Statutory Distributions Under a Will, Part 2

     On Tuesday, we addressed the provisions of the Estates and Protected Individuals Code (EPIC) that establish allowances for surviving spouses and dependents that take precedence over other creditors’ claims against the probate estate. We also addressed a surviving spouse’s right under Michigan law to elect a statutorily mandated portion of the probate estate in lieu of the distribution scheme articulated in the decedent’s Will. Both of these statutorily created exceptions to the distribution provisions of a Will come as a result of legislature’s desire to ensure that surviving spouses are not left destitute upon the death of their spouse because the spouse "disinherited" them. Today's blog takes a further look at EPIC’s statutory provisions, this time regarding the distribution of the probate estate when a decedent dies "intestate" (without executing a Will) and when the decedent marries or has children following the execution of the Will. Clients are frequently surprised that the statute provides very different distribution provisions for family members than they would actually want. 
     The State statute determines intestate distribution of an estate, and the distributions vary depending on who survives the decedent. Different provisions of the law apply to surviving spouses, surviving dependents, and other surviving relatives. In determining intestate distribution, EPIC first addresses the decedent’s surviving spouse. Presuming that there is a surviving spouse, the share distributed to that individual is dependent on the decedent’s other surviving relatives. If the decedent is survived by a spouse but no parents or descendants, the spouse receives the entire estate. The share for the surviving spouse decreases when the decedent is survived by either parents or descendants (typically children or grandchildren). Tuesday's post details the variety of circumstances and values for the surviving spouse's distribution in the circumstances. 

     When a spouse does not survive the decedent, EPIC provides that the descendants (children, grandchildren, etc.) split the estate by "right of representation". Under Michigan law, "right of representation" means that the estate is divided per capita at each generation. This means that if the decedent had three children who are all alive at his death then the estate is split into three equal shares and distributed to those children. If, however, only one of the decedent’s three children remains alive at his death, the living child still receives a one-third share of the estate while the shares for the two deceased children are recombined and then divided equally between all the children of the deceased children. For example, if children A, B and C are all alive, and the estate is $900,000, they each receive $300,000 of the estate. If B and C have predeceased the decedent, and B has two children and C has five children, each of those children of a predeceased child will receive 1/7 of 600,000, or approximately $85,000. B's children receive a total of $170,000 (rather than splitting $300,000) and C's children received a total of $430,000 (rather than splitting $300,000). If used, EPIC can dramatically skew estate distributions among family members. 

    If the decedent has neither spouse nor any living descendants, EPIC then distributes the estate to the survivor or survivors of the decedent's parents. If there are no surviving parents, the estate then passes to the decedent’s living siblings, followed by living grandparents, then to living descendants of grandparents. If none of these potential beneficiaries are alive, the probate estate escheats (is distributed) to the State of Michigan. 

     A different rule applies if the decedent has executed a Will at some point in their life, but never updates the document after being married or having children. Michigan law provides in that case, that a surviving spouse is entitled to the share they would receive had the decedent died intestate, unless from the Will or other evidence it is clear that the Will was made in contemplation of the marriage and the spouse was purposefully omitted, in which case the surviving spouse receives nothing. 

     Children omitted from a Will are treated similarly to an omitted spouse, but the omitted child's share is dependent on whether or not other children of the decedent were provided for in the Will. If the decedent had no living children when the Will was executed and did not provide for children, an afterborn child is entitled to a share equal to that they would receive had the decedent died intestate. If however the decedent had one or more living children when the Will was executed, the omitted afterborn child is entitled to a share that is equal to the share for the non-omitted children. As with an omitted spouse, if the decedent’s Will provides clear evidence that the omission was intentional, the omitted afterborn child receives nothing 

     As this week's discussion of the probate statutes demonstrates, EPIC may provide for estate distributions significantly different from what the decedent might have provided for if the decedent had planned. Thankfully, proper planning protects loved ones and insures against accidentally disinheritance. Appropriately drafted documents can ensure that the spouse and descendants receive the share of an estate that the deceased spouse or parent actually wanted rather than what a state statute provides for. A client can avoid the probate process entirely by executing and properly funding a living trust guaranteeing that their assets are distributed to those people and institutions that are named in the trust document.

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.