surviving family has sufficient funds to pay housing and utility costs. This allowance has priority over all successive allowances.
  • Family Allowance: During the period of probate administration, the surviving spouse and any minor children whom the decedent supported are also eligible for a reasonable family allowance to cover the cost of normal living expenses. While this allowance lacks a definitive value, the allowance is limited to a single year when it is clear that an estate is inadequate to discharge all other allowable claims.
  • Exempt Property: The surviving spouse is also entitled to household furniture, automobiles, furnishings, appliances, and personal effects from the estate up to a value not to exceed $10,000.

The property and assets received from these allowances are in addition to any amount that the surviving spouse or child would inherit either by intestate succession or under the decedent’s Will.
In addition to these allowances, a surviving spouse has the ability to elect a statutorily mandated share of their deceased spouse's estate in lieu of what the spouse would receive under the terms of the Will. That election entitles the surviving spouse to one half (1/2) of the sum or share that would have passed to the spouse had the testator died intestate, reduced by one half of the value of all property received by the spouse from the decedent by any means (for example, joint tenancy of assets) other than testator or intestate succession upon the decedent's death.
The intestate share of a surviving spouse varies depending on the other parties that survived the decedent. The spouse is entitled to:
  • The entire intestate estate if no descendant or parent of the decedent survives the decedent.
  • The first $150,000.00, plus 1/2 of any balance of the intestate estate, if all of the decedent's surviving descendants are also descendants of the surviving spouse and there is no other descendant of the surviving spouse who survives the decedent.
  • The first $150,000.00, plus 3/4 of any balance of the intestate estate, if no descendant of the decedent survives the decedent, but a parent of the decedent survives the decedent.
  • The first $150,000.00, plus 1/2 of any balance of the intestate estate, if all of the decedent's surviving descendants are also descendants of the surviving spouse and the surviving spouse has 1 or more surviving descendants who are not descendants of the decedent.
  • The first $150,000.00, plus 1/2 of any balance of the intestate estate, if 1 or more, but not all, of the decedent's surviving descendants are not descendants of the surviving spouse.
  • The first $100,000.00, plus 1/2 of any balance of the intestate estate, if none of the decedent's surviving descendants are descendants of the surviving spouse.

As with the Homestead allowance, the values listed above are adjusted on a yearly basis for inflation. However, keep in mind that when a surviving spouse elects to take this statutorily mandated share, the spouse receives only one-half of the amounts listed above.
When presented with this information, clients often express surprise and wonder why they are not allowed to dispose of their assets in any way they choose. The simple answer is the Michigan legislature has found a compelling interest in ensuring that surviving spouses are not left destitute upon the demise of their spouse because the spouse "disinherited" them. This is not to say that a married couple cannot execute a prenuptial or postnuptial agreement providing that the surviving spouse waives the right to the elective share. Such agreements however require that both parties disclose all of their assets and that separate counsel represent both parties prior to consenting to such an agreement.
It is clear that while there is substantial freedom in designating those individuals who will inherit property upon a decedent's death there are limitations. A further limitation addressed by Michigan statute is the circumstance of a marriage, or birth of a child, following the execution of a Will. On Thursday, we will discuss this limitation in more detail.
An important caveat to all of the foregoing information is that any amounts received by surviving spouses or children under allowances or an elective share of an estate apply only to those assets that are part of the decedent’s probate estate, thus any asset owned by a trust is exempt from attachment under these exceptions. This ability to bypass the statutory limits on disinheritance is another benefit of a properly executed and implemented trust. In the event that an individual seeks to disinherit their immediate family it is important to discuss this decision with an experienced attorney to ensure that all the necessary steps are taken to enforce such a decision.

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