Under New York law, a surviving spouse has the right to receive one-third of a deceased spouse's estate (the "elective share"), even if the provisions of the decedent's will provide otherwise. In a previous UPDATE (dated October 1992), we informed you of a change in New York law effective September 1, 1994, which eliminated the use of elective share trusts to satisfy a surviving spouse's elective share. Under prior law, a decedent could satisfy his or her spouse's right of election by placing one-third of his or her estate in a trust which paid income to the surviving spouse during his or her lifetime (the "elective share trust") while directing to whom the trust property would ultimately pass upon the surviving spouse's death.
Under the new law, a surviving spouse can elect against a will that contains an elective share trust and demand from the estate one-third of its net value outright. The remaining two-thirds of the estate would pass under the will as if the spouse had predeceased the decedent. In addition to frustrating the decedent's dispositive scheme, such an election would trigger an unanticipated estate tax liability on two-thirds of the estate, thus presenting serious liquidity problems when the executor is required to satisfy the additional estate tax in addition to the one-third elective share of the surviving spouse.
To prevent these problems, many of our New York clients requested that we reexamine their existing wills containing spousal trusts to determine whether any of these issues needed to be addressed by further planning. If your will provides for a spousal trust and this issue has not been addressed to date, you should consider whether you wish to:
Leave your present will in effect, giving your spouse the right to choose between receiving the benefits of the trust provided for under your will, or receiving one-third of your estate outright.
Revise your present will to take into account the provisions of the 1994 law.
Have your spouse waive his or her right of election.
