THE NORTH CAROLINA ELECTIVE SHARE LAW: AN OVERVIEW
The North Carolina elective share law protects surviving spouses from being disinherited (when the deceased spouse’s estate plan left everything to other people). In addition to creating marital rights, the law also helps prevent poverty among elderly people who have lost their spouse. North Carolina has perhaps the most generous law in the United States for protecting disinherited spouses, allowing surviving spouses to claim up to 50% of their spouse’s estate, and assets owned or controlled by the spouse at the time of death. This article is an overview of the elective share law.
Why are Spouses being Disinherited?
A Spouse may be disinherited unintentionally, or it may be intentional and planned. Sometimes when people marry later in life, one or more of them already have a Will leaving property to other people. One may die unexpectedly, before changing his or her Will, accidentally disinheriting the surviving spouse. In other situations, a spouse wants to leave everything to children from a previous relationship and plans to do just that. But whether it is intentional or not, the elective share law gives powerful rights to the surviving spouse that often avoids disinheritance.
Right to Claim the Elective Share
The elective share law is contained in Chapter 30, Article 1A of the North Carolina General Statutes. The law creates a right for a surviving spouse to claim an “Elective Share” in the “Total Net Assets” of the deceased spouse. To claim the elective share, the surviving spouse must have been married to the deceased spouse at the time of death. However, even if there was a valid marriage at the time of death, there are several ways the surviving spouse may not be eligible to claim the elective share.
When a Surviving Spouse is not Eligible
A surviving spouse may not be eligible to claim an elective share if he or she waived that right in either a premarital agreement or a separation agreement. Also, a court ordered separation (formally known as a “Divorce from Bed and Board”) eliminates the right to claim an elective share. There are also some unusual situations that could end the right, such as a bigamous marriage or if the surviving spouse abandoned the deceased spouse.
Amount of Share Depends on Length of Marriage
The longer the marriage, the larger the amount of the elective share. The amount is a percentage of the total assets (total assets is explained below). The longer the marriage, the more each spouse is presumed to have contributed to each other and the marriage. The percentages are as follows:
Less than 5 years: 15%
Between 5 and 10 years: 25%
Between 10 and 15 years: 33%
15 years or more: 50%
For Example: If there are $300,000 of Net Total Assets, the share would be:
Less than 5 years: $45,000
Between 5 and 10 years: $75,000
Between 10 and 15 years: $100,000
15 years or more: $150,000
(The share will actually be less, because estate claims, estate expenses, and attorney fees are deducted before the Elective Share is calculated)
The Elective Share is not Intestate Inheritance
When someone dies without a will, we say he or she died “intestate.” The surviving spouse of that person may inherit certain property of the deceased spouse under North Carolina “Intestate Succession” statutes. The elective share is a completely different right and is used when the deceased spouse disinherits the surviving spouse by leaving most or all of his or her property to other people. Often the deceased spouse left a will and did not die intestate.
The Elective Share is not the Year’s Allowance
The “Year’s Allowance” allows the spouse to take the first $60,000 from the personal property of the estate (personal property is everything that is not real estate). This right is separate from the elective share, although any property a surviving spouse gets through the year’s allowance is subtracted from the elective share amount. In other words, the surviving spouse cannot “double-dip” and get the year’s allowance in addition to the full elective share.
What Property is included in the Elective Share
As mentioned earlier, the surviving spouse receives a percentage of the total assets. The total assets include what is in the estate, but it is much more than that. It also includes assets that do not go through the estate but go directly to someone else by contract or by what we call “operation of law.” Examples of such assets are life insurance, joint accounts with right of survivorship, accounts payable upon death, and retirement accounts with a beneficiary. Total assets is a broad category, and includes, for example:
Land and houses
Retirement accounts (IRA, 401k, etc.)
Life insurance benefits
Assets in a revocable trust
Claiming an Elective Share
The surviving spouse claims an elective share by filing a formal demand called a “Petition” in the estate proceeding. That means someone must have opened an estate proceeding with the clerk of court in the county in which the deceased spouse was domiciled. Usually someone other than the surviving spouse was named by the will as executor, and that person would open the estate. In some cases, however, the named executor delays opening the estate or does not plan to open the estate. In such cases the surviving spouse may need to open the estate and request to become executor.
If the estate is not opened quickly, it is a good idea for the surviving spouse to send a letter to the named executor explaining that he or she intends to claim an elective share, and requesting the estate be opened immediately – or the surviving spouse will open the estate. It is important to get the estate opened and the petition filed quickly, so everyone can be on notice that there is a claim on property of the deceased spouse.
Deadline for Claiming an Elective Share
The petition for the elective share must be filed within six months after an executor or administrator has been appointed in the estate proceeding. Executors are appointed when there is a Will, administrators are appointed when there is not a Will. Also, within the six-month deadline, a copy of the petition must be mailed or delivered to the executor or administrator of the estate. If these deadlines are not met, the surviving spouse would lose his or her claim for the elective share. The rest of this article will assume an executor has been appointed, instead of referring to the executor or administrator.
The Elective Share Proceeding
Filing an elective share petition starts a formal legal proceeding that follows complex rules and procedures. Many of the rules that apply to general civil lawsuits must be followed, along with rules for estate proceedings. For example, the petition must be served on the executor and everyone who may have property of the deceased spouse. This service must be done in certain ways detailed in the North Carolina Rules of Civil Procedure, along with the filing of proof of service.
Who Else is Involved in the Proceeding?
In addition to the executor, anyone who has any of the total assets should be named in the petition and formally served notice of the petition. Everyone who owns or controls part of the total assets is called a “Responsible Person.” It is important to get everyone who has assets involved for the practical reason of letting them know what is going on, and also for the legal reason of putting them under court orders.
The surviving spouse can and should ask the clerk of court to enter an order freezing assets that are part of the total assets. If someone spends, sells, or gives away assets, it may be difficult or impossible to collect the full elective share. It is very frustrating to have a valid claim, but not be able to collect because someone has spent the money or otherwise disposed of assets.
Identifying the Total Assets
The Executor has two months from the filing of the petition to submit to the clerk of court a list of everything that makes up the total assets, and the value of each asset. The executor can use an IRS form 706 (US Estate Tax Return), but does not have to use that form, so long as he or she provides all the information.
Sometimes the surviving spouse is familiar with the deceased spouse’s assets and finances and can confirm that the list of assets given by the executor is complete. In other cases, it is important to do research to make sure all the assets have been identified. Such research into assets usually includes reviewing tax returns, real estate records, tax records, and any statements from banks, brokerage accounts, etc.
In some cases, the surviving spouse may need to use formal court powers to discover assets. This includes using subpoenas to get information from third parties such as banks. It may also include using “discovery”, a formal legal procedure used in civil lawsuits to force other parties to answer questions and share documents.
Valuing the Total Assets
To calculate the value of the elective share, you must know the value of the total assets. Some assets are easy to value, such as a bank account. Other assets, like real estate, are not as easy to value. Sometimes professional appraisers are needed to inspect property, do research, and estimate the value of property. The law, and the clerk of court, encourages the parties to agree on the value of the assets. If the parties cannot agree on what assets are part of the total assets, or the value of the total assets, the clerk of court will hold a hearing. At the hearing, the parties will have the opportunity to call witnesses, present testimony, and present evidence about the total assets and their value. At the end of the hearing, the clerk of court will decide exactly what assets are part of the total assets, the value of those assets, and can then calculate the elective share.
Elective Share collected in cash or in-kind
To fulfill his or her elective share, the surviving spouse may receive either cash or assets, such as land, or a mix of cash and assets. For example, if the value of the elective share is $320,000, the surviving spouse could receive it all in cash, or in a mix, such as $120,00 in cash and $200,000 in property, or all in property. The responsible persons, who are required to pay the elective share, get to decide how to pay the surviving spouse.
When a surviving spouse claims an elective share, it means that other people are going to get less of the assets. These other people may not like the surviving spouse, and may not want to split land, money, and other assets. Often these situations involve blended families, and the surviving spouse is fighting with his or her in-laws. Often the responsible persons will delay paying the share and try to pay as little as possible. In the worst cases, they hide assets and fight every step of the way.
That said, it makes sense for the surviving spouse to try to get along with the other side, be reasonable, be courteous, and share information. The more cooperation the better. At the same time, the surviving spouse must protect his or her rights and, when necessary, use the power of the court system to move the case along or force payment of the elective share.
It usually takes 6 to 12 months to get the Elective Share Award
The length of the elective share proceeding depends upon the amount and complexity of the assets, the complexity of the estate proceeding, and how much cooperation or conflict there is with the other side. Sometimes it takes a while to find all the assets and figure out how much they are worth. In other cases, land must be sold, which can take several months. In most cases, the surviving spouse should receive most of the elective share within six to twelve months of filing. Often the surviving spouse must wait for the estate to be completed before receiving all of the share, because estate expenses are taken into consideration to calculate the award. However, most of the share can and should be paid in advance of closing the estate.
High conflict cases are likely to take more than a year to resolve because court proceedings often take a long time. Motions (formal requests made to the court) must be filed and served, hearings must be scheduled, evidence discovered and developed, etc. Because of the time and cost involved in fighting over issues in court, it is in everyone’s best interest to come to agreements among the parties.
Hire an Attorney?
Not only should a surviving spouse get an attorney, he or she should hire an attorney experienced with elective share cases. While the idea of the law is simple, the law itself is complex. It is like taxes. The idea of paying income tax is simple, but when a lot of money is at stake, you want a knowledgeable CPA or tax attorney. For good or bad, our legal system is extremely complicated and takes years of expertise to navigate. There are rules about what to file, deadlines of when to file, and formal hearings in court. To investigate assets, you may need to do “discovery”, which is itself a complex set of laws about how to force the other side to answer questions and provide documentation. Sometimes it is necessary to issue subpoenas or question live witnesses. It is also important to know how to negotiate and what is worth fighting over.